Enrolled Agent SEE Exam Part 2 Tax
Guide Questions and Answers 100%
Solved
What is a sole proprietorship? - ✔✔An unincorporated business that is owned
by one individual. The business has no existence apart from the owner and its
liabilities are personal liabilities. Include income and expenses on personal tax
return.
What is a Qualified Joint Venture? - ✔✔Can be elected by a married couple who
jointly own and operate a trade or business. Both must materially participate in
the business. Each will file their own Form 1040 Schedule C with equal shares of
business income, deductions, gains, losses, and/or credits reported on their
respective forms.
What is a Partnership? - ✔✔The relationship existing between two or more
persons who join to carry on a trade or business. Each person contributes
money, property labor, or skill, and expects to share in the profits and losses of
the business.
What is a C Corporation? - ✔✔The profits are taxed to the corporation when
earned, and then taxes to the shareholders when distributed as dividends.
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,However, shareholders cannot deduct any loss of the corporation. Transfer of
ownership is done via the transfer of stock.
What is an S Corporation? - ✔✔An S Corporation is exempt from federal income
tax other than tax on certain capital gains and passive income. On their tax
returns, the S Corporation's shareholders include their share of the
corporation's separately stated items of income, deduction, loss, and credit, and
their share of non-separately stated income or losses.
What is a Limited Liability Company? - ✔✔An entity formed under state law by
filing articles of organization as an LLC. The members of an LLC are not
personally liable for its debts. An LLC may be classified for federal income tax
purposes as either a partnership, a corporation, or an entity disregarded as
separate from its owner.
What is a Personal Service Corporation? - ✔✔- Its principal activity is the
performance of personal services (accountants, actuaries, attorneys, architects,
etc.)
- Its owners-employees own more than 10% of the stock
What is the accountable employee reimbursement plan? - ✔✔Employers do not
include in gross income any expenses they have reimbursed as long as the
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,expenses meet the business expense criteria and were recorded and
documented by the employee.
What is the basis of property when somebody converts property previously
used in a non-business setting to business property? - ✔✔The basis is the lesser
of the FMV of the property on the date of change or the adjusted basis on the
date of change.
What is a statutory employee? - ✔✔A statutory employee blends the categories
of independent contractors and employees. Employment taxes are withheld
from their payments. Most statutory employees are ones who rely on
commissions.
What are statutory non-employees? - ✔✔Statutory non-employees are those
who qualify for be an employee but are permitted to be classified as
independent contractors. These are direct sellers, companion sitters, and real
estate agents.
What is the cash method of accounting? - ✔✔Income is recognized as income
when the taxpayer actually receives the cash, or it is constructively received.
Deductions are allowed when the cash is paid. Most businesses with inventory
use the accrual method but qualifying small businesses can use cash basis even
if they carry inventory if:
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, - the average annual gross receipts of $25 million or less in the prior three tax
years and,
- the business cannot be a tax shelter as defined in section 448 (d) (3)
What is the accrual method of accounting? - ✔✔Income is recognized when
earned and expenses when incurred. The general rule addressing the concept of
"recognized when earned or incurred" is:
- all of the events fixing the taxpayer's right to receive the income, or create the
liability have occurred, and
- the amount can be determined with reasonable accuracy
What is constructive receipt? - ✔✔Even though the taxpayer does not actually
receive the cash, they may still have to recognize income under the constructive
receipt doctrine. This doctrine states that income is to be recognized when the
money or property is made available to the taxpayer and there are no real
limitations to the taxpayer receiving it.
What is the completed contract method? - ✔✔Costs associated with the
contract are accumulated as an asset until the project is complete. At that time,
the total revenue and costs associated with that project are recognized for tax
purposes. This is usually associated with home builders, commercial
contractors, road construction, etc.
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©JOSHCLAY 2025/2026. YEAR PUBLISHED 2025.
Guide Questions and Answers 100%
Solved
What is a sole proprietorship? - ✔✔An unincorporated business that is owned
by one individual. The business has no existence apart from the owner and its
liabilities are personal liabilities. Include income and expenses on personal tax
return.
What is a Qualified Joint Venture? - ✔✔Can be elected by a married couple who
jointly own and operate a trade or business. Both must materially participate in
the business. Each will file their own Form 1040 Schedule C with equal shares of
business income, deductions, gains, losses, and/or credits reported on their
respective forms.
What is a Partnership? - ✔✔The relationship existing between two or more
persons who join to carry on a trade or business. Each person contributes
money, property labor, or skill, and expects to share in the profits and losses of
the business.
What is a C Corporation? - ✔✔The profits are taxed to the corporation when
earned, and then taxes to the shareholders when distributed as dividends.
Page 1 of 45
©JOSHCLAY 2025/2026. YEAR PUBLISHED 2025.
,However, shareholders cannot deduct any loss of the corporation. Transfer of
ownership is done via the transfer of stock.
What is an S Corporation? - ✔✔An S Corporation is exempt from federal income
tax other than tax on certain capital gains and passive income. On their tax
returns, the S Corporation's shareholders include their share of the
corporation's separately stated items of income, deduction, loss, and credit, and
their share of non-separately stated income or losses.
What is a Limited Liability Company? - ✔✔An entity formed under state law by
filing articles of organization as an LLC. The members of an LLC are not
personally liable for its debts. An LLC may be classified for federal income tax
purposes as either a partnership, a corporation, or an entity disregarded as
separate from its owner.
What is a Personal Service Corporation? - ✔✔- Its principal activity is the
performance of personal services (accountants, actuaries, attorneys, architects,
etc.)
- Its owners-employees own more than 10% of the stock
What is the accountable employee reimbursement plan? - ✔✔Employers do not
include in gross income any expenses they have reimbursed as long as the
Page 2 of 45
©JOSHCLAY 2025/2026. YEAR PUBLISHED 2025.
,expenses meet the business expense criteria and were recorded and
documented by the employee.
What is the basis of property when somebody converts property previously
used in a non-business setting to business property? - ✔✔The basis is the lesser
of the FMV of the property on the date of change or the adjusted basis on the
date of change.
What is a statutory employee? - ✔✔A statutory employee blends the categories
of independent contractors and employees. Employment taxes are withheld
from their payments. Most statutory employees are ones who rely on
commissions.
What are statutory non-employees? - ✔✔Statutory non-employees are those
who qualify for be an employee but are permitted to be classified as
independent contractors. These are direct sellers, companion sitters, and real
estate agents.
What is the cash method of accounting? - ✔✔Income is recognized as income
when the taxpayer actually receives the cash, or it is constructively received.
Deductions are allowed when the cash is paid. Most businesses with inventory
use the accrual method but qualifying small businesses can use cash basis even
if they carry inventory if:
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©JOSHCLAY 2025/2026. YEAR PUBLISHED 2025.
, - the average annual gross receipts of $25 million or less in the prior three tax
years and,
- the business cannot be a tax shelter as defined in section 448 (d) (3)
What is the accrual method of accounting? - ✔✔Income is recognized when
earned and expenses when incurred. The general rule addressing the concept of
"recognized when earned or incurred" is:
- all of the events fixing the taxpayer's right to receive the income, or create the
liability have occurred, and
- the amount can be determined with reasonable accuracy
What is constructive receipt? - ✔✔Even though the taxpayer does not actually
receive the cash, they may still have to recognize income under the constructive
receipt doctrine. This doctrine states that income is to be recognized when the
money or property is made available to the taxpayer and there are no real
limitations to the taxpayer receiving it.
What is the completed contract method? - ✔✔Costs associated with the
contract are accumulated as an asset until the project is complete. At that time,
the total revenue and costs associated with that project are recognized for tax
purposes. This is usually associated with home builders, commercial
contractors, road construction, etc.
Page 4 of 45
©JOSHCLAY 2025/2026. YEAR PUBLISHED 2025.
