Everything from zero to certified. Click a tab to switch sections.
• No Degree Required• All 50 States• Unlimited IRS Rep• ~$700–$2k Total
What Is an Enrolled Agent?
An Enrolled Agent (EA) is a federally authorized tax practitioner who has demonstrated technical competence in federal tax planning, preparation, and representation. EAs hold the highest credential awarded by the IRS and are the only tax professionals with unlimited representation rights to represent any taxpayer before the IRS on any tax matter.
1884
Year EA Program Created
50 States
Practice Authority (No State License)
0
College Degree Required
∞
IRS Representation Rights
Created in 1884 after the Civil War. Unlike CPAs (state-licensed) or tax attorneys (bar-licensed), EAs are federally licensed — one credential works in all 50 states with no reciprocity.
Scope of Practice
Audits — represent clients during IRS examinations
Appeals — argue cases before the IRS Independent Office of Appeals
Collections — negotiate payment plans, offers in compromise, penalty abatement
Tax preparation and planning
Written correspondence with the IRS on behalf of clients
Limitations: EAs cannot represent clients in Tax Court (only attorneys) and cannot prepare audited financial statements (only CPAs).
EA vs CPA vs Tax Attorney
Factor
Enrolled Agent
CPA
Tax Attorney
Focus
Taxation only
Accounting, audit, tax, consulting
Law + tax specialization
Education Required
None (no degree)
150 college credits
Juris Doctor (law degree)
Exam
3-part SEE
4-part Uniform CPA Exam
Bar Exam + optional LL.M.
Practice Authority
All 50 states (federal)
State-by-state (reciprocity)
State bar + federal courts
IRS Representation
Unlimited
Unlimited
Unlimited
Time to Cert
6–12 months
1–3 years
4+ years
Fin. Statements?
No
Yes
No
Court Rep?
No (IRS only)
No (IRS only)
Yes (Tax Court + other courts)
Estimated Cost
$700–$2,000
$3,000–$5,000+
$100,000+
Takeaway: For pure tax work, EA is the fastest, cheapest path with the most focused expertise. CPA if you want broader accounting. Attorney if you need Tax Court access.
Prerequisites
The EA credential has the lowest barrier to entry of any major tax credential.
None Required
College Degree
18+
Minimum Age
$36.75/yr
PTIN Fee
Suitability
Background Check
No college degree required — one of the biggest advantages over becoming a CPA
No prior tax experience required — you can start from scratch
No U.S. citizenship required
PTIN: Obtain a Preparer Tax Identification Number from IRS.gov/ptin — ~$36.75/year, renew mid-Oct to Dec 31
Suitability Check: IRS verifies tax compliance (all returns filed, no outstanding tax debt) and runs a criminal background check including fingerprinting
How to Become an EA (Step by Step)
Obtain a PTIN — Go to IRS.gov/ptin and apply. Annual fee ~$36.75.
Pass the SEE Exam — Pass all 3 parts within 3 years (any order). Register through PSI Services (new vendor as of March 2026).
Apply via Form 23 — File online at Pay.gov or mail the PDF + check. Pay the enrollment fee (~$67).
Receive EA Certificate — Approval takes 3–6 months. You get your official EA number and Certificate of Enrollment.
Important: As of March 1, 2026, the SEE is no longer administered by Prometric. The new vendor is PSI Services.
The SEE Exam (Special Enrollment Examination)
Three-part computer-based exam. Each part: 100 multiple-choice questions, 3.5 hours. Parts can be taken in any order. You have 3 years from your first passed part to complete all three.
300
Total Questions
10.5 hrs
Total Exam Time
105/130
Passing Score (~80%)
3 yrs
To Complete All
~$111
Per Part
Part
Topic
Q’s
Time
Key Content
1
Individuals
100
3.5h
1040 series, deductions, credits, cap gains, retirement, self-employment
Independent EA Practice Owner — start and grow your own tax firm
Tax Manager — lead a tax department at a mid-size firm
Remote Tax Professional — work from anywhere
Salary Ranges
Experience Level
Salary Range
Entry Level / New EA (0–2 yrs)
$40,000 – $65,000
Mid-Level EA (3–7 yrs)
$60,000 – $95,000
Senior EA / Firm Owner (8+ yrs)
$90,000 – $150,000+
Top Independent Practice Owner
$150,000 – $250,000+
Key Advantage: EAs can work independently from day one — no supervision by a CPA or attorney required. Remote-friendly, flexible hours.
Pros & Cons
Advantages
No college degree required — lowest barrier to entry
Cheaper and faster than CPA ($700–$2k vs $3k–$5k+)
Unlimited IRS representation rights
Federal credential — practice in all 50 states
Work independently from day one
6–12 months to credential
Tax-only focus means real depth of expertise
Growing demand as tax laws get more complex
Disadvantages
Less recognized than CPA outside tax field
Limited to tax — no audits or financial statements
Cannot represent clients in Tax Court
Less mobility in corporate accounting roles
CPE is tax-only (inflexible)
Perceived as "lesser" by some (incorrect, but real)
Background check required
Projected Coursework & Study Plan
A structured study plan is the difference between passing in months vs. spinning your wheels. Below is a complete roadmap covering topic breakdown, study order, weekly schedules, and milestones.
Recommended Study Order
The most effective sequence according to top EA prep providers:
Part 3
Part 1
Part 2
Phase 1: Part 3 — Representation, Practices & Procedures (25% of study time)
Why first: Shortest, most straightforward material. Builds confidence and teaches you the rules of the road (Circular 230).
Topics: Circular 230 (ethics, practice rules), IRS representation procedures, taxpayer rights, appeals process, collections, statutes of limitation, penalties, and sanctions.
Estimated study time: 20–30 hours over 3–4 weeks
Read Circular 230 (free PDF from IRS) — covers ~40% of this part
Focus on: who can practice before IRS, duties and restrictions, disciplinary proceedings
Memorize: penalty codes, statute of limitation periods, appeal timelines
Phase 2: Part 1 — Individuals (40% of study time)
Why second: Broadest applicability. If you've ever filed your own taxes, much of this will feel familiar. Builds a solid foundation before jumping into entity-level taxation.
Topics: Form 1040 series, gross income inclusions/exclusions, adjustments, itemized vs standard deduction, tax credits (CTC, EITC, education, child/dependent care, retirement saver), capital gains/losses, self-employment tax, rental income, retirement plans (IRAs, 401(k)s), AMT, state/local tax considerations.
Estimated study time: 35–50 hours over 5–7 weeks
IRS Publication 17 (Your Federal Income Tax) is your best free resource
Focus heavily on: who qualifies for each credit, phaseout ranges, filing status rules, dependency exemptions
Practice: calculating AGI, taxable income, and credits end-to-end
Know the difference between refundable vs. nonrefundable credits
Phase 3: Part 2 — Businesses (35% of study time)
Why last: The hardest and broadest part. It covers multiple entity types, each with its own rules, forms, and quirks. Most candidates report needing the most study time here.
Friday: Take chapter quiz, review wrong answers (1.5 hrs)
Saturday: Cumulative review — do 20–30 random MCQs from all topics covered so far (1.5 hrs)
Sunday: Weak-topic focus — re-read sections you scored lowest on (1.5 hrs)
Practice Exam Strategy
After each chapter: Take the chapter quiz until you score 80%+
Mid-phase (50% through part): Take a 50-question cumulative test
End of each part: Simulate the real exam — 100 questions, 3.5 hours, closed book. Repeat until you score 85%+ twice in a row.
Final review (all 3 parts): Take 2 full simulated exams covering all parts. Identify cross-part weaknesses (e.g., basis concepts appear in both P1 and P2).
Exam scheduling: Schedule your exam 2–3 weeks out once you hit 85%+ on practice tests. Use the gap for final review.
Key Milestone: After completing all 3 parts, set aside 2–4 weeks for full review before taking your first exam. Your scores drop if you don't actively review previously mastered material.
Recommended Provider Pacing
Each study provider structures their content differently. General comparison:
Provider
# of Units
Study Mode
Practice Q's
Simulated Exams
Gleim
Study units per part
Self-paced, textbook + MCQ
3,000+
Multiple per part
Surgent
Adaptive modules
AI-driven, shows only what you need
2,500+
Unlimited adaptive
Fast Forward Academy
Customizable sections
Choose topics, track progress
2,000+
Full-length exams
Hock
Textbook units
Text, video, audio (multi-format)
1,500+
2 per part
Yaeger
25+ lectures
Video-led, instructor guided
1,500+
1 per part
Timeline to Certification
Month 0
Obtain PTIN, buy study materials
Month 1–3
Study & pass Part 3
Month 3–7
Study & pass Part 1
Month 7–12
Study & pass Part 2
Month 12–13
File Form 23, background check
Month 13–18
Receive EA Certificate
This is the 12-month relaxed plan. The aggressive 3-month plan compresses all study into weeks 1–12, with certification possible by month 6.
Practice Exam Questions
A comprehensive question bank organized by exam part. 60+ questions covering all major topics. Click any answer to check yourself, or use Reveal Answer to see the explanation. These are based on the official PSI exam content outlines, IRS publications, and study provider materials.
Exam Tip: On the real SEE, you get 100 questions per part with 3.5 hours. Aim to finish each question in about 2 minutes. Mark tough ones and come back. Score 85%+ consistently on practice before scheduling your exam.
External Practice Resources
For full-length simulated exams with hundreds more questions:
John, single, has wages of $75,000 and long-term capital gains of $10,000. What is his total tax liability for 2025? (Std deduction: $15,000 single)
A) $9,735
B) $8,296
C) $10,410
D) $7,850
Correct: B) $8,296 Wages $75k - std deduction $15k = $60k taxable. Tax on $60k single = $5,426 (10%, 12%, 22% brackets). LTCG $10k taxed at 0% (within 0% bracket). Approx total $8,296.
Question 2
Which tax credit is partially refundable?
A) Child and Dependent Care Credit
B) American Opportunity Tax Credit
C) Lifetime Learning Credit
D) Saver's Credit
Correct: B) AOTC AOTC is partially refundable (40% up to $1,000). Child/Dependent Care, LLC, and Saver's Credit are nonrefundable. EITC and ACTC are also refundable.
Question 3
Sarah, age 45, contributed $7,000 to her Traditional IRA. She has a workplace plan. MAGI $85,000 (single). How much is deductible?
A) $7,000 (fully deductible)
B) $0 (not deductible)
C) Partially deductible (phased out)
D) $3,500
Correct: C) Partially deductible 2025 phaseout for single covered by workplace plan: $79k-$89k. At $85k, deduction is reduced: ($89k-$85k)/($89k-$79k) = 40% × $7k = $2,800 deductible.
Question 4
Mike, single, no children, age 25, earned income $22,000. Maximum EITC?
A) $3,500
B) $1,500
C) $2,000
D) $0 — exceeds phaseout limit
Correct: D) $0 2025 EITC for no children phases out completely at $18,590 earned income. $22k exceeds that. Must be age 25-64 without children to qualify for the credit.
Question 5
Which is NOT includible in gross income?
A) Unemployment compensation
B) Alimony received (post-2018 divorce)
C) Rental income
D) Child support payments
Correct: D) Child support Child support is not taxable. For post-2018 (TCJA), alimony is NOT includible by recipient and NOT deductible by payer. Unemployment and rental income ARE taxable.
Question 6
Maximum Roth IRA contribution in 2025 for someone age 50?
A) $6,500
B) $7,000
C) $8,000
D) $9,000
Correct: C) $8,000 $7,000 base + $1,000 catch-up (50+) = $8,000. Roth phaseouts: single $150k-$165k, MFJ $236k-$246k MAGI.
Question 7
Medical expenses $10,000, AGI $80,000. How much is deductible on Schedule A?
A) $4,000
B) $10,000
C) $6,000
D) $0
Correct: A) $4,000 Medical expenses deductible above 7.5% AGI floor. 7.5% of $80k = $6,000. $10k - $6k = $4k deductible. This floor is permanent.
Question 8
Standard deduction for Head of Household in 2025?
A) $15,000
B) $20,800
C) $22,500
D) $30,000
Correct: C) $22,500 2025 standard deductions: Single $15,000, MFJ $30,000, HOH $22,500, MFS $15,000. Additional (65+/blind): $1,600 single/HOH, $1,300 MFJ/MFS.
Question 9
Which does NOT qualify as a dependent child?
A) Son, 18, student, lives with parent
B) Daughter, 22, full-time student, lives at home
C) Brother, 30, not disabled, lives with taxpayer
D) Grandson, 10, lives with grandparent all year
Correct: C) Brother age 30 Qualifying child: under 19 (or 24 if student), any age if permanently disabled. Age 30 exceeds limit. Qualifying relative has no age limit but must meet gross income test (under $5,000).
Question 10
Tom sold home for $450k (bought for $200k), lived there 3 of last 5 years. Taxable gain?
A) $250,000
B) $0
C) $50,000
D) $100,000
Correct: B) $0 Sec 121: single can exclude up to $250k gain ($500k MFJ) if owned/lived in home 2 of last 5 years. Gain = $450k-$200k = $250k, fully excluded.
Question 11
Which form reports sale of a primary residence?
A) Form 8949
B) Schedule D
C) Form 1099-S (settlement agent)
D) Form 4797
Correct: C) Form 1099-S Settlement agent issues Form 1099-S. If gain is fully excludable under Sec 121, taxpayer may not need to report sale. Otherwise use Schedule D/Form 8949.
Question 12
Which is an above-the-line adjustment (not itemized deduction)?
A) Mortgage interest
B) Charitable contributions
C) HSA contribution
D) State and local taxes
Correct: C) HSA contribution HSAs have triple tax advantage: deductible above-the-line (reduces AGI), tax-free growth, tax-free withdrawals for qualified medical expenses. 2025: $4,300 self/$8,550 family + $1,000 catch-up (55+).
Question 13
Maximum Child Tax Credit per qualifying child in 2025?
A) $1,000
B) $2,000
C) $3,000
D) $3,600
Correct: B) $2,000 CTC = $2,000 per qualifying child under 17, up to $1,700 refundable (ACTC). Phaseout: $200k AGI single / $400k MFJ. The enhanced $3,600/$3,000 from ARPA (2021) has expired.
Question 14
A dependent child earned $2,000 from a part-time job. What is their standard deduction?
A) $1,150
B) $2,400
C) $13,850
D) $1,250
Correct: B) $2,400 Dependent's std deduction = greater of (a) $1,150 or (b) earned income + $400. $2,000 + $400 = $2,400. Cannot exceed regular single std deduction.
Question 15
How long must you hold property for LTCG rates?
A) 6 months
B) More than 1 year
C) 2 years
D) 5 years
Correct: B) More than 1 year LTCG rates (0%/15%/20%) apply to assets held >1 year. Short-term (≤1 year) taxed as ordinary income. Collectibles max 28%. Sec 1250 recapture max 25%.
Question 16
Self-employed, net earnings $100,000 Schedule C. What is SE tax?
A) $14,130
B) $14,130 (92.35% x 15.3%)
C) $15,300
D) $7,065
Correct: B) $14,130 SE tax = 92.35% × 15.3% of net earnings. $100k × 92.35% = $92,350 × 15.3% = $14,130. 12.4% Social Security (up to $176,100) + 2.9% Medicare (uncapped). Half of SE tax is deductible above-the-line.
Question 17
Which filing status requires a qualifying child and living apart from spouse for last 6 months?
A) Married Filing Separately
B) Single
C) Head of Household (abandoned spouse rules)
D) Qualifying Surviving Spouse
Correct: C) Head of Household Abandoned spouse rules: (1) file MFS, (2) live apart last 6 months, (3) maintain home for qualifying child >50% of year. Allows HOH rates while still married.
Question 18
What are the AMT tax rates for most taxpayers?
A) Flat 26%
B) Flat 28%
C) 26% and 28% (two brackets)
D) 15% and 20%
Correct: C) 26% and 28% AMT brackets: 26% up to ~$239k MFJ/$120k others, then 28%. Exemption: MFJ ~$133k (phaseout $1.2M), single ~$86k (phaseout $609k). Common adjustments: state taxes, private activity bond interest, ISO spread.
Question 19
Form 1099-NEC of $15,000 as independent contractor. Where is this reported?
A) Form W-2
B) Schedule C
C) Schedule E
D) Form 2106
Correct: B) Schedule C Form 1099-NEC (Nonemployee Compensation) reports independent contractor income. Goes on Schedule C with related expenses. Net profit flows to Form 1040 and is subject to SE tax on Schedule SE.
Question 20
Maximum student loan interest deduction in 2025?
A) $5,000
B) $2,500
C) $3,000
D) $1,000
Correct: B) $2,500 Student loan interest deduction capped at $2,500 per return (above-the-line). Phaseout: single $80k-$95k, MFJ $165k-$195k MAGI. Taxpayer cannot be claimed as a dependent.
Question 21
Which is NOT subject to Additional Medicare Tax (0.9%)?
A) SE income over $200k (single)
B) Wages over $250k (MFJ)
C) Net investment income
D) RRTA compensation
Correct: C) Net investment income Additional Medicare Tax (0.9%) on earned income. Net Investment Income is subject to separate 3.8% NIIT. Employer does NOT match the 0.9% — employee-paid only.
Question 22
After a 1035 exchange of a life insurance policy, what is the basis in the new policy?
A) Fair market value
B) Same as old policy (carryover basis)
C) Zero
D) Cost of new policy
Correct: B) Carryover basis Section 1035 allows tax-free exchange of life insurance, annuities, and long-term care contracts. The basis in the new policy is the same as the old policy (carryover). Boot (cash received) is taxable.
ABC Partnership, 3 equal partners, net income $300,000. Partner A contributed $50,000. What is A's basis at year-end?
A) $50,000
B) $150,000
C) $300,000
D) $100,000
Correct: B) $150,000 Partner's basis = contribution + share of income. $50k + ($300k/3) = $150k. Income increases outside basis. Distributions/losses decrease it. Partnership liabilities also increase basis.
Question 24
Business buys 7-year MACRS asset for $50,000 in 2025. Max Section 179 deduction?
A) $10,000
B) $50,000 (full cost)
C) $25,000
D) $0
Correct: B) $50,000 Sec 179 allows full deduction up to ~$1.2M (2025 limit) if total assets <~$3.0M. $50k asset fully deductible. Must be placed in service this year. Phaseout dollar-for-dollar over threshold.
Correct: C) $12k tax-free, $8k capital gain S-Corp distributions tax-free to extent of stock basis. First $12k reduces basis to $0. Remaining $8k = capital gain. Unlike partnerships, S-Corp shareholders don't get basis for entity debt.
Question 26
Which form reports quarterly payroll taxes (SS, Medicare, withholding)?
A) Form 940
B) Form 941
C) Form W-2
D) Form 944
Correct: B) Form 941 Form 941 = Employer's Quarterly Federal Tax Return. Form 940 = annual FUTA. Form 944 = annual alternative (liability ≤ $1,000). Form W-2 = annual wage statement.
Question 27
C-Corp taxable income $75,000. Tax liability under 2025 rates?
A) $15,000
B) $15,750 (flat 21%)
C) $12,500
D) $18,750
Correct: B) $15,750 TCJA: C-Corps pay flat 21% on all income. $75k × 21% = $15,750. No more graduated brackets. PSCs also pay 21%. Corporate AMT repealed.
Question 28
PSC tax rate in 2025?
A) 35%
B) 21% (same as regular C-Corp)
C) 15%
D) 28%
Correct: B) 21% PSCs pay flat 21% under TCJA. Old 35% PSC rate eliminated. PSC = corporation providing personal services (health, law, engineering, accounting, consulting) where stock is owned by service providers.
Question 29
Recovery period for residential rental real estate under MACRS GDS?
A) 39 years
B) 27.5 years
C) 15 years
D) 31.5 years
Correct: B) 27.5 years Residential rental (80%+ dwelling units) = 27.5 years straight-line (mid-month). Nonresidential/commercial = 39 years straight-line. Land is NOT depreciable.
Question 30
Standard mileage rate for business use covers what?
A) Only gas and oil
B) Gas, oil, repairs, insurance, depreciation
C) Only depreciation
D) Only maintenance
Correct: B) Gas, oil, repairs, insurance, depreciation Standard mileage rate covers all operating costs. Parking/tolls deductible separately. If you use standard mileage in first year, you generally can't switch to actual expenses later on same vehicle.
Question 31
Multi-member LLC files which form by default?
A) Form 1120
B) Form 1120-S
C) Form 1065
D) Schedule C
Correct: C) Form 1065 Multi-member LLC = partnership by default (unless elects S-Corp or C-Corp). Files Form 1065, issues K-1s. Single-member LLC = disregarded entity, reports on Schedule C.
Question 32
Effective FUTA rate after credits?
A) 6.0%
B) 5.4%
C) 0.6%
D) 2.0%
Correct: C) 0.6% Gross FUTA = 6.0% on first $7,000 wages. 5.4% credit for paying state UI tax on time → effective 0.6% ($42 max/employee/year).
Question 33
Which is NOT eligible for S-Corp election?
A) Domestic corporation
B) LLC electing corporate treatment
C) Corporation with nonresident alien shareholders
D) Corporation with 80 shareholders
Correct: C) Nonresident alien shareholders S-Corp requires: max 100 shareholders, one class of stock, shareholders must be US citizens/residents/estates/certain trusts — NOT nonresident aliens. Form 2553 for election.
Question 34
Employer's share of FICA (SS + Medicare)?
A) 15.3%
B) 7.65%
C) 6.2%
D) 1.45%
Correct: B) 7.65% Both employer and employee pay 7.65% (6.2% SS + 1.45% Medicare). Total FICA = 15.3%. Additional 0.9% Medicare on high earners is employee-only (employer does NOT match).
Question 35
Partnership distributes property to a partner. General tax treatment?
A) Taxable ordinary income
B) Taxable capital gain
C) Generally tax-free (reduces partner's basis)
D) 50% taxable
Correct: C) Generally tax-free Sec 731: partner generally doesn't recognize gain on distributions unless cash exceeds basis. Property distributions are tax-free and reduce basis. Exception: hot assets (unrealized receivables/inventory).
Question 36
Accumulated earnings tax applies to which entity?
A) C-Corps with excess unreasonable accumulations
B) S-Corps
C) Partnerships
D) LLCs
Correct: A) C-Corps Sec 531: 20% penalty on C-Corps accumulating earnings beyond reasonable business needs to avoid dividends. $250k exempt ($150k PSCs). Reasonable needs: working capital, expansion, debt retirement.
Question 37
Sec 1031 like-kind exchange in 2025: what qualifies?
A) All property types
B) Personal property only
C) Real property held for business/investment only
D) Principal residences only
Correct: C) Real property for business/investment TCJA limited Sec 1031 to real property (not personal use). Replacement must be ID'd within 45 days, acquired within 180 days. Boot is taxable.
Question 38
DRD on $100k dividends from 15%-owned domestic corp with $1M taxable income?
A) $100,000
B) $65,000
C) $50,000 (50% DRD)
D) $0
Correct: C) $50,000 DRD: 50% if <20%, 65% if 20%-80%, 100% if 80%+. Here 15% → 50% of $100k = $50k. Limited to 50% of taxable income before DRD ($1M × 50% = $500k — not exceeded).
Question 39
Tax treatment of guaranteed payments to a partner?
A) Tax-free distribution
B) Ordinary income to partner, deductible by partnership
C) Capital gain to partner
D) Return of capital
Correct: B) Ordinary income, deductible by partnership Sec 707(c): payments for services/capital determined without regard to income. Treated as made to non-partner. Ordinary income to partner, deductible by partnership. Subject to SE tax.
Question 40
Built-in gains tax rate for former C-Corp S-Corp?
A) Highest C-Corp rate (21%)
B) Shareholder's individual rate
C) 15%
D) 0%
Correct: A) 21% Sec 1374: 21% on recognized built-in gain during 5-year recognition period for S-Corps that were formerly C-Corps. After 5 years, BIG tax no longer applies.
Question 41
Business meal deduction percentage in 2025?
A) 50%
B) 100%
C) 0%
D) 25%
Correct: A) 50% Business meals = 50% deductible if business conducted, not lavish. Entertainment (sporting events, concerts) = 0% deductible under TCJA. Meals for employer's convenience = 100% temporarily (through 2025), then 50%.
Question 42
Which form reports trust income and deductions?
A) Form 1040
B) Form 1120
C) Form 1041
D) Form 1065
Correct: C) Form 1041 Form 1041 = U.S. Income Tax Return for Estates and Trusts. Trusts have compressed brackets: 10% at $0-$3,100, 37% at $15,350+ (2025). DNI concept determines distribution deduction.
Question 43
Partnership organizational costs: how much can be immediately deducted?
A) Fully deductible
B) None, capitalize all
C) Up to $5,000, remainder amortized 180 months
D) Amortized over 15 years
Correct: C) Up to $5,000, amortize remainder 180 months Sec 709: $5,000 deduction (reduced dollar-for-dollar when total >$50k). Remainder amortized 180 months. Same rule for start-up costs under Sec 195.
Question 44
When may an accrual-method partnership use cash method?
A) Never with inventory
B) If avg gross receipts under $30M (2025) and not a tax shelter
C) If fewer than 10 partners
D) Any partnership can use cash method
Correct: B) Avg receipts under $30M, not a tax shelter Sec 448: small business exception allows cash method if avg gross receipts under $30M (indexed). Tax shelters CANNOT use cash method regardless of size.
PART 3 Representation, Practices & Procedures (22 Questions)
Under Circular 230, max monetary penalty for reckless/willful conduct?
A) $5,000/violation
B) $10,000/violation
C) $25,000/violation
D) Gross income from the conduct
Correct: D) Gross income from conduct Circular 230 Sec 10.50: max penalty = gross income derived from the conduct. Can also include censure, suspension, or disbarment.
Question 46
30-day letter (Notice of Deficiency). What options to contest?
A) Only pay and file refund claim
B) Only file Tax Court petition
C) Either file Tax Court petition OR pay and sue for refund
D) Request CDP hearing
Correct: C) Either Tax Court OR refund suit 90 days (150 outside US) to file Tax Court petition without paying. Or pay deficiency, file refund claim, sue in District Court/Claims Court if denied.
Question 47
Which is NOT a practice right of an EA?
A) Represent before IRS Office of Appeals
B) Represent in IRS examinations
C) Represent in U.S. Tax Court
D) Represent in IRS collections
Correct: C) Tax Court EAs have unlimited IRS representation (audits, appeals, collections) but cannot practice in Tax Court. Only Tax Court-admitted attorneys can.
Question 48
Circular 230 Sec 10.28: when can practitioner retain client records due to unpaid fees?
A) Never — must always return
B) If state law allows retaining lien for unpaid fees
C) For up to 3 years
D) Can destroy after 1 year
Correct: B) If state law allows retaining lien Sec 10.28: must return records promptly upon request. Exception: state law allowing retaining lien. Practitioner-prepared workpapers need not be turned over if fees unpaid (unless client needs them for IRS compliance).
Question 49
General SOL for IRS to assess additional tax on filed return?
A) 2 years
B) 3 years from later of due date or filing
C) 6 years
D) 10 years
Correct: B) 3 years IRC 6501: 3 years from later of due date or filing. 6 years if gross income omitted >25%. No SOL if no return filed or fraudulent. Collection SOL: 10 years from assessment.
Question 50
Failure to file penalty rate?
A) 5%/month up to 25%
B) 0.5%/month up to 25%
C) 1%/month up to 12%
D) Flat $500
Correct: A) 5%/month, max 25% IRC 6651: failure to file = 5%/month (max 25%). Failure to pay = 0.5%/month (max 25%). Combined max = 5% for first 5 months, then 0.5%.
Question 51
Which form authorizes IRS representation?
A) Form 8821
B) Form 2848
C) Form SS-4
D) Form W-7
Correct: B) Form 2848 Form 2848 = Power of Attorney (full representation). Form 8821 = Tax Information Authorization ONLY (inspect/receive info, no representation).
Question 52
Standard to avoid Sec 6694 preparer penalty?
A) More likely than not (>50%)
B) Reasonable basis
C) Substantial authority OR reasonable basis with disclosure
D) Any non-frivolous position
Correct: C) Substantial authority OR disclosure with reasonable basis Preparer must have substantial authority. If only reasonable basis, must disclose (Form 8275). Penalty: greater of $1,000 or 50% of fees (unrealistic position) or $5,000/75% (willful/reckless).
Question 53
Trust Fund Recovery Penalty (Sec 6672)?
A) 100% penalty on responsible persons willfully not paying trust fund taxes
B) 50% penalty on corporation
C) 25% of unpaid payroll
D) Flat $10,000
Correct: A) 100% on responsible persons TFRP = 100% of unpaid trust fund taxes (employee FICA + withheld income tax). Assessed against responsible persons who willfully didn't pay. Form 4180 used in investigation.
C) For IRS examinations/appeals only, NOT for original returns
D) Only for corporate clients
Correct: C) Examinations/appeals only Circular 230 Sec 10.27: contingent fees prohibited for original returns and refund claims (exception: within 120 days of disallowance notice, or interest/penalty reviews). Allowed for exam/appeal representation.
Question 56
Small case threshold for Tax Court simplified procedures?
A) $10,000
B) $25,000
C) $50,000
D) $100,000
Correct: C) $50,000 Small case = $50k or less per year. Simplified rules, no formal briefs, decisions not precedential and cannot be appealed. Petition filed within 90 days of deficiency notice.
Question 57
Accuracy-related penalty under Sec 6662?
A) 10% of underpayment
B) 20% of underpayment attributable to conduct
C) $5,000 flat
D) 40% of underpayment
Correct: B) 20% Sec 6662: 20% for negligence, substantial understatement (>10% or $5k), substantial valuation misstatement. 40% for gross valuation misstatements and undisclosed reportable transactions. Reasonable cause/good faith defense available.
Question 58
Collection SOL for IRS to collect assessed taxes?
A) 3 years from assessment
B) 6 years from assessment
C) 10 years from assessment
D) 20 years from assessment
Correct: C) 10 years IRC 6502: 10 years from assessment. Suspended during: CDP hearings, installment agreement consideration, OIC pending, bankruptcy stay, taxpayer abroad.
Question 59
How many rights in the Taxpayer Bill of Rights?
A) 5
B) 8
C) 10
D) 12
Correct: C) 10 rights TBOR (codified 2014): be informed, quality service, pay no more than correct, challenge IRS, appeal, finality, privacy, confidentiality, retain representation, fair and just system.
Question 60
Sec 6695 penalty for failing to sign a return?
A) $50/return (no max)
B) $50/return, $25,000 annual max
C) $500/return
D) No penalty
Correct: B) $50/return, $25k max Sec 6695: failure to sign $50/return ($25k max), failure to provide PTIN $50/return, failure to give copy $50/return, failure to retain $50/return, EITC due diligence $560/return (significantly higher).
Question 61
Criminal tax evasion statute of limitations?
A) 3 years
B) 6 years
C) 10 years
D) No SOL
Correct: B) 6 years IRC 6531: criminal tax offenses generally 6 years from offense date (evasion 7201, failure to file 7203, false returns 7206, aiding/abetting 7206(2)).
Question 62
Innocent spouse relief under Sec 6015?
A) Full forgiveness of all joint debts
B) Relief from joint liability when spouse didn't know of understatement
C) Automatic 50% reduction
D) Only available if divorced
Correct: B) Relief when spouse didn't know Sec 6015: (b) traditional - spouse didn't know/no reason to know, (c) separation of liability, (f) equitable relief. Requested on Form 8857.
Question 63
Frivolous tax return penalty amount?
A) $1,000
B) $5,000
C) $10,000
D) $500
Correct: B) $5,000 Sec 6702: $5,000 for frivolous returns (IRS-identified frivolous positions, or filed to delay/ impede tax administration). Includes arguments like "wages aren't income" or "16th Amendment invalid."
Question 64
Circular 230: what if client refuses to sign a prepared return?
A) File anyway
B) Notify client of consequences, consider withdrawing
C) Report client to IRS
D) Sign on client's behalf
Correct: B) Notify client, consider withdrawing Circular 230 Sec 10.34: if client refuses to sign or provide info, notify client of consequences and consider withdrawing. Don't sign a return you know contains an error.
Question 65
Role of the Taxpayer Advocate Service (TAS)?
A) Help resolve problems when normal IRS channels fail
B) Free tax preparation
C) Audit taxpayers
D) Prepare Tax Court petitions
Correct: A) Help resolve problems when normal channels fail TAS is independent within IRS. Helps with significant hardship or unresolved issues. Each state has a Local Taxpayer Advocate. Identifies systemic problems. Form 911 to request assistance.
C) Advise client of error and consequences — client decides
D) Must report to IRS
Correct: C) Advise client of error Sec 10.21: must promptly advise client of error and consequences (interest, penalties, criminal implications). Advise how to correct (amended return). Cannot disclose without client permission.
Bonus Questions (4 More)
Question 67 (Bonus)
A single taxpayer has MAGI of $210,000 and $15,000 net investment income. What is the NIIT?
A) $570
B) $380 (3.8% of $10k = lesser of $15k or ($210k-$200k=$10k))
C) $0
D) $798
Correct: B) $380 NIIT = 3.8% of lesser of (a) $15k net investment income or (b) $210k - $200k = $10k excess over threshold. 3.8% of $10k = $380.
Question 68 (Bonus)
Which of the following is a valid offer in compromise (OIC) basis?
A) Taxpayer doesn't want to pay
B) Doubt as to collectibility, doubt as to liability, or effective tax administration
C) Taxpayer is out of the country
D) Any reason
Correct: B) Doubt as to collectibility/liability, or ETA Three OIC bases: (1) doubt as to liability, (2) doubt as to collectibility, (3) effective tax administration (promote compliance). Form 656. Application fee ($205) and partial payment required with certain exceptions.
Question 69 (Bonus)
What is the EITC due diligence penalty per return?
A) $100
B) $250
C) $560
D) $1,000
Correct: C) $560 Sec 6695(g): $560 per return for failure to meet EITC due diligence requirements (Form 8867). Also applies to CTC, AOTC, and HOH status due diligence.
Question 70 (Bonus)
An S-Corp has $50,000 AAA and $20,000 accumulated E&P from C-Corp years. It distributes $60,000 cash. Tax treatment?
A) All tax-free
B) $50k tax-free (AAA), $10k dividend (E&P)
C) All dividend
D) All capital gain
Correct: B) $50k tax-free (AAA), $10k dividend Distributions from S-Corp with C-corp E&P come first from AAA (tax-free), then from accumulated E&P (dividend income). $50k AAA → tax-free. $10k from E&P → dividend.
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