Enrolled Agent Part 2 Question and
answers verified to pass
What method of accounting are tax shelters required to use? - correct
answers Tax shelters (regardless of their entity type or annual revenues) are
always required to use the accrual method of accounting.
What is the maximum number of shareholders that an S corporation can
have? - correct answers 100 shareholders, although related family members
count as a single shareholder for purposes of the 100-shareholder limit
How can a tax-exempt entity be organized? - correct answers A tax-exempt
entity can be organized as a corporation, unincorporated association, or a
trust. An exempt entity cannot be classified as a partnership or a sole
proprietorship.
A general partner in a partnership is considered to be: - correct answers Self-
employed. Partners are not considered employees and should not be issued a
Form W-2. Instead, they are issued a Schedule K-1, and each partner
includes his share of the partnership's income on his/her individual tax return.
If a sole proprietor removes items from inventory for his/her own personal use,
what is the correct way to account for this transaction? - correct answers
Goods that are withdrawn from the business and taken by the owner for
personal use should be subtracted from the inventory of the business. It is not
treated as a business expense.
How long should a business retain employment tax records? - correct
answers The IRS advises employers to keep all employment tax records for at
least four years (examples; Form I-9, Forms 940, 941, Forms W-2). These
records should be available for IRS review.
,What is the deduction limit for business gifts? - correct answers The limit for
business gifts is $25 per person, per year.
What annual information return must qualified retirement plans file? - correct
answers Qualified retirement plans, (such as 401(k) plans,) must file a Form
5500, Annual Return/Report of Employee Benefit Plan, every single year.
Define Section 197 assets, and give some examples of what they are. -
correct answers Section 197 assets are intangible assets held by a business.
They include: trademarks, trade names, copyrights, goodwill, franchises, and
covenants not to compete. These assets are amortized over 15 years.
If an employee-shareholder of a C Corporation uses the business's bank
account to pay personal expenses, how is this treated for tax purposes? -
correct answers The payments for personal expenses of an employee-
shareholder would be treated as a constructive distribution, which is taxable to
the employee as a dividend, and not deductible by the C Corporation.
Which business entities are subject to the NIIT (Net Investment Income Tax)?
- correct answers Estates, trusts, and individuals can be subject to the NIIT on
net investment income over certain thresholds.
When is a self-employed taxpayer's first estimated tax payment due? - correct
answers A self-employed taxpayer's first estimated payment is due April 15.
When an S corporation makes charitable contributions, how is this treated on
the business return? - correct answers Charitable contributions made by an S
corporation are a flow-through item. The contributions are reported to the
shareholders on Schedule K-1. The contributions are not a business expense
of an S corporation and do not affect the business's income and loss.
, If an employee of a business is reimbursed for milage and other out-of-pocket
expenses, do the reimbursements have to be reported on the employee's
Form W-2? - correct answers No, reimbursements made to an employee
under an accountable plan do not have to be reported and are not included on
an employee's Form W-2.
How many years may a C Corporation carryover unused charitable
contributions? - correct answers C Corporations are permitted a tax deduction
for charitable gifts, subject to certain income limits. The corporation can carry
over any unused charitable contributions for five years.
What is the deadline for a business to set up a SIMPLE retirement plan? -
correct answers To make a SIMPLE plan effective for a year, it must be set up
by October 1 of that year. A later effective date is allowed only when the
business is started after October 1.
What is the accumulated earnings tax? - correct answers The accumulated
earnings tax is a 20% tax assessed on the excess accumulated earnings and
profits of a C corporation. This tax is usually assessed under audit, and is not
automatic.
What types of entities are permitted to own stock in an S corporation? -
correct answers Estates, certain trusts, individuals, and 501(c)3 entities are
permitted to own stock in an S corporation. Partnerships and C corporations
cannot own stock in an S corporation.
When does the BIG Tax (Built-In Gains tax) apply to an S corporation? -
correct answers The built-in gains tax (also called the "BIG tax") applies to the
sale of an asset by an S corporation that was previously a C Corporation, or if
the S corporation acquires assets from a C corporation in a tax-free
transaction.
answers verified to pass
What method of accounting are tax shelters required to use? - correct
answers Tax shelters (regardless of their entity type or annual revenues) are
always required to use the accrual method of accounting.
What is the maximum number of shareholders that an S corporation can
have? - correct answers 100 shareholders, although related family members
count as a single shareholder for purposes of the 100-shareholder limit
How can a tax-exempt entity be organized? - correct answers A tax-exempt
entity can be organized as a corporation, unincorporated association, or a
trust. An exempt entity cannot be classified as a partnership or a sole
proprietorship.
A general partner in a partnership is considered to be: - correct answers Self-
employed. Partners are not considered employees and should not be issued a
Form W-2. Instead, they are issued a Schedule K-1, and each partner
includes his share of the partnership's income on his/her individual tax return.
If a sole proprietor removes items from inventory for his/her own personal use,
what is the correct way to account for this transaction? - correct answers
Goods that are withdrawn from the business and taken by the owner for
personal use should be subtracted from the inventory of the business. It is not
treated as a business expense.
How long should a business retain employment tax records? - correct
answers The IRS advises employers to keep all employment tax records for at
least four years (examples; Form I-9, Forms 940, 941, Forms W-2). These
records should be available for IRS review.
,What is the deduction limit for business gifts? - correct answers The limit for
business gifts is $25 per person, per year.
What annual information return must qualified retirement plans file? - correct
answers Qualified retirement plans, (such as 401(k) plans,) must file a Form
5500, Annual Return/Report of Employee Benefit Plan, every single year.
Define Section 197 assets, and give some examples of what they are. -
correct answers Section 197 assets are intangible assets held by a business.
They include: trademarks, trade names, copyrights, goodwill, franchises, and
covenants not to compete. These assets are amortized over 15 years.
If an employee-shareholder of a C Corporation uses the business's bank
account to pay personal expenses, how is this treated for tax purposes? -
correct answers The payments for personal expenses of an employee-
shareholder would be treated as a constructive distribution, which is taxable to
the employee as a dividend, and not deductible by the C Corporation.
Which business entities are subject to the NIIT (Net Investment Income Tax)?
- correct answers Estates, trusts, and individuals can be subject to the NIIT on
net investment income over certain thresholds.
When is a self-employed taxpayer's first estimated tax payment due? - correct
answers A self-employed taxpayer's first estimated payment is due April 15.
When an S corporation makes charitable contributions, how is this treated on
the business return? - correct answers Charitable contributions made by an S
corporation are a flow-through item. The contributions are reported to the
shareholders on Schedule K-1. The contributions are not a business expense
of an S corporation and do not affect the business's income and loss.
, If an employee of a business is reimbursed for milage and other out-of-pocket
expenses, do the reimbursements have to be reported on the employee's
Form W-2? - correct answers No, reimbursements made to an employee
under an accountable plan do not have to be reported and are not included on
an employee's Form W-2.
How many years may a C Corporation carryover unused charitable
contributions? - correct answers C Corporations are permitted a tax deduction
for charitable gifts, subject to certain income limits. The corporation can carry
over any unused charitable contributions for five years.
What is the deadline for a business to set up a SIMPLE retirement plan? -
correct answers To make a SIMPLE plan effective for a year, it must be set up
by October 1 of that year. A later effective date is allowed only when the
business is started after October 1.
What is the accumulated earnings tax? - correct answers The accumulated
earnings tax is a 20% tax assessed on the excess accumulated earnings and
profits of a C corporation. This tax is usually assessed under audit, and is not
automatic.
What types of entities are permitted to own stock in an S corporation? -
correct answers Estates, certain trusts, individuals, and 501(c)3 entities are
permitted to own stock in an S corporation. Partnerships and C corporations
cannot own stock in an S corporation.
When does the BIG Tax (Built-In Gains tax) apply to an S corporation? -
correct answers The built-in gains tax (also called the "BIG tax") applies to the
sale of an asset by an S corporation that was previously a C Corporation, or if
the S corporation acquires assets from a C corporation in a tax-free
transaction.
