Questions and Answers
What is the purpose of the PassKey EA Review Series?
To help candidates study for the EA exam.
How many parts does the EA exam consist of?
Which part of the EA exam tests the taxation of businesses?
Candidates have ___ hours to complete each part of the EA exam.
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The EA exam includes some experimental questions.
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What is the penalty amount for failure to file a tax return that is more than 60 days for tax years beginning in 2023?
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Which penalty applies to Form 1120 and Form 1040 returns?
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Personal transfers between friends and family are exempt from the Form 1099-K reporting requirement.
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Beginning in 2023, the IRS added a question about _______ to business entity tax forms.
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Match the tax provision with its description:
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What items are you allowed to bring into the testing room for the EA exam?
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What is the break policy for the Special Enrollment Exam (SEE)?
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How are questions on the EA exam weighted?
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How long is each part of the EA exam?
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The EA exam is graded on a curve.
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What is required before you can register for the EA exam? You must obtain a __________ from the IRS.
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What is a good rule of thumb for studying hours for each of the three exam sections?
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What is required to be brought to the test site for the EA exam?
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If you miss your scheduled exam appointment, you can take the test at a later time without incurring any additional fees.
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What is the maximum OASDI wage base for 2023?
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Match the following 2023 Filing Deadlines:
- Individual filing deadline
- Estates and Trusts Income Tax Return Deadline
- S Corporation Deadline
- Exempt Entity Deadline
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What tax form is issued to a statutory nonemployee to report their compensation?
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Statutory nonemployees are treated as self-employed for federal tax purposes.
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What is the term used to refer to the regime in which the partnership itself is subject to paying income tax if it underreported its taxable income on the return?
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A partnership can elect out of CPAR if it has more than 100 partners.
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What must a partnership do to opt-out of CPAR if it has 100 or fewer partners?
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A partnership must designate a 'partnership representative' with the filing of their tax return. The representative must have a substantial presence in the United States and can be either an individual or a ____________ entity.
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Match the following entity types with their categorization as eligible partners to opt-out of CPAR:
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Which of the following is true regarding a Qualified Joint Venture (QJV)?
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Spousal owners of Limited Liability Companies (LLCs) generally qualify for a Qualified Joint Venture.
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What tax form must a C corporation file annually to report its net income and losses?
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Most Limited Liability Companies (LLCs) in the United States are taxed as _______________.
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What tax classification is a single-owner LLC treated as by default?
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A partnership must have at least two owners.
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What form is filed to elect a change in tax classification for an LLC?
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A single-member LLC owned by a corporation or partnership is included on the entity’s tax return as if it were a ______.
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Match the following tax form with its purpose:
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When should Madeline issue a Form 1099-NEC to Jonah?
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Form 1099-NEC should include credit card payments made to the contractor.
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What is the purpose of Form 8300?
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A person who is an independent contractor may be required to make quarterly estimated tax payments if their net earnings from self-employment are over $__.
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Study Notes
EA Review Study Guide Overview
- Designed for exam candidates taking the EA exam between May 1, 2024, and February 28, 2025
- Notes are based on the IRS Special Enrollment Examination (SEE) for the May 1, 2024, to February 28, 2025, testing cycle
- Prometric will NOT TEST on any legislation or court decisions passed after December 31, 2023
- All references on the examination are to the Internal Revenue Code, forms, and publications, as amended through December 31, 2023
- Unless otherwise stated, all questions relate to the calendar year 2023
EA Exam Basics
- The EA exam consists of three parts, which candidates may schedule separately and take in any order they wish
- Part 1 tests the taxation of individuals
- Part 2 tests the taxation of businesses
- Part 3 tests representation, practice, and procedures
- Each part of the exam features 100 multiple-choice questions, with no written answers required
Computerized EA Exam Format
- Part 1: Individual Taxation - 100 questions
- Part 2: Business Taxation - 100 questions
- Part 3: Representation, Practice, and Procedures - 100 questions
- You have 3.5 hours to complete each part of the exam
- The actual seat time is four hours, which allows time for a pre-exam tutorial and a post-exam survey
Prometric Testing Center Procedures
- Check in about thirty minutes before your appointment time and bring a current, government-issued ID with a photo and signature
- The testing center is a secure environment, with no food, water, or other beverages allowed in the testing room
- You will be given scratch paper and a pencil to use, which will be collected after the exam
- You may use an on-screen calculator during the exam, or Prometric will provide you with a handheld calculator
- Before entering the testing room, you may be scanned with a metal detector wand
- You must sign in and out every time you leave the testing room
Exam Content
- Each year, using questions based on the prior calendar year's tax law, the IRS introduces multiple new versions of each part of the EA exam
- The exam covers all aspects of federal tax law
- Be familiar with recent updates, as tax laws change yearly
Exam Strategy
- Read each question thoroughly to understand precisely what is being asked
- Be particularly careful when the problem uses language such as "not" or "except"
- If you are unsure of an answer, you may mark it for review and return to it later
- Try to eliminate clearly wrong answers from the four possible choices to narrow your odds of selecting the right answer
- Answer every question, even if you have to guess, because all answers left incomplete will be marked as incorrect
Scoring Methods
- The EA exam is not graded on a curve
- The IRS determines scaled scores by calculating the number of questions answered correctly from the total number of questions in the exam and converting to a scale that ranges from 40 to 130
- The IRS has set the scaled passing score at 105, which corresponds to the minimum level of knowledge deemed acceptable for EAs
Passing the Exam
- If you pass, your printed results will show a passing designation but not your actual score
- If you fail, you will receive diagnostic information to help you know which subject areas to concentrate on when studying to retake the exam
- You may take each part of the exam up to four times during the current testing window
- Due to the global pandemic, the IRS extended the two-year carryover period to three years for passing all three parts of the exam### Ten Steps for the EA Exam
- Learn about the enrolled agent designation and career opportunities
- Gather information about the exam on the Prometric testing website
- Obtain a PTIN (Preparer Tax Identification Number) before registering for the exam
- Register with Prometric and schedule an exam appointment
- Schedule an exam appointment within one year from the registration date
- Adopt a study plan that covers each unit of the PassKey guides
- Study at least 60 hours for each of the three exam sections
- Get plenty of rest, exercise, and good nutrition before the EA exam
- Arrive early at the test site and bring a government-issued ID
- Focus and manage your time well during the exam
Essential Tax Law Figures for Businesses
- 2023 tax year filing deadlines:
- Individual filing deadline: April 15, 2024
- Extended due date: October 15, 2024
- Estates and Trusts Income Tax Return Deadline: April 15, 2024
- Partnership Deadline: March 15, 2024
- S Corporation Deadline: March 15, 2024
- C Corporation Deadline: April 15, 2024
- Exempt Entity Deadline: May 15, 2024
- 2023 maximum compensation subject to FICA:
- OASDI maximum wage base: $160,200
- Employee and employer portion: 7.65% (6.2% Social Security + 1.45% Medicare)
- Self-employed: 15.30% (12.4% Social Security + 2.9% Medicare)
- Maximum FICA/SE Tax: $9,932.40 (employee), $19,864.80 (self-employed)
- 2023 estimated tax due dates:
- Individuals: Quarterly estimated taxes are generally due by April 15, June 15, September 15, and January 15 of the following year
- Corporations: April 15, June 15, September 15, and December 15
- 2023 FUTA wage base: $7,000
- 2023 net investment income tax (NIIT): 3.8% of the lesser of net investment income or modified adjusted gross income (MAGI) over $14,450 for Estates and trusts
- 2023 excess business loss limitation: $578,000 for joint filers and $289,000 for all other filing statuses
Retirement Plans
- 2023 contribution limits:
- Roth and traditional IRAs: $6,500 ($7,500 for taxpayers age 50 or older)
- Roth IRA contribution limit phaseout (MAGI): $138,000 to $153,000 (Single and HOH), $218,000 to $228,000 (Married filing jointly), $0 to $10,000 (Married filing separately)
- SIMPLE IRA/SIMPLE 401(k): $15,500 ($19,000 age 50 and older)
- Traditional 401(k)/403(b) plan Employee Elective Deferral Limits: $22,500 ($30,000 age 50 or older)
- 2023 Section 179 Expense:
- Maximum deduction amount: $1,160,000
- Beginning placed-in-service phaseout limitation: $2,890,000
- Spending cap: $3,780,000
- 2023 QBI deduction limits:
- Married Filing Joint: $364,200-$464,200
- All other filing statuses: $182,100-$232,100
Miscellaneous
- 2023 standard mileage rates:
- Business use: 65.5 cents a mile
- Medical and moving: 22 cents a mile
- Charitable: 14 cents a mile
- 2023 qualified transportation benefits:
- Commuter benefits/transit passes: $300 per month
- Parking: $300 per month
- 2023 HSA and HDHP limits:
- HSA contribution limit (employer + employee): Self-only: $3,850, Family: $7,750
- HSA contribution limit (age 55 or older): Self-only: $4,850, Family: $8,750
- HDHP minimum deductibles: Self-only: $1,500, Family: $3,000
- HDHP maximum out-of-pocket amounts: Self-only: $7,500, Family: $15,000
- 2023 QSEHRA limits:
- Maximum payments and reimbursements: $5,850 for the employee only; or $11,800 for an employee plus family members
- 2023 FSA limits:
- Health Care FSA (HCFSA): $3,050 with a maximum carryover of $610 in 2023
- Dependent Care FSA (DCFSA): $5,000 for unmarried filers and couples filing jointly, and $2,500 for married couples filing separately
- 2023 "Nanny Tax" on Household Employees:
- Nanny tax threshold: $2,600
- Household employer is required to withhold and pay federal FICA taxes for any household employee they paid $2,600 or more during the year
Tax Law Updates for Businesses
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2023 Meal Deduction Rules:
- Businesses, including self-employed taxpayers, may claim 50% of food or beverage expenses through December 31, 2023
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2023 Charitable Contribution limits:
- C Corporations can deduct charitable contributions up to 10% of taxable income
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Increase in penalty for failure to file:
- For tax years beginning in 2023, the penalty for failure to file a tax return that is more than 60 days shall not be less than (1) the lesser of $485 or (2) 100% of the tax due on the return
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Partnership and S corporation late filing penalties:
- Standard failure-to-file penalties are $235 per month, per partner or shareholder in a partnership or an S corporation for business returns filed in 2024 (for 2023 tax year returns)
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Form 1099-K Reporting Requirement Delayed Again in 2023:
- The reporting requirement for Form 1099-K, Payment Card and Third-Party Network Transactions, was delayed again in 2023
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Corporate AMT:
- The Tax Cuts and Jobs Act permanently eliminated the graduated rates for C Corporations
- The Inflation Reduction Act of 2022 reintroduced a new corporate AMT, effective for tax year 2023
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Credit for Small Employer Pension Plan Startup Costs:
- Effective for 2023, SECURE Act 2.0 doubled the tax credit for new plans for small businesses with up to 50 employees to cover 100% of plan start-up costs
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Digital Asset Question for Entities:
- Beginning in 2023, the IRS has added a question about digital assets to business entity tax forms, covering partnerships, corporations, S corporations, and estates and trusts for 2023 tax returns
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2023 E-file Mandate:
- Businesses will be required to e-file if they file 10 or more information returns starting January 1, 2024
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IRIS Platform for Form 1099 filings:
- The IRS launched the Information Returns Intake System (IRIS) on January 25, 2023, providing a secure and accurate way for businesses to file their 1099 forms electronically### FBAR Penalties
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The non-willful civil penalty for FBAR violations applies per FBAR report, not per reportable foreign account, as ruled by the US Supreme Court in 2023.
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This means that even if an individual has multiple reportable foreign bank accounts with a non-willful FBAR violation, only one civil penalty can be imposed on the taxpayer for the year.
Net Operating Losses (NOLs)
- NOLs arising in tax year 2023 and beyond can only be carried forward.
- NOL deductions are limited to 80% of taxable income, except for losses generated prior to 2018.
- NOLs can be carried forward indefinitely until the loss is used up or the taxpayer dies.
- For pass-through entities (partnerships and S corporations), the NOL is applied at the partner and shareholder level.
Farmer Exception
- Farming businesses have a 2-year carryback period for NOLs.
- An election can be made to waive the carryback period.
- If an NOL consists of both a farming loss and a non-farming loss, the losses should be treated separately.
Exception for Casualty Insurance Companies
- Property and casualty insurance companies are allowed a 2-year carryback period for NOLs.
- An election can be made to waive the carryback period.
- The NOL carryforward is limited to 20 years, and the 80% limitation does not apply.
Form 1120-W Discontinued
- Beginning with the 2023 tax year, Form 1120-W, Corporation Estimated Tax, is no longer used to compute the amount of estimated tax due in any quarter.
- Corporations must deposit all payments using the Electronic Federal Tax Payment System (EFTPS).
Business Entities
- The simplest form of business is a sole proprietorship, which is owned and controlled by one person.
- Sole proprietorships are not separate legal entities and have no distinction between business and personal income.
- A sole proprietorship cannot be passed on to a new owner as the same business entity.
Partnerships
- A partnership is a relationship between two or more taxpayers who join together to carry on a trade or business.
- Each partner contributes money, property, labor, or skill and expects to share in the profits and losses of the business.
- Partnerships must file an annual information return (Form 1065) to report income, deductions, gains, and losses.
- Partnerships do not pay income tax; instead, profits or losses "pass through" to partners, who report their shares on their individual returns.
Partnership Representative
- A partnership representative is designated with the filing of the tax return and has authority to make decisions for the partnership during an audit.
- The representative can be an individual or a business entity and must have a substantial presence in the United States.
- A partnership cannot opt out of the centralized partnership audit regime if it has an ineligible partner (e.g., a grantor trust).
Limited Partnerships (LPs)
- An LP has at least one limited partner in addition to its general partner(s).
- Limited partners have no obligation to contribute additional capital and do not have personal liability for partnership debts.
- Limited partners are restricted in their involvement in the management of the partnership.
Limited Liability Partnerships (LLPs)
- An LLP is a state-formed entity that provides limited liability protection to each partner.
- LLPs are often used for specific professional services, such as law firms or CPA firms.
- Partners in an LLP can actively participate in management affairs while enjoying limited liability protection.
Married Couple Businesses and Qualified Joint Ventures
- A married couple operating a small business without incorporating or creating a formal partnership agreement is generally considered a partnership.
- The business can elect to be a "qualified joint venture" for tax purposes, avoiding the need to file a partnership tax return (Form 1065).
- Same-sex spouses who are legally married can elect a qualified joint venture, while couples in civil unions or registered domestic partnerships cannot.
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Description
This quiz is based on the EA Review Part 2: Businesses Enrolled Agent Study Guide covering the testing cycle from May 1, 2024 to February 28, 2025. It is designed to help individuals prepare for the Enrolled Agent exam.
