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Enrolled Agent Exam Questions & Answers 2026 (21–30)

Enrolled Agent practice questions and answers 2026. Tap an option to test yourself — you'll see the correct answer and a plain-English explanation for every question. Free, no login.

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  1. Q21A taxpayer wins $5,000 at a casino and also loses $7,000 gambling during the same tax year. She itemizes deductions. How does she report these amounts?

    • AShe reports $0 net because losses exceed winnings, resulting in no taxable income
    • BShe reports a net $2,000 loss that may offset other ordinary income
    • CShe reports $5,000 of income with no deduction available because gambling losses are nondeductible personal losses
    • DShe reports $5,000 of income and may deduct gambling losses up to $5,000 as an itemized deduction
    Show answer

    ✓ Correct answer: D. She reports $5,000 of income and may deduct gambling losses up to $5,000 as an itemized deduction

    Under IRC §165(d), gambling losses are deductible only to the extent of gambling winnings; the taxpayer must include all $5,000 of winnings in income and may claim an itemized deduction for losses up to the $5,000 winnings amount — the excess $2,000 of losses is nondeductible.

    Topic: Enrolled Agent (SEE Part 1)

  2. Q22An employee receives a $500 achievement award in the form of a gift card from her employer for completing 10 years of service. The employer does not have a qualified plan under IRC §274. What is the correct tax treatment for the employee?

    • AThe full $500 is included in gross income as wages
    • BThe full $500 is excluded as a length-of-service award
    • COnly the portion exceeding $400 is includable in income
    • DThe full $500 is excluded as a de minimis fringe benefit
    Show answer

    ✓ Correct answer: A. The full $500 is included in gross income as wages

    Cash, gift cards, and equivalent items do not qualify for the employee achievement award exclusion under IRC §74(c) and §274(j) regardless of the amount; such items are always includable in the employee's gross income as compensation.

    Topic: Enrolled Agent (SEE Part 1)

  3. Q23A taxpayer inherits 500 shares of stock from her mother. The mother purchased the shares 10 years ago for $4,000. On the date of the mother's death, the fair market value was $11,000. The taxpayer sells the shares three months after the mother's death for $12,000. What is the amount and character of the gain?

    • A$1,000 short-term capital gain — the holding period begins on the date of death
    • B$8,000 long-term capital gain — the gain is measured from the original purchase price
    • C$12,000 ordinary income — inherited appreciated property triggers ordinary income recapture
    • D$1,000 long-term capital gain — inherited property is automatically treated as held long-term
    Show answer

    ✓ Correct answer: D. $1,000 long-term capital gain — inherited property is automatically treated as held long-term

    Under IRC §1014, the basis of inherited property is stepped up to fair market value at the date of death ($11,000); under IRC §1223(11), inherited property is deemed held long-term regardless of the actual holding period, so the $1,000 gain ($12,000 − $11,000) is a long-term capital gain.

    Topic: Enrolled Agent (SEE Part 1)

  4. Q24A taxpayer receives $12,000 in alimony under a divorce instrument executed in 2015 (before the TCJA effective date, no post-2018 modification). She also pays $3,000 of child support. How do the alimony and child support affect her gross income?

    • ABoth amounts are included in gross income as support payments
    • BBoth the $12,000 and $3,000 are excluded from gross income
    • CThe $12,000 alimony is included in gross income; the $3,000 child support has no effect on her income
    • DThe $3,000 child support is included in gross income; the $12,000 alimony is excluded
    Show answer

    ✓ Correct answer: C. The $12,000 alimony is included in gross income; the $3,000 child support has no effect on her income

    For pre-2019 divorce instruments not modified after December 31, 2018, alimony is includable in the recipient's gross income and deductible by the payor under pre-TCJA rules (IRC §71/§215); child support is never income to the recipient or deductible by the payor regardless of the instrument date.

    Topic: Enrolled Agent (SEE Part 1)

  5. Q25A taxpayer exercises incentive stock options (ISOs) and holds the shares for two years after the grant date and more than one year after the exercise date before selling them at a gain. What is the tax consequence at exercise and at sale?

    • AThe spread at exercise is ordinary income, and the additional gain at sale is also ordinary income
    • BNo income is recognized at either event because ISOs are always tax-free
    • COrdinary income is recognized at exercise equal to the spread; the post-exercise gain at sale is capital gain
    • DNo regular income tax is recognized at exercise; the entire gain at sale is long-term capital gain (a qualifying disposition)
    Show answer

    ✓ Correct answer: D. No regular income tax is recognized at exercise; the entire gain at sale is long-term capital gain (a qualifying disposition)

    Under IRC §422, a qualifying ISO disposition (holding shares more than two years from grant and one year from exercise) results in no regular income tax at exercise — though the spread is an AMT preference item — and the entire gain recognized at sale is treated as long-term capital gain.

    Topic: Enrolled Agent (SEE Part 1)

  6. Q26A taxpayer receives $800 in qualified dividends and $600 in ordinary (nonqualified) dividends from domestic corporations during the year. Which statement best describes the federal income tax treatment?

    • AAll $1,400 is taxed at the taxpayer's ordinary income tax rates
    • BThe $800 in qualified dividends is taxed at preferential rates (0%, 15%, or 20%); the $600 in ordinary dividends is taxed at ordinary rates
    • CDividends from domestic corporations are always excluded from income up to $1,500
    • DAll $1,400 qualifies for preferential dividend rates because both come from domestic corporations
    Show answer

    ✓ Correct answer: B. The $800 in qualified dividends is taxed at preferential rates (0%, 15%, or 20%); the $600 in ordinary dividends is taxed at ordinary rates

    Under IRC §1(h)(11), qualified dividends meeting the definition (paid by U.S. corporations or qualified foreign corporations and satisfying the holding period) are taxed at the same preferential rates as net long-term capital gains; ordinary (nonqualified) dividends are taxed at the taxpayer's regular marginal rates.

    Topic: Enrolled Agent (SEE Part 1)

  7. Q27A taxpayer received a state income tax refund this year for overpayment of last year's taxes. Under what circumstance is the refund NOT required to be included in gross income in the current year?

    • AThe refund is less than $600, which is the de minimis exclusion threshold for state tax refunds
    • BThe refund was received more than 12 months after the original tax payment
    • CThe state tax was paid to a state that does not impose an income tax
    • DThe taxpayer elected the standard deduction in the year the tax was paid
    Show answer

    ✓ Correct answer: D. The taxpayer elected the standard deduction in the year the tax was paid

    Under the tax benefit rule (IRC §111 and Reg. §1.111-1), a state income tax refund is excludable from gross income to the extent the prior deduction did not reduce federal tax — most commonly because the taxpayer took the standard deduction (received no tax benefit from the state tax deduction) in the year the tax was paid.

    Topic: Enrolled Agent (SEE Part 1)

  8. Q28A taxpayer rolls over a distribution from her 401(k) plan. The plan withholds 20% for federal income tax before sending the check. She deposits the net check into an IRA within 60 days. What is the tax consequence?

    • AThe entire rollover is tax-free because she completed the rollover within 60 days
    • BShe may elect to treat the 20% withholding as an additional IRA contribution for the year
    • CThe 20% withheld is treated as a taxable distribution and possible early withdrawal penalty applies unless she makes up the withheld amount from other funds
    • DThe 20% withholding is automatically refunded by the IRS with no tax consequence
    Show answer

    ✓ Correct answer: C. The 20% withheld is treated as a taxable distribution and possible early withdrawal penalty applies unless she makes up the withheld amount from other funds

    Under IRC §402(c), mandatory 20% withholding on eligible rollover distributions is treated as a taxable distribution to the extent the taxpayer does not replace the withheld amount with personal funds within the 60-day rollover window; only the amount actually deposited into the IRA is a nontaxable rollover.

    Topic: Enrolled Agent (SEE Part 1)

  9. Q29A taxpayer works abroad for the entire tax year and meets the bona fide residence test. Her employer, a U.S. corporation, pays her an annual salary. She elects the foreign earned income exclusion. Which of the following is correct regarding how this exclusion interacts with her other U.S.-source income?

    • AThe exclusion eliminates all U.S. tax liability because foreign employment income is entirely outside U.S. jurisdiction
    • BThe exclusion applies to all income earned while physically present outside the United States
    • CThe exclusion applies only to foreign earned income up to the annual limit; U.S.-source income and foreign income exceeding the limit remain fully taxable in the U.S.
    • DElecting the exclusion also automatically exempts foreign passive income such as dividends from foreign corporations
    Show answer

    ✓ Correct answer: C. The exclusion applies only to foreign earned income up to the annual limit; U.S.-source income and foreign income exceeding the limit remain fully taxable in the U.S.

    Under IRC §911, the foreign earned income exclusion covers only qualifying foreign earned income (wages or self-employment income from services performed abroad) up to the statutory annual ceiling; income from U.S. sources and foreign income above the ceiling — as well as unearned income — remain subject to U.S. income tax.

    Topic: Enrolled Agent (SEE Part 1)

  10. Q30A taxpayer pays alimony under a divorce agreement finalized in 2015. During the tax year, she also pays student loan interest and contributes to a traditional IRA. Which of these payments is NOT deductible as an above-the-line adjustment?

    • AAlimony paid under the pre-2019 divorce decree
    • BStudent loan interest within the applicable limit
    • CVoluntary extra principal payments on the student loan
    • DQualifying traditional IRA contribution
    Show answer

    ✓ Correct answer: C. Voluntary extra principal payments on the student loan

    Above-the-line deductions include alimony under pre-2019 decrees (IRC §215), qualifying student loan interest (IRC §221), and deductible IRA contributions (IRC §219), but voluntary principal payments on a loan are repayment of borrowed principal and are never deductible.

    Topic: Enrolled Agent (SEE Part 1)

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