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Enrolled Agent Part 2 Sample Test 4
Questions and Answers 100% Pass
1. Overstreet Corporation is owned by three individuals who have more than 80% of the combined voting
power for four other corporations. These three individuals also have identical common ownership within
the
five corporations of at least 50%. The five corporations represent an example of:
A. Personal services corporations.
B. Closely-held corporations.
C. A parent-subsidiary controlled group.
D. A brother-sister controlled group. - ✔✔D
2. Hadiya is a managing partner of RealTime Partnership. She has a 50% partnership interest and shares
profits and losses based on that percentage. At the beginning of the year, the basis of Hadiya's
partnership
interest is $35,000. RealTime Partnership has an $82,000 net operating loss for the year. How would
RealTime Partnership report this loss on her Schedule K-1, and how would this loss be reported on
Hadiya's
individual return?
A. $35,000 of partnership losses and a $6,000 loss carryforward.
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B. $41,000 of partnership losses a $5,000 loss carryforward.
C. $41,000 of partnership losses.
D. $6,000 of partnership losses. - ✔✔A
3. Eugene owns a large plot of farmland. In 2015, he foregoes growing his own crops and rents the
farmland
to someone else. After the new tenants arrive, Eugene takes a vacation and is gone for most of the year.
Eugene does not materially participate in the farming activity on his farm in 2015. How should Eugene
report
this income?
A. Eugene must report the income on Schedule F.
B. Eugene must report the income on Schedule E.
C. Eugene must report the income on Form 4835.
D. Eugene must report the income on Schedule C. - ✔✔C
4. Form 3115 is used by a business to:
A. Apply for a change in accounting method.
B. Choose entity classification.
C. Report partnership income.
D. Report cash payments over $10,000. - ✔✔A
5. Saul operates a tuna fishing boat and reports his income on Schedule F. Saul hires his 16-year-old son,
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Ingram, part-time to help him run the business. Saul pays his son a reasonable wage of $6,200 for the
year.
Which of the following statements is correct about Ingram's wages?
A. Ingram's wages are subject to the kiddie tax.
B. Saul cannot deduct the wages he paid to Ingram because of related party transaction rules.
C. Saul may deduct Ingram's wages as a business expense, and the wages are not subject to Social
Security
and Medicare taxes.
D. Ingram's wages are subject to backup withholding. - ✔✔C
6. Rick wants to transfer assets to a corporation in exchange for a controlling interest in the corporation's
stock. Which of the following transfers would create a taxable event for Rick under section 351?
A. Rick exchanges depreciated property in exchange for 100% of the corporation's stock.
B. The corporation assumes liabilities in excess of the basis of the assets transferred.
C. Cash is exchanged for 100% of the corporate stock.
D. Rick will not be required to recognize gain from a transfer, as long as he has ownership of over 80% of
the
corporation's stock after the transfer is complete. - ✔✔B
7. Alex sold his office building to Cassandra, a real estate investor, who plans to use it as a business rental
property. Alex was liable for $2,000 in delinquent real estate taxes on the property, which Cassandra
agreed
to pay. Which of the following statements is correct?
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A. Cassandra can deduct these taxes as a business expense.
8. Cassandra cannot deduct these taxes as a current expense, but should instead add the amount to her
basis
in the property.
C. Alex can deduct these taxes as an expense because he was the owner of the property.
D. The expense must be divided equally between Alex and Cassandra in order to be deductible. - ✔✔B
8. Which of the following cannot be a shareholder in an S corporation?
A. A bank.
8. A U.S. resident who is not an American citizen.
C. A nonresident alien.
D. A 501(c)(3) exempt entity that is also a corporation. - ✔✔C
9. Lisa is the sole beneficiary of a trust that her father, Isaac, set up before his death. Given the following
information related to activity following her father's death in 2015, how much income related to the trust,
if
any, must Lisa report on her tax return?
Taxable income $27,000
Tax-exempt interest 3,000
Distributable net income 30,000
Required distributions 15,000
Discretionary distributions 7,500
Emily Charlene © 2025, All Rights Reserved.
Enrolled Agent Part 2 Sample Test 4
Questions and Answers 100% Pass
1. Overstreet Corporation is owned by three individuals who have more than 80% of the combined voting
power for four other corporations. These three individuals also have identical common ownership within
the
five corporations of at least 50%. The five corporations represent an example of:
A. Personal services corporations.
B. Closely-held corporations.
C. A parent-subsidiary controlled group.
D. A brother-sister controlled group. - ✔✔D
2. Hadiya is a managing partner of RealTime Partnership. She has a 50% partnership interest and shares
profits and losses based on that percentage. At the beginning of the year, the basis of Hadiya's
partnership
interest is $35,000. RealTime Partnership has an $82,000 net operating loss for the year. How would
RealTime Partnership report this loss on her Schedule K-1, and how would this loss be reported on
Hadiya's
individual return?
A. $35,000 of partnership losses and a $6,000 loss carryforward.
Emily Charlene © 2025, All Rights Reserved.
,2|Page
B. $41,000 of partnership losses a $5,000 loss carryforward.
C. $41,000 of partnership losses.
D. $6,000 of partnership losses. - ✔✔A
3. Eugene owns a large plot of farmland. In 2015, he foregoes growing his own crops and rents the
farmland
to someone else. After the new tenants arrive, Eugene takes a vacation and is gone for most of the year.
Eugene does not materially participate in the farming activity on his farm in 2015. How should Eugene
report
this income?
A. Eugene must report the income on Schedule F.
B. Eugene must report the income on Schedule E.
C. Eugene must report the income on Form 4835.
D. Eugene must report the income on Schedule C. - ✔✔C
4. Form 3115 is used by a business to:
A. Apply for a change in accounting method.
B. Choose entity classification.
C. Report partnership income.
D. Report cash payments over $10,000. - ✔✔A
5. Saul operates a tuna fishing boat and reports his income on Schedule F. Saul hires his 16-year-old son,
Emily Charlene © 2025, All Rights Reserved.
,3|Page
Ingram, part-time to help him run the business. Saul pays his son a reasonable wage of $6,200 for the
year.
Which of the following statements is correct about Ingram's wages?
A. Ingram's wages are subject to the kiddie tax.
B. Saul cannot deduct the wages he paid to Ingram because of related party transaction rules.
C. Saul may deduct Ingram's wages as a business expense, and the wages are not subject to Social
Security
and Medicare taxes.
D. Ingram's wages are subject to backup withholding. - ✔✔C
6. Rick wants to transfer assets to a corporation in exchange for a controlling interest in the corporation's
stock. Which of the following transfers would create a taxable event for Rick under section 351?
A. Rick exchanges depreciated property in exchange for 100% of the corporation's stock.
B. The corporation assumes liabilities in excess of the basis of the assets transferred.
C. Cash is exchanged for 100% of the corporate stock.
D. Rick will not be required to recognize gain from a transfer, as long as he has ownership of over 80% of
the
corporation's stock after the transfer is complete. - ✔✔B
7. Alex sold his office building to Cassandra, a real estate investor, who plans to use it as a business rental
property. Alex was liable for $2,000 in delinquent real estate taxes on the property, which Cassandra
agreed
to pay. Which of the following statements is correct?
Emily Charlene © 2025, All Rights Reserved.
, 4|Page
A. Cassandra can deduct these taxes as a business expense.
8. Cassandra cannot deduct these taxes as a current expense, but should instead add the amount to her
basis
in the property.
C. Alex can deduct these taxes as an expense because he was the owner of the property.
D. The expense must be divided equally between Alex and Cassandra in order to be deductible. - ✔✔B
8. Which of the following cannot be a shareholder in an S corporation?
A. A bank.
8. A U.S. resident who is not an American citizen.
C. A nonresident alien.
D. A 501(c)(3) exempt entity that is also a corporation. - ✔✔C
9. Lisa is the sole beneficiary of a trust that her father, Isaac, set up before his death. Given the following
information related to activity following her father's death in 2015, how much income related to the trust,
if
any, must Lisa report on her tax return?
Taxable income $27,000
Tax-exempt interest 3,000
Distributable net income 30,000
Required distributions 15,000
Discretionary distributions 7,500
Emily Charlene © 2025, All Rights Reserved.
