IRS Enrolled Agent Exam Unit 4 Questions and Answers 100% Pass

IRS Enrolled Agent Exam Unit 4 Questions and Answers 100% Pass Debby broke her leg in a car accident in 2014 and was unable to work for three months. She received an accident settlement of $13,000 from her insurance company. during this time, she received $7,500 of sick pay from her employer. In addition, she received $5,000 from the accident policy she had purchased herself. How much of this income is taxable to Debby? A. $5,000 B. $7,500 C. $12,500 D. $18,000 - B. Only Debby's sick pay is taxable as wages. Sick pay from an employer is taxable like wages and is therefore included in Debby's gross income. Settlements for personal injuries from an accident are not taxable. If a taxpayer pays the full cost of an accident insurance plan, the benefits for personal injury or illness are not included in income. If the employer pays the cost of an accident insurance plan, the amounts are taxable to the employee. Income was constructively received in 2014 in each of the following situations except: A. Wages were deposited in the taxpayer's bank account on December 26, 2014, but were not withdrawn by the taxpayer until January 3, 2015. B. A taxpayer was informed his check for services rendered was available on December 15, 2014. The taxpayer did not pick up the check until January 30, 2015. 2 | P a g e Emily Charlene © 2025, All Rights Reserved. C. A taxpayer received a check by mail on December 31, 2014, but did not deposit the check until January 5, 2015. D. A taxpayer's home was sold on December 28, 2014. The payment was not received by her until January 2, 2015, when the escrow company released the funds. - D. A taxpayer does not need physical possession of income in order to have constructive receipt. However, income is not considered constructively received if the taxpayer cannot access the funds because of restrictions. Since the taxpayer's control of the receipt of the funds in the escrow account was substantially limited until the transaction had closed, the taxpayer did not constructively receive the income until the following year. Marisol received the following income and fringe benefits in 2014: Wages -- $30,000 End of year bonus -- 2,000 Parking pass per month -- 90 Employer contributions to her 401(k) plan -- 900 FMV free gym on her employer's premises -- 500 How much income must Marisol report on her 2014 tax return? A. $30,000 B. $32,000 C. $32,500 D. $34,480 - B. Only the wages and the bonus are taxable ($30,000 + $2,000). The parking pass is a notaxable transportation benefit, and the employer contributions are not taxable until Marisol withdraws the money from her retirement account. Marisol does not have to report the use of the gym because it is on the employer's premises and therefore not taxable. 3 | P a g e Emily Charlene © 2025, All Rights Reserved. Which of the following tip income is exempt from federal income tax? A. Tips of less than $20 per month B. Noncash tips C. Tips not reported to the employer D. All tips are taxable - D. All tip income is subject to federal income tax, whether cash or noncash. An individual who receives less than $20 per month of tips while working one job does not have to report the tip income to his employer, but the income is still subject to federal income tax and must be reported on the taxpayer's Form 1040. Chaz is a naval officer who was injured while serving in a combat zone. He was later awarded Veterans Affairs (VA) disability benefits. How are these payments reported on Chaz's tax return? A. 100% of the disability benefits may be excluded from income. B. Up to 50% of the disability benefits may be excluded from income