LEGIT ENROLLED AGENT EXAM
PREP - PART 2 EXAM WITH
QUESTIONS AND 100% CORRECT
ANSWERS 2027 UPDATE!! | Verified
LEGIT ENROLLED AGENT EXAM PREP - PART |
Comprehensive Examination
LEGIT ENROLLED AGENT EXAM PREP - PART 2 EXAM
WITH QUESTIONS AND 100% CORRECT ANSWERS
2027 UPDATE!! actual exam preparation document with
INTRODUCTION
This document is an important and very helpful preparation
resource for LEGIT ENROLLED AGENT EXAM PREP -
PART 2 EXAM WITH QUESTIONS AND 100% CORRECT
ANSWERS 2027 UPDATE!!. Every item uses a focused exam
stem, four response options, a keyed response, and a clear
rationale, making it easier to understand the subject, spot
distractors, and build real exam confidence.
Page 1
, Question 1
A taxpayer's CPA prepares a return claiming a $40,000 casualty loss deduction.
The IRS later assesses a § 6694(a) preparer penalty. Which standard must the
IRS establish to sustain that penalty?
A. The position was frivolous or a deliberate attempt to understate tax.
B. The preparer knew or should have known the position lacked a
reasonable basis.
C. The understatement resulted from an unreasonable position not
disclosed and lacking substantial authority.
D. The preparer willfully attempted to evade or defeat any tax imposed by
the Code.
Correct Answer: C - The understatement resulted from an
unreasonable position not disclosed and lacking substantial
authority.
RATIONALE
The § 6694(a) standard is an unreasonable position that is not
disclosed and lacks substantial authority (or, if disclosed, lacks a
reasonable basis). Option B conflates the pre-2007 'realistic
possibility' standard; A describes the § 6701 aiding penalty; D
describes criminal willfulness under § 7201.
Question 2
Which of the following best explains why the IRS may recharacterize a
purported 'gift' of services from a business owner to a family member as
compensation subject to employment tax?
A. Gifts of services are always taxable because services cannot legally be
gifted under property law.
B. The assignment of income doctrine treats compensation for services as
taxable to the earner regardless of contractual redirection.
C. Section 102 excludes gifts of services only when the donor files a gift
Page 2
, tax return.
D. The step transaction doctrine converts all intra-family transfers into
compensation.
Correct Answer: B - The assignment of income doctrine treats
compensation for services as taxable to the earner regardless of
contractual redirection.
RATIONALE
Under Lucas v. Earl and the assignment of income doctrine, income
from services is taxed to the person who earns it, so redirecting a
paycheck to a family member does not shift the tax. Options A and C
misstate § 102, which excludes gifts of property but not compensation
for services; D overstates the step transaction doctrine.
Question 3
An S corporation with three equal shareholders terminates its S election
mid-year. Which rule most accurately governs the post-termination transition
period (PTP) treatment of the shareholders' suspended losses?
A. Suspended losses are permanently disallowed once the S election
terminates.
B. Suspended losses may offset post-termination income only to the
extent of the shareholder's basis in stock and debt at termination.
C. Suspended losses may be deducted against any income during the PTP
without regard to basis.
D. Suspended losses convert to capital losses deductible only against
capital gains.
Correct Answer: B - Suspended losses may offset
post-termination income only to the extent of the shareholder's
basis in stock and debt at termination.
Page 3
, RATIONALE
Under § 1366(d)(1) and § 1377(b), suspended losses carry over and
may be used during the PTP only to the extent of the shareholder's
adjusted basis in stock and debt at the termination date. Option A
ignores the PTP; C ignores the basis limitation; D mischaracterizes the
loss as capital.
Question 4
Which of the following accurately describes the interaction between the §
199A qualified business income deduction and a specified service trade or
business (SSTB) for a taxpayer above the top threshold?
A. The SSTB limitation is phased in over a $50,000 range for all filing
statuses.
B. Above the top threshold, the SSTB's QBI, W-2 wages, and UBIA are
all reduced to zero for the deduction computation.
C. SSTB status is determined solely by the taxpayer's NAICS code.
D. The SSTB limitation applies only to sole proprietorships, not to
partnerships.
Correct Answer: B - Above the top threshold, the SSTB's QBI,
W-2 wages, and UBIA are all reduced to zero for the deduction
computation.
RATIONALE
For taxpayers above the top threshold, § 199A(d)(3) reduces the
SSTB's QBI, W-2 wages, and UBIA of qualified property to zero,
effectively denying the deduction. Option A misstates the phase-in
range (which varies by filing status); C is incorrect because SSTB
status is a facts-and-circumstances determination; D is incorrect
because the limitation applies to all entity types.
Page 4
PREP - PART 2 EXAM WITH
QUESTIONS AND 100% CORRECT
ANSWERS 2027 UPDATE!! | Verified
LEGIT ENROLLED AGENT EXAM PREP - PART |
Comprehensive Examination
LEGIT ENROLLED AGENT EXAM PREP - PART 2 EXAM
WITH QUESTIONS AND 100% CORRECT ANSWERS
2027 UPDATE!! actual exam preparation document with
INTRODUCTION
This document is an important and very helpful preparation
resource for LEGIT ENROLLED AGENT EXAM PREP -
PART 2 EXAM WITH QUESTIONS AND 100% CORRECT
ANSWERS 2027 UPDATE!!. Every item uses a focused exam
stem, four response options, a keyed response, and a clear
rationale, making it easier to understand the subject, spot
distractors, and build real exam confidence.
Page 1
, Question 1
A taxpayer's CPA prepares a return claiming a $40,000 casualty loss deduction.
The IRS later assesses a § 6694(a) preparer penalty. Which standard must the
IRS establish to sustain that penalty?
A. The position was frivolous or a deliberate attempt to understate tax.
B. The preparer knew or should have known the position lacked a
reasonable basis.
C. The understatement resulted from an unreasonable position not
disclosed and lacking substantial authority.
D. The preparer willfully attempted to evade or defeat any tax imposed by
the Code.
Correct Answer: C - The understatement resulted from an
unreasonable position not disclosed and lacking substantial
authority.
RATIONALE
The § 6694(a) standard is an unreasonable position that is not
disclosed and lacks substantial authority (or, if disclosed, lacks a
reasonable basis). Option B conflates the pre-2007 'realistic
possibility' standard; A describes the § 6701 aiding penalty; D
describes criminal willfulness under § 7201.
Question 2
Which of the following best explains why the IRS may recharacterize a
purported 'gift' of services from a business owner to a family member as
compensation subject to employment tax?
A. Gifts of services are always taxable because services cannot legally be
gifted under property law.
B. The assignment of income doctrine treats compensation for services as
taxable to the earner regardless of contractual redirection.
C. Section 102 excludes gifts of services only when the donor files a gift
Page 2
, tax return.
D. The step transaction doctrine converts all intra-family transfers into
compensation.
Correct Answer: B - The assignment of income doctrine treats
compensation for services as taxable to the earner regardless of
contractual redirection.
RATIONALE
Under Lucas v. Earl and the assignment of income doctrine, income
from services is taxed to the person who earns it, so redirecting a
paycheck to a family member does not shift the tax. Options A and C
misstate § 102, which excludes gifts of property but not compensation
for services; D overstates the step transaction doctrine.
Question 3
An S corporation with three equal shareholders terminates its S election
mid-year. Which rule most accurately governs the post-termination transition
period (PTP) treatment of the shareholders' suspended losses?
A. Suspended losses are permanently disallowed once the S election
terminates.
B. Suspended losses may offset post-termination income only to the
extent of the shareholder's basis in stock and debt at termination.
C. Suspended losses may be deducted against any income during the PTP
without regard to basis.
D. Suspended losses convert to capital losses deductible only against
capital gains.
Correct Answer: B - Suspended losses may offset
post-termination income only to the extent of the shareholder's
basis in stock and debt at termination.
Page 3
, RATIONALE
Under § 1366(d)(1) and § 1377(b), suspended losses carry over and
may be used during the PTP only to the extent of the shareholder's
adjusted basis in stock and debt at the termination date. Option A
ignores the PTP; C ignores the basis limitation; D mischaracterizes the
loss as capital.
Question 4
Which of the following accurately describes the interaction between the §
199A qualified business income deduction and a specified service trade or
business (SSTB) for a taxpayer above the top threshold?
A. The SSTB limitation is phased in over a $50,000 range for all filing
statuses.
B. Above the top threshold, the SSTB's QBI, W-2 wages, and UBIA are
all reduced to zero for the deduction computation.
C. SSTB status is determined solely by the taxpayer's NAICS code.
D. The SSTB limitation applies only to sole proprietorships, not to
partnerships.
Correct Answer: B - Above the top threshold, the SSTB's QBI,
W-2 wages, and UBIA are all reduced to zero for the deduction
computation.
RATIONALE
For taxpayers above the top threshold, § 199A(d)(3) reduces the
SSTB's QBI, W-2 wages, and UBIA of qualified property to zero,
effectively denying the deduction. Option A misstates the phase-in
range (which varies by filing status); C is incorrect because SSTB
status is a facts-and-circumstances determination; D is incorrect
because the limitation applies to all entity types.
Page 4
