Part 2 Exam 3

EA Full Length Practice Test Part II – Exam 3

This is an EA full-length practice exam designed to replicate real test conditions as closely as possible.

📘 Exam Instructions

Before You Begin

Time Limit: 210 minutes (Timer will start when you click ‘Start’)
Format: 100 multiple-choice questions
Environment: Choose a quiet space with no distractions
No Resources: Close books, notes, and this guide
Answer Every Question: Even if unsure, make your best guess
Simulate Real Conditions:
- No phone
- No interruptions
- No unnecessary breaks

🧠 When You Start

Start the timer and begin with Question 1
Work steadily — do not spend too much time on one question
If a question is too difficult, skip it and return later if time allows
Stay focused and maintain a consistent pace

⏱️ After Completion

Stop immediately at 210 minutes, even if you are not finished
Do not check answers during the test
Review your answers only after completing the entire exam

1 / 100

Tags: practitioner, Disbarred, practice, They

A. If a practitioner is “Disbarred” from practice before the IRS, they may generally petition for “Reinstatement” after:

A. 1 year

B. 3 years

C. 5 years

D. Never

2 / 100

Tags: Section, transfer, includes, transfer

B. A “Section 351” transfer includes a “Transfer of Services” for stock. The stock received for services is:

A. Tax-free to the recipient.

B. Ordinary income to the recipient.

C. Capital gain to the recipient.

D. Only taxable if the recipient owns 80% of the stock.

3 / 100

Tags: form, Schedule, tracks, Which

C. “Form 1120-S, Schedule M-2” tracks which of the following accounts for S-Corporations?

A. Stock Basis and Debt Basis.

B. Net Operating Losses.

C. Retained Earnings and Paid-in Capital.

D. AAA, OAA, and PTI.

4 / 100

Tags: estate, Final, form, allows

D. An estate’s “Final Form 1041” allows excess deductions to flow through to the beneficiaries. These deductions are treated by the beneficiaries as:

A. Miscellaneous itemized deductions (subject to 2% AGI).

B. Adjustments to Gross Income (Above-the-line).

C. Non-deductible expenses.

D. Credits.

5 / 100

Tags: Personal, Service, Corporation, must

E. A “Personal Service Corporation” (PSC) must generally use a “Calendar Year” unless it makes a “Section 444” election. If it makes this election, the maximum “Deferral Period” is:

A. 3 months

B. 1 month

C. 6 months

D. 12 months

6 / 100

Tags: Section, adjustment, associated, Which

F. A “Section 734(b)” adjustment is associated with which type of partnership election?

A. Section 179 election.

B. Section 444 election.

C. Section 754 election.

D. Check-the-box election.

7 / 100

Tags: Enrolled, Agent, Prohibited, Which

G. An Enrolled Agent (EA) is prohibited from which of the following regarding “Solicitation”?

A. Advertising on television.

B. Using the term "Enrolled Agent" on a business card.

C. Using a false, fraudulent, or misleading statement.

D. Mailing a brochure to potential clients.

8 / 100

Tags: Qualified, Research, expense, does

H. A “Qualified Research Expense” (QRE) does NOT include:

A. In-house research wages.

B. Supplies used in research.

C. 65% of contract research expenses.

D. Land used for a research facility.

9 / 100

Tags: Corporation, Closely, Held, Passive

I. For a corporation to be “Closely Held” for the Passive Activity Loss rules, more than 50% of its stock must be owned by 5 or fewer individuals during the:

A. Entire year.

B. Last half of the year.

C. First 6 months of the year.

D. Month of December.

10 / 100

Tags: Section, Which, following, recapture

J. Under “Section 1245,” which of the following is NOT a recapture trigger?

A. A sale for cash.

B. A distribution of property to a shareholder as a dividend.

C. A gift of property to a relative.

D. An involuntary conversion where boot is received.

11 / 100

Tags: Publicly, Traded, Partnership, generally

K. A “Publicly Traded Partnership” (PTP) is generally taxed as:

A. A Partnership.

B. A C Corporation.

C. An S Corporation.

D. A Disregarded Entity.

12 / 100

Tags: income, respect, Decedent, taxed

L. “Income in Respect of a Decedent” (IRD) is taxed to:

A. The recipient who receives the income.

B. The decedent on their final 1040.

C. Only the estate.

D. No one; it is tax-free.

13 / 100

Tags: Corporation, formed, January, effective

M. An S-Corporation is formed on January 1, 2026. To be effective for the 2026 calendar year, the election (Form 2553) must be filed no later than:

A. January 31, 2026.

B. December 31, 2026.

C. April 15, 2026.

D. March 15, 2026.

14 / 100

Tags: Which, following, business, Credits

N. Which of the following “Business Credits” is part of the “General Business Credit” and subject to the limitation based on tax liability?

A. Foreign Tax Credit.

B. Child Tax Credit.

C. Disabled Access Credit.

D. Earned Income Credit.

15 / 100

Tags: Complex, trust, distributes, Beneficiary

O. A “Complex Trust” has DNI of $20,000. It distributes $25,000 to Beneficiary A. How much of the distribution is taxable to Beneficiary A?

A. $0

B. $20,000

C. $25,000

D. $5,000

16 / 100

Tags: Base, Erosion, Anti, Abuse

P. The “Base Erosion and Anti-Abuse Tax” (BEAT) generally applies to large corporations with average annual gross receipts of at least:

A. $100 million

B. $250 million

C. $500 million

D. $1 billion

17 / 100

Tags: Partnership, distributes, Cash, land

Q. A partnership distributes $10,000 cash and land (Basis $5,000, FMV $12,000) to a partner in a non-liquidating distribution. The partner’s outside basis is $12,000. What is the partner’s basis in the land?

A. $0

B. $2,000

C. $5,000

D. $12,000

18 / 100

Tags: Circular, practitioner, must, request

R. Under Circular 230, a practitioner must, at the request of the IRS, promptly submit records or information unless the practitioner believes in good faith and on reasonable grounds that:

A. The records are "Privileged."

B. The client hasn't paid their invoice.

C. The information is embarrassing to the client.

D. The records are at the client's home.

19 / 100

Tags: Corporation, Cash, Basis, taxpayer

S. An S-Corporation is a “Cash Basis” taxpayer. At the end of 2026, it owes $5,000 in interest to a bank and $2,000 in interest to a 50% shareholder. Both amounts are unpaid at year-end. How much can the S-Corp deduct in 2026?

A. $0

B. $2,000

C. $5,000

D. $7,000

20 / 100

Tags: controlled, Group, corporations, consists

T. A “Controlled Group” of corporations consists of a “Parent-Subsidiary” group if the parent owns at least what percentage of the voting power or value of at least one other corporation?

A. 50%

B. 51%

C. 80%

D. 100%

21 / 100

Tags: Simple, trust, Personal, exemption

U. For a “Simple Trust,” the “Personal Exemption” allowed on Form 1041 is:

A. $100

B. $300

C. $600

D. $4,700 (standard personal exemption amount)

22 / 100

Tags: Which, following, Qualified, small

V. Which of the following is a “Qualified Small Business” for the purpose of the 100% gain exclusion under Section 1202?

A. A law firm.

B. A hotel or restaurant.

C. A manufacturing company.

D. A banking institution.

23 / 100

Tags: Corporation, shareholder, Stock, Basis

W. An S-Corporation shareholder’s “Stock Basis” is $10,000. The corporation distributes $15,000 cash to the shareholder. The corporation has no Accumulated E&P. What is the tax result?

A. $15,000 Taxable Dividend.

B. $10,000 Tax-free; $5,000 Capital Gain.

C. $10,000 Tax-free; $5,000 Ordinary Income.

D. $15,000 Tax-free.

24 / 100

Tags: Fiduciary, Accounting, rules, Which

X. Under the “Fiduciary Accounting” rules, which of the following is generally allocated to “Principal” (Corpus) rather than “Income”?

A. Ordinary dividends.

B. Interest from corporate bonds.

C. Proceeds from the sale of a trust asset (Capital Gains).

D. Rent received from real estate.

25 / 100

Tags: Corporation, Operating, loss, Which

Y. A corporation has a “Net Operating Loss” (NOL) in 2026. Which of the following is true regarding the 80% taxable income limitation?

A. It applies to all NOLs, including those arising before 2018.

B. It applies only to NOLs arising in tax years beginning after December 31, 2017.

C. It only applies to Personal Service Corporations.

D. It was repealed for the 2026 tax year.

26 / 100

Tags: Specified, Service, Trade, business

Z. A “Specified Service Trade or Business” (SSTB) for QBI purposes includes:

A. Architecture.

B. Engineering.

C. Law.

D. Manufacturing.

27 / 100

Tags: Work, Opportunity, Credit, WOTC

AA. The “Work Opportunity Tax Credit” (WOTC) is generally what percentage of the first $6,000 of wages paid to a qualified veteran?

A. 25%

B. 40%

C. 50%

D. 100%

28 / 100

Tags: Distributable, income, calculation, trust

AB. A “Distributable Net Income” (DNI) calculation for a trust generally excludes:

A. Dividend income.

B. Ordinary business income.

C. Tax-exempt interest.

D. Capital gains allocated to corpus.

29 / 100

Tags: Enrolled, Agent, represent, taxpayer

AC. An Enrolled Agent (EA) may represent a taxpayer before the IRS for a tax return that the EA did NOT prepare.

A. True.

B. False.

C. Only if the original preparer is dead.

D. Only if the IRS gives special permission.

30 / 100

Tags: Section, election, allows, buyer

AD. A “Section 338(h)(10)” election allows a buyer and seller to treat the sale of a subsidiary’s stock as:

A. A tax-free reorganization.

B. An asset sale by the target corporation followed by a tax-free liquidation.

C. A sale of partnership interests.

D. A non-taxable exchange.

31 / 100

Tags: Personal, holding, Company, subject

AE. A “Personal Holding Company” (PHC) is subject to an additional tax of 20% on its:

A. Undistributed PHC Income

B. Gross Income.

C. Net Capital Gain.

D. Dividends Received.

32 / 100

Tags: Which, following, Adversary, Circular

AF. Which of the following is an “Adversary” of the IRS under Circular 230?

A. A client who refuses to pay.

B. A practitioner who commits malpractice.

C. An IRS employee during an examination.

D. A witness in a tax court case.

33 / 100

Tags: Qualified, Subchapter, Subsidiary, QSub

AG. A “Qualified Subchapter S Subsidiary” (QSub) must be:

A. 80% owned by an S Corp.

B. 100% owned by an S Corp.

C. A foreign corporation.

D. A partnership.

34 / 100

Tags: form, used, certain, persons

AH. “Form 5471” is used by certain U.S. persons to report their interest in a:

A. Foreign Partnership.

B. Foreign Bank Account.

C. Foreign Trust.

D. Foreign Corporation.

35 / 100

Tags: Employer, contribution, Simple, plan

AI. An employer’s contribution to a “Simple IRA” plan is generally deductible in the year:

A. The contribution is made.

B. The employee vests in the contribution.

C. The employee reaches age 59 ½.

D. The plan is established.

36 / 100

Tags: Qualified, Personal, Service, Corporation

AJ. A “Qualified Personal Service Corporation” (QPSC) is NOT subject to the:

A. Passive Activity Loss rules.

B. Cash method of accounting restrictions.

C. Flat 21% tax rate.

D. Requirement to file Form 1120.

37 / 100

Tags: Section, Unrecaptured, Section, gain

AK. Under “Section 1250,” the “Unrecaptured Section 1250 Gain” on the sale of commercial real estate is taxed at a maximum rate of:

A. 15%

B. 20%

C. 25%

D. 21% (Corporate rate)

38 / 100

Tags: Partnership, terminates, Section

AL. A partnership terminates under Section 708(b)(1) only if:

A. 50% or more of the total interest in partnership capital and profits is sold within 12 months.

B. The partnership has fewer than two partners.

C. A partner with a 90% interest dies.

D. All business operations of the partnership cease.

39 / 100

Tags: controlled, Foreign, Corporation, defined

AM. A “Controlled Foreign Corporation” (CFC) is defined as a foreign corporation where more than 50% of the voting power or value is owned by “U.S. Shareholders.” A “U.S. Shareholder” is a U.S. person who owns at least what percentage of the stock?

A. 1%

B. 5%

C. 10%

D. 25%

40 / 100

Tags: Which, following, considered, Substantial

AN. Which of the following is considered “Substantial Authority” for purposes of avoiding the accuracy-related penalty for a tax position?

A. A news article in a financial magazine.

B. A private letter ruling issued to the taxpayer.

C. A post on a popular tax professional's blog.

D. A verbal statement from an IRS agent.

41 / 100

Tags: Corporation, Balance, distributes, property

AO. An S Corporation’s “AAA” balance is $20,000. It distributes property with a Basis of $5,000 and an FMV of $15,000 to its sole shareholder. The corporation recognizes a gain of $10,000. How much is the AAA balance after the distribution?

A. $5,000

B. $10,000

C. $15,000

D. $20,000

42 / 100

Tags: Fiduciary, estate, trust, uses

AP. A “Fiduciary” of an estate or trust uses which form to report the entity’s income and deductions?

A. Form 1040

B. Form 1041

C. Form 1065

D. Form 1120

43 / 100

Tags: Which, following, Direct, skip

AQ. Which of the following is a “Direct Skip” for purposes of the Generation-Skipping Transfer (GST) tax?

A. A gift to a grandchild.

B. A gift to a child.

C. A gift to a spouse.

D. A gift to a sibling.

44 / 100

Tags: Section, election, made, filing

AR. A “Section 754” election is made by filing a statement with a timely filed partnership return. Once made, it remains in effect for:

A. The current year only.

B. Five years.

C. Until the partnership terminates or the IRS grants permission to revoke it.

D. Only as long as the original partners remain.

45 / 100

Tags: business, Interest, limitation, Section

AS. For 2026, the “Business Interest Limitation” (Section 163(j)) does NOT apply to a business with average annual gross receipts (over 3 years) of less than:

A. $5 million

B. $25 million

C. $30 million

D. $50 million

46 / 100

Tags: large, Corporation, taxable, income

AT. A “Large Corporation” (taxable income of $1M or more in any of the three preceding years) must generally pay what percentage of its current year tax liability in estimated payments to avoid a penalty?

A. 90%

B. 100%

C. 110%

D. It cannot use the "prior year tax" safe harbor.

47 / 100

Tags: Which, following, Qualified, Foreign

AU. Which of the following is a “Qualified Foreign Corporation” for purposes of the lower tax rate on “Qualified Dividends”?

A. A corporation incorporated in a U.S. possession.

B. A foreign corporation that is a "Passive Foreign Investment Company" (PFIC).

C. A corporation whose stock is not traded on a U.S. exchange.

D. A corporation with no tax treaty with the U.S.

48 / 100

Tags: Corporation, subject, Built, gains

AV. An S Corporation is subject to the “Built-in Gains” (BIG) tax. In the current year, it recognizes a $50,000 built-in gain. It also has a $10,000 capital loss carryforward from its C Corporation years. The taxable BIG is:

A. $50,000

B. $40,000

C. $60,000

D. $0

49 / 100

Tags: Partnership, loss, year, Partner

AW. A partnership has a $100,000 loss for the year. Partner A’s share is $25,000. Partner A has an outside basis of $15,000 and “At-Risk” basis of $10,000. How much of the loss can Partner A deduct on their personal return?

A. $25,000

B. $15,000

C. $10,000

D. $0

50 / 100

Tags: type, reorganization, statutory, merger

AX. In a “Type A” Reorganization (Statutory Merger), the target corporation’s shareholders must receive what percentage of the total consideration in the form of the acquiring corporation’s stock to satisfy the “Continuity of Interest” (COI) requirement?

A. 10%

B. 40%

C. 80%

D. 100%

51 / 100

Tags: Standard, Mileage, rate, business

AY. For 2026, the “Standard Mileage Rate” for business use of a vehicle can be used only if it is elected in:

A. The first year the vehicle is placed in service for business.

B. The year the vehicle is sold.

C. Any year the taxpayer chooses.

D. Only if the vehicle is a truck or van.

52 / 100

Tags: Enrolled, Agent, represent, Client

AZ. An “Enrolled Agent” (EA) may represent a client before which level of the IRS?

A. Examination (Audit) only.

B. Appeals only.

C. All levels of the IRS (Examination, Appeals, Collections).

D. Only in U.S. Tax Court.

53 / 100

Tags: Which, following, separately, Stated

BA. Which of the following is a “Separately Stated Item” for an S-Corporation?

A. Charitable contributions.

B. Advertising expense.

C. Office supplies expense.

D. Cost of goods sold.

54 / 100

Tags: Section, transfer, free, transferors

BB. A “Section 351” transfer is tax-free only if the transferors of property are in “Control” immediately after the exchange. Control is defined as owning at least:

A. 50% of voting power.

B. 80% of voting power and 80% of all other classes of stock.

C. 100% of the corporation.

D. 51% of voting power.

55 / 100

Tags: Personal, holding, Company, must

BC. A “Personal Holding Company” (PHC) must meet an ownership test where more than 50% of the stock is owned by 5 or fewer individuals at any time during the:

A. Entire year.

B. First half of the year.

C. Last month of the year.

D. Last half of the year.

56 / 100

Tags: Cash, method, farmer, Which

BD. For a “Cash Method” farmer, which of the following is NOT deductible until the year the related produce is sold?

A. Fertilizer and lime.

B. Feed for livestock.

C. Cost of livestock purchased for resale.

D. Interest on a farm loan.

57 / 100

Tags: Which, following, Triggers, recapture

BE. Which of the following triggers a “Recapture” of the Section 179 deduction?

A. The business use of the asset falls to 50% or less before the end of the recovery period.

B. The asset is sold for a gain.

C. The taxpayer dies.

D. The asset is destroyed in a fire.

58 / 100

Tags: Partner, Inside, Basis, Partnership

BF. A partner’s “Inside Basis” in a partnership is:

A. The partner’s basis in their partnership interest.

B. The partnership’s basis in its own assets.

C. The FMV of the partnership assets.

D. The total debt of the partnership.

59 / 100

Tags: Qualified, Transportation, Fringe, includes

BG. A “Qualified Transportation Fringe” for 2026 includes which of the following that remains deductible for the employer?

A. Commuter highway vehicle travel.

B. Transit passes.

C. Qualified parking.

D. None of the above (most are non-deductible for employers post-TCJA).

60 / 100

Tags: Which, following, dividend, purposes

BH. Which of the following is a “Dividend” for E&P purposes?

A. A stock split.

B. A distribution of the corporation's own stock (pro-rata).

C. An unreasonable salary paid to a shareholder-employee.

D. A loan to a shareholder with a market-rate interest and a repayment schedule.

61 / 100

Tags: considered, small, business, Stock

BI. To be considered “Small Business Stock” (Section 1244), the corporation’s total capital must not exceed:

A. $500,000

B. $1,000,000

C. $5,000,000

D. $50,000,000

62 / 100

Tags: Corporation, accumulated, Earnings, triggered

BJ. A corporation’s “Accumulated Earnings Tax” (AET) is triggered when earnings are accumulated beyond the reasonable needs of the business. The AET rate is:

A. 15%

B. 20%

C. 21%

D. 35%

63 / 100

Tags: Partnership, Guaranteed, payments

BK. For a partnership, “Guaranteed Payments” are:

A. Deductible by the partnership and ordinary income to the partner.

B. Non-deductible by the partnership and tax-free to the partner.

C. Capital gains to the partner.

D. Only deductible if the partnership has a profit.

64 / 100

Tags: Corporation, accumulated, must, track

BL. An S-Corporation with “Accumulated E&P” must track its “Other Adjustments Account” (OAA). Which of the following is an OAA item?

A. Capital gains.

B. Ordinary business loss.

C. Tax-exempt interest income.

D. Charitable contributions.

65 / 100

Tags: Short, year, return, Corporation

BM. A “Short Tax Year” return for a corporation that has dissolved must be filed by the 15th day of the:

A. 3rd month after the month of dissolution.

B. 4th month after the month of dissolution.

C. End of the calendar year.

D. April of the following year.

66 / 100

Tags: taxpayer, makes, Section, election

BN. If a taxpayer makes a “Section 83(b)” election regarding restricted stock received for services, they must report the FMV of the stock as income:

A. When the stock vests.

B. When the stock is sold.

C. In the year the stock is received, even if it is subject to a substantial risk of forfeiture.

D. Only when the employer allows it.

67 / 100

Tags: Qualified, business, income, Deduction

BO. A “Qualified Business Income” (QBI) deduction is generally what percentage of QBI?

A. 10%

B. 20%

C. 25%

D. 37%

68 / 100

Tags: Which, following, exempt, Organizations

BP. Which of the following “Tax-Exempt Organizations” is NOT required to file an annual Form 990?

A. A private foundation.

B. A labor union with gross receipts over $50,000.

C. A church or an integrated auxiliary of a church.

D. A social club.

69 / 100

Tags: Corporation, distributes, property, Basis

BQ. A corporation distributes property (Basis $10,000, FMV $25,000) to a shareholder. The corporation must recognize a gain of:

A. $0

B. $10,000

C. $25,000

D. $15,000

70 / 100

Tags: Accrual, method, expense, deductible

BR. Under the “Accrual Method,” an expense is deductible when the “All Events Test” is met and “Economic Performance” occurs. For “Workers’ Compensation” liabilities, economic performance occurs when:

A. The injury occurs.

B. The claim is filed.

C. The payment is made to the person.

D. The insurance premium is paid.

71 / 100

Tags: Partnership, Rental, Real, estate

BS. A partnership has a $10,000 “Net Rental Real Estate Loss.” This loss is reported to the partners on:

A. Schedule K-1, Box 2

B. Schedule K-1, Box 1

C. Schedule K-1, Box 3

D. Schedule K-1, Box 14

72 / 100

Tags: Which, following, Section, Intangible

BT. Which of the following is a “Section 197” intangible that must be amortized over 15 years?

A. A patent created by the taxpayer’s own research.

B. A professional license for a CPA.

C. Off-the-shelf software available to the general public.

D. Goodwill acquired in the purchase of a trade or business.

73 / 100

Tags: Corporation, shareholder, Risk, Basis

BU. An S-Corporation shareholder’s “At-Risk” basis is NOT increased by which of the following?

A. Cash contributions to the corporation.

B. The shareholder’s share of S-corp income.

C. A loan from a third-party bank to the S-Corporation for which the shareholder is not personally liable.

D. A direct loan from the shareholder to the S-Corporation.

74 / 100

Tags: business, taxpayer, deduct, What

BV. For 2026, a business taxpayer can deduct what percentage of “Business Meals” provided by a restaurant?

A. 0%

B. 50%

C. 80%

D. 100%

75 / 100

Tags: Corporation, provides, Group, term

BW. A corporation provides “Group-Term Life Insurance” to its employees. The cost of the first how much of coverage is tax-free to the employee?

A. $10,000

B. $50,000

C. $100,000

D. $250,000

76 / 100

Tags: Circular, diligence, regarding, Relying

BX. Under Circular 230, “Due Diligence” regarding “Relying on Information Furnished by the Client” means:

A. The practitioner may rely on information in good faith without verification, unless it appears incorrect or inconsistent.

B. The practitioner must audit every document provided.

C. The practitioner is liable for all client lies.

D. The practitioner must call the client’s bank to verify balances.

77 / 100

Tags: Section, gain, Recognized, taxpayer

BY. A “Section 1231” gain of $10,000 is recognized in 2026. The taxpayer had a Section 1231 loss of $4,000 in 2024. What is the character of the 2026 gain?

A. $10,000 Capital Gain

B. $4,000 Ordinary Income; $6,000 Capital Gain

C. $6,000 Ordinary Income; $4,000 Capital Gain

D. $10,000 Ordinary Income

78 / 100

Tags: Closely, Held, Corporation, avoid

BZ. For a “Closely Held C Corporation” to avoid the “Accumulated Earnings Tax,” it can generally retain up to how much in earnings for no specific business reason?

A. $50,000

B. $150,000

C. $250,000

D. $500,000

79 / 100

Tags: Which, following, income, respect

CA. Which of the following is NOT “Income in Respect of a Decedent” (IRD)?

A. Uncollected wages earned before death.

B. Interest on a CD accrued before death but paid after.

C. Installment note payments due after death.

D. The value of a Roth IRA.

80 / 100

Tags: Partnership, pays, Life, Insurance

CB. A partnership pays $1,000 for “Life Insurance” on a partner to fund a buy-sell agreement. The partnership is the beneficiary. How is this reported?

A. Deductible business expense on Page 1.

B. Separately stated deduction on Schedule K.

C. Non-deductible expense; reduces partner's basis.

D. Tax-free fringe benefit.

81 / 100

Tags: consolidated, Group, must, year

CC. A “Consolidated Group” must use the tax year of:

A. The parent corporation.

B. The subsidiary with the most assets.

C. The calendar year.

D. Any year agreed upon by 80% of members.

82 / 100

Tags: Which, following, terminates, Qualified

CD. Which of the following terminates a “Qualified Subchapter S Trust” (QSST) status?

A. The trust has more than one income beneficiary.

B. The trust distributes all income to the beneficiary.

C. The beneficiary is a U.S. citizen.

D. The trust owns only one class of stock.

83 / 100

Tags: Qualified, Research, expense, Research

CE. A “Qualified Research Expense” (QRE) for the Research Credit includes:

A. Efficiency surveys.

B. Research conducted outside the United States.

C. Quality control testing.

D. Wages paid to a researcher.

84 / 100

Tags: Corporation, Cash, Basis, taxpayer

CF. An S Corporation is a “Cash Basis” taxpayer. It has “Accrued Wages” of $10,000 at year-end owed to a 10% shareholder. When can the S-Corp deduct these wages?

A. In the year the wages were accrued.

B. Never.

C. In the year the shareholder includes the wages in income.

D. Over a 5-year period.

85 / 100

Tags: qualify, small, business, Health

CG. To qualify for the “Small Business Health Care Tax Credit,” the employer must pay at least what percentage of the premium cost for employees?

A. 25%

B. 50%

C. 75%

D. 100%

86 / 100

Tags: Personal, Service, Corporation, taxed

CH. A “Personal Service Corporation” (PSC) is taxed at a flat rate of:

A. 15%

B. 37%

C. 35%

D. 21%

87 / 100

Tags: Partner, outside, Basis, They

CI. A partner’s “Outside Basis” is $10,000. They receive a liquidating distribution of $5,000 cash and inventory (Basis $2,000, FMV $4,000). What is the partner’s recognized loss?

A. $0

B. $1,000

C. $3,000

D. $5,000

88 / 100

Tags: Which, following, Officer, purposes

CJ. Which of the following is an “Officer” for purposes of the $1 million executive compensation deduction limit (Section 162(m))?

A. The CEO, CFO, and the three other highest-compensated officers.

B. Any employee earning over $100,000.

C. Only the Board of Directors.

D. Any S-Corporation shareholder.

89 / 100

Tags: Corporation, incurs, capital, loss

CK. A C Corporation incurs a $20,000 “Net Capital Loss.” It has capital gains in the previous 5 years as follows: Year -1: $5k, Year -2: $0, Year -3: $10k, Year -4: $2k, Year -5: $10k. How much can it carry back?

A. $20,000

B. $0

C. $15,000

D. $17,000

90 / 100

Tags: Section, UNICAP, Indirect, Costs

CL. Under Section 263A (UNICAP), “Indirect Costs” that must be capitalized include:

A. Marketing expenses.

B. Research and development.

C. Officers' compensation for time spent on production.

D. Distribution costs.

91 / 100

Tags: estate, taxable, year, that

CM. An estate has a “Taxable Year” that:

A. Must be a calendar year.

B. Can be any fiscal year-end chosen on the first return.

C. Must match the decedent’s death month.

D. Ends exactly 12 months after the date of death.

92 / 100

Tags: Partnership, formed, contributes, land

CN. A partnership is formed by A and B. A contributes land (Basis $10k, FMV $50k) and B contributes $50k cash. Two years later, the partnership distributes the land to B. This is likely a:

A. Tax-free distribution.

B. Disguised sale under Section 707.

C. Mixing-bowl transaction under Section 704(c)(1)(B).

D. Liquidating distribution.

93 / 100

Tags: Corp, shareholder, debt, Basis

CO. An S-Corp shareholder’s “Debt Basis” was reduced to zero by losses in prior years. In the current year, the S-Corp has $5,000 of ordinary income and makes a $2,000 distribution. What happens first?

A. The distribution reduces stock basis.

B. The distribution is taxed as a dividend.

C. The income increases the stock basis.

D. The income restores the debt basis.

94 / 100

Tags: Which, form, used, Corporation

CP. Which form is used by a corporation to report the “Alternative Minimum Tax” (AMT) for corporations, if applicable?

A. Form 4626

B. Form 6251

C. Form 8827

D. Form 1120, Schedule J

95 / 100

Tags: Section, asset, purchased, Basis

CQ. A “Section 1245” asset was purchased for $100,000 and has a basis of $60,000. It is exchanged for a “Like-Kind” asset worth $90,000 plus $20,000 in cash (boot). How much ordinary income is recognized?

A. $20,000

B. $10,000

C. $40,000

D. $50,000

96 / 100

Tags: Qualified, business, income, Deduction

CR. For the “Qualified Business Income” (QBI) deduction, what is the 2026 “Threshold Amount” for a married couple filing jointly before phase-outs begin? (Assume inflation adjustment)

A. $191,950

B. $340,100

C. $383,900

D. $450,000

97 / 100

Tags: Corporation, owns, Subsidiary, They

CS. A C Corporation owns 85% of a subsidiary. They file a consolidated return. The subsidiary sells an asset to the parent at a $10,000 gain. When is this gain recognized for consolidated tax purposes?

A. Immediately in the year of the sale.

B. Over a 15-year amortization period.

C. It is never recognized.

D. When the parent sells the asset to a party outside the consolidated group.

98 / 100

Tags: Corporation, Excess, Passive, income

CT. An S Corporation has $50,000 of “Excess Net Passive Income” and $40,000 of taxable income if it were a C Corporation. What is the base amount used to calculate the Passive Investment Income Tax?

A. $50,000

B. $40,000

C. $90,000

D. $10,000

99 / 100

Tags: Which, following, Simple, trust

CU. Which of the following is a “Simple Trust” characteristic?

A. It may accumulate income.

B. It provides for a charitable contribution in the current year.

C. It is required to distribute all of its income currently.

D. It may distribute principal (corpus).

100 / 100

Tags: Partnership, Unrealized, Receivables, Partner

CV. A partnership has “Unrealized Receivables” of $20,000. Partner A sells their 50% interest (outside basis $30,000) to an outsider for $60,000. How much of Partner A’s $30,000 gain is characterized as ordinary income?

A. $0

B. $10,000

C. $20,000

D. $30,000

Your score is

The average score is 0%

0%

Latest Posts

Your cart (items: 0)

Part 2 Exam 3

Report a question

Related Posts

Latest Posts