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IRS Special Enrollment Examination (SEE) for Enrolled Agents

5. Advising the individual taxpayer: practice questions

Our Enrolled Agent (SEE) bank has 40 questions on this topic. Here are 5 of them with answers; the full mock exam draws from every topic, like the real one.

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Question 1

A client wants to give $25,000 cash to each of her two grandchildren in 2025. What is the best advice about gift tax?

  1. Each grandchild must report the gift as income
  2. She owes gift tax of 40% on the excess
  3. She must file Form 709, or she and her husband can split gifts to stay within the annual exclusions
  4. No return is needed because gifts to family are exempt
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C. She must file Form 709, or she and her husband can split gifts to stay within the annual exclusions — Each gift exceeds the $19,000 annual exclusion, so Form 709 is required. With gift splitting, each spouse is treated as giving $12,500, within the exclusion, but Form 709 is still filed to elect splitting.

Question 2

Signing a return under penalties of perjury means the taxpayer declares that:

  1. To the best of their knowledge and belief, the return is true, correct and complete
  2. The return was reviewed by the IRS
  3. The taxpayer has kept all records for 10 years
  4. The preparer guarantees the return
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A. To the best of their knowledge and belief, the return is true, correct and complete — The jurat on every return states that the signer has examined it and that, to the best of their knowledge and belief, it is true, correct and complete.

Question 3

Which is a common estate planning use of life insurance?

  1. To provide liquidity to pay estate taxes and expenses
  2. To replace the need for a will and avoid probate entirely
  3. To increase the decedent's basis in other assets
  4. To avoid all income tax on investment gains
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A. To provide liquidity to pay estate taxes and expenses — Life insurance proceeds can provide cash for estate taxes and expenses. Proceeds are generally income tax free to beneficiaries but may be in the gross estate if the decedent had incidents of ownership.

Question 4

A taxpayer's main home was in a federally declared disaster area. What timing option may help her?

  1. Electing to deduct the disaster loss on the prior year's return
  2. Delaying the loss to any future year she chooses
  3. Claiming the loss on a business return
  4. Spreading the loss evenly over 5 years starting with the next year
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A. Electing to deduct the disaster loss on the prior year's return — A loss from a federally declared disaster can be claimed in the year before the disaster year, which can produce a faster refund.

Question 5

Life insurance proceeds paid to a beneficiary because of the insured's death are generally:

  1. Taxable to the extent the proceeds exceed $50,000
  2. Not included in the beneficiary's gross income
  3. Fully taxable as ordinary income
  4. Taxable as capital gain
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B. Not included in the beneficiary's gross income — Death benefits are generally excluded from income. Interest paid on proceeds held by the insurer is taxable.

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