Enrolled Agent Exam - Part 2 Question
and answers verified to pass
What is the minimum number of years that a company must show a profit to
qualify a business as operating for profit?
(A) One out of three years
(B) Two out of five years
(C) Three out of five years
(D) Four out of six years - correct answers (C) Three out of five years
The IRS has a limitation on the number of years a business can operate at a
loss and still use the
deductions on other income. This eliminates individuals operating businesses
at a loss for the
sole reason of the lower tax liability. The requirement is that the business
must show a profit on
at least three of the previous five years to be considered operating for profit.
A company in its first year has a net operating loss of $1.9 million. In the
second year, it has a taxable income of $2.1 million. Determine the taxable
income for the second year incorporating the carryforward of the NOL.
(A) $200,000
(B) $420,000
(C) $1.9 million
(D) $2.1 million - correct answers (B) $420,000
,A net operating loss can be carried forward up to a maximum of 80% of the
taxable income in the following year. 80% of $2.1 million = $1.68 million.
Therefore, the total taxable income is $2.1 million - $1.68 million = $420,000.
This also leaves an additional $220,000 to carry forward to the next year.
Which of the following business entities requires the election of a board of
directors?
(A) C corporation only
(B) C corporation and S Corporation
(C) C corporation, S Corporation, and LLC
(D) All business entities require a board of directors - correct answers (B) C
corporation and S Corporation
A board of directors which is elected for the oversight of the company is only
required for a corporation whether it be S or C.
All of the following are requirements for a company to be eligible for an S
corporation except:
(A) The company must have 100 shareholders or less
(B) The company may only have two classes of stock designated as A and B
(C) The company must be domestic
(D) The company must not be an ineligible company as designated by the IRS
- correct answers (B) The company may only have two classes of stock
designated as A and B
There are certain limitations on a company's eligibility to be an S corporation.
These limits include:
,Must be a domestic company
Must not be on the IRS list of ineligible types including insurance or financial
institutions
Must have only one class of stock
Must be limited to 100 or fewer shareholders
A partnership with three members decides to become a corporation after three
years of operation and elects to do so on Form 8832, Entity Classification
Election. What is the minimum amount of time that must pass to be eligible for
a second change in entity classification?
(A) 1 year
(B) 2 years
(C) 5 years
(D) 10 years - correct answers (C) 5 years
Once an election is made on Form 8832, Entity Classification Election, a new
election cannot be made until after a five-year waiting period.
All of the following actions do not require the need for a new employer
identification number (EIN) for a sole proprietorship except:
(A) Addition of business locations in a different state
(B) Change in classification to a corporation
(C) Change in location of primary headquarters
(D) Change of business name - correct answers (B) Change in classification
to a corporation
, Sole Proprietors are required to obtain a new EIN if any of the following
statements are true:
Subject to a bankruptcy proceeding.
The company chooses to incorporate.
The company takes in partners and operates as a partnership.
The company purchases or inherits an existing business that you operate as
a sole
proprietorship.
Sole proprietors are not required to obtain a new EIN if any of the following
statements are
true:
The company changes the name of your business.
The company changes your location and/or add other locations.
The company operates multiple businesses.
All of the following are entity types are unable to be formed as a partnership
except:
(A) A government entity
(B) Real estate investment trust
(C) Company-owned by corporations
(D) An insurance company - correct answers (C) Company-owned by
corporations
Partnerships are not allowed for certain types of businesses including:
Insurance companies
Government entities
and answers verified to pass
What is the minimum number of years that a company must show a profit to
qualify a business as operating for profit?
(A) One out of three years
(B) Two out of five years
(C) Three out of five years
(D) Four out of six years - correct answers (C) Three out of five years
The IRS has a limitation on the number of years a business can operate at a
loss and still use the
deductions on other income. This eliminates individuals operating businesses
at a loss for the
sole reason of the lower tax liability. The requirement is that the business
must show a profit on
at least three of the previous five years to be considered operating for profit.
A company in its first year has a net operating loss of $1.9 million. In the
second year, it has a taxable income of $2.1 million. Determine the taxable
income for the second year incorporating the carryforward of the NOL.
(A) $200,000
(B) $420,000
(C) $1.9 million
(D) $2.1 million - correct answers (B) $420,000
,A net operating loss can be carried forward up to a maximum of 80% of the
taxable income in the following year. 80% of $2.1 million = $1.68 million.
Therefore, the total taxable income is $2.1 million - $1.68 million = $420,000.
This also leaves an additional $220,000 to carry forward to the next year.
Which of the following business entities requires the election of a board of
directors?
(A) C corporation only
(B) C corporation and S Corporation
(C) C corporation, S Corporation, and LLC
(D) All business entities require a board of directors - correct answers (B) C
corporation and S Corporation
A board of directors which is elected for the oversight of the company is only
required for a corporation whether it be S or C.
All of the following are requirements for a company to be eligible for an S
corporation except:
(A) The company must have 100 shareholders or less
(B) The company may only have two classes of stock designated as A and B
(C) The company must be domestic
(D) The company must not be an ineligible company as designated by the IRS
- correct answers (B) The company may only have two classes of stock
designated as A and B
There are certain limitations on a company's eligibility to be an S corporation.
These limits include:
,Must be a domestic company
Must not be on the IRS list of ineligible types including insurance or financial
institutions
Must have only one class of stock
Must be limited to 100 or fewer shareholders
A partnership with three members decides to become a corporation after three
years of operation and elects to do so on Form 8832, Entity Classification
Election. What is the minimum amount of time that must pass to be eligible for
a second change in entity classification?
(A) 1 year
(B) 2 years
(C) 5 years
(D) 10 years - correct answers (C) 5 years
Once an election is made on Form 8832, Entity Classification Election, a new
election cannot be made until after a five-year waiting period.
All of the following actions do not require the need for a new employer
identification number (EIN) for a sole proprietorship except:
(A) Addition of business locations in a different state
(B) Change in classification to a corporation
(C) Change in location of primary headquarters
(D) Change of business name - correct answers (B) Change in classification
to a corporation
, Sole Proprietors are required to obtain a new EIN if any of the following
statements are true:
Subject to a bankruptcy proceeding.
The company chooses to incorporate.
The company takes in partners and operates as a partnership.
The company purchases or inherits an existing business that you operate as
a sole
proprietorship.
Sole proprietors are not required to obtain a new EIN if any of the following
statements are
true:
The company changes the name of your business.
The company changes your location and/or add other locations.
The company operates multiple businesses.
All of the following are entity types are unable to be formed as a partnership
except:
(A) A government entity
(B) Real estate investment trust
(C) Company-owned by corporations
(D) An insurance company - correct answers (C) Company-owned by
corporations
Partnerships are not allowed for certain types of businesses including:
Insurance companies
Government entities
