Enrolled Agent Exam Questions & Answers 2026 (11–20)

Question 1

A taxpayer lived with an unrelated individual who was their dependent all year. Which filing status, if any, may the taxpayer claim based solely on maintaining this household?

TheoryPractice · Accepted Answer

The taxpayer cannot claim Head of Household; the qualifying person must be a qualifying child or certain qualifying relatives, not just any dependent.. Head of Household requires the qualifying person to be either a qualifying child or a qualifying relative who is a parent or specified relative listed in the tax law; an unrelated individual who qualifies as a dependent only through the member-of-household prong does NOT qualify the taxpayer for Head of Household.

Question 2

Which of the following taxpayers is NOT required to file a federal income tax return based solely on the general gross-income filing thresholds (ignoring special situations)?

TheoryPractice · Accepted Answer

A single taxpayer under 65 whose gross income equals the standard deduction for single filers.. A taxpayer whose gross income equals (but does not exceed) the applicable standard deduction threshold is not required to file; the filing requirement is triggered only when gross income exceeds the threshold, and self-employment income above $400 triggers a separate SE filing requirement that the sole proprietor in option A faces.

Question 3

A taxpayer divorced in February and paid all costs to maintain a home where a qualifying child lived for the entire year. The taxpayer does not remarry. The ex-spouse signs Form 8332 releasing the child's dependency exemption to the taxpayer. What is the taxpayer's correct filing status?

TheoryPractice · Accepted Answer

Head of Household, because the taxpayer maintained a home for a qualifying child for more than half the year despite the divorce.. A taxpayer who is considered unmarried (legally divorced) by December 31, maintained a home as the principal residence of a qualifying child for more than half the year, and paid more than half the household costs qualifies for Head of Household regardless of who claims the dependency exemption, because the HOH qualifying-child test uses residency, not the dependency claim.

Question 4

A taxpayer receives a $10,000 settlement from a lawsuit. Of this amount, $6,000 compensates for physical injuries sustained in a car accident, $2,000 is for emotional distress directly attributable to those physical injuries, and $2,000 is for punitive damages. How much of the settlement is taxable?

TheoryPractice · Accepted Answer

$2,000 — only the punitive damages are includable in gross income. Under IRC §104(a)(2), compensatory damages for physical injuries and emotional distress directly attributable to physical injuries are excluded from gross income, but punitive damages are always includable regardless of the origin of the claim.

Question 5

A calendar-year taxpayer contributes to a traditional IRA and also participates in his employer's 401(k). His modified AGI is between the IRA deduction phase-out range for active participants. He makes a $3,000 nondeductible IRA contribution and later takes a $5,000 distribution. His total traditional IRA balance before the distribution was $20,000, of which $3,000 was basis. What portion of the $5,000 distribution is taxable?

TheoryPractice · Accepted Answer

$4,250 — calculated by applying the ratio of after-tax basis to total balance. Under the pro-rata (cream-in-the-coffee) rule of IRC §72, the taxable portion equals the distribution multiplied by (1 − basis/total balance); here $5,000 × (1 − $3,000/$20,000) = $5,000 × 0.85 = $4,250 is taxable, and $750 is a nontaxable return of basis.

Question 6

An employee receives group-term life insurance coverage of $150,000 from her employer, who pays the entire premium. What is the correct tax treatment of this benefit?

TheoryPractice · Accepted Answer

The cost of coverage on the first $50,000 is excluded; the cost of coverage on the excess $100,000 is included in wages. IRC §79 excludes employer-paid group-term life insurance up to $50,000 of coverage; the cost of any coverage above that threshold (calculated using IRS Table I rates) must be included in the employee's gross income as wages.

Question 7

A taxpayer cashes in Series EE U.S. Savings Bonds and uses ALL of the proceeds to pay qualified higher-education expenses for her dependent child. Her modified AGI is well below the exclusion phase-out range. What is the correct treatment of the interest earned on the bonds?

TheoryPractice · Accepted Answer

The interest may be excluded from gross income under the Education Savings Bond Program. Under IRC §135, interest on Series EE or I bonds issued after 1989 may be excluded from income when the taxpayer uses the proceeds to pay qualified higher-education expenses and the taxpayer's MAGI falls within the eligible range.

Question 8

A taxpayer sells a rental property that was placed in service after 1986 for a gain. Of the total gain, $18,000 is attributable to depreciation previously deducted (all straight-line). The remaining gain is long-term capital gain. How is the $18,000 depreciation component taxed for a taxpayer in the highest ordinary income bracket?

TheoryPractice · Accepted Answer

At a maximum rate of 25% as unrecaptured Section 1250 gain. Straight-line depreciation on real property (§1250 property) is not recaptured as ordinary income under §1250, but the accumulated depreciation is taxed as 'unrecaptured Section 1250 gain' at a maximum rate of 25% under IRC §1(h).

Question 9

A married couple filing jointly receives Social Security benefits during the year. Their provisional income (combined income) is above the second tier threshold. What is the maximum percentage of their Social Security benefits that may be included in gross income?

TheoryPractice · Accepted Answer

85%. Under IRC §86, up to 85% of Social Security benefits are includable in gross income for taxpayers whose provisional income exceeds the upper tier combined income threshold; no more than 85% is ever taxable regardless of income level.

Question 10

A self-employed taxpayer receives a $15,000 discharge of indebtedness on a business loan at a time when she is insolvent by $8,000 (her liabilities exceed assets by $8,000). What amount, if any, must she include in gross income?

TheoryPractice · Accepted Answer

$7,000 — the amount by which the discharge exceeds the insolvency. Under IRC §108(a)(1)(B) and §108(a)(3), the insolvency exclusion applies only to the extent the taxpayer was insolvent immediately before the discharge; here $8,000 is excluded and the remaining $7,000 ($15,000 − $8,000) must be included in gross income.

Enrolled Agent Exam Questions & Answers 2026 (11–20)

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