Business Tax Preparation — Enrolled Agent — SEE Part 2 (Businesses) Practice Test

This Enrolled Agent — SEE Part 2 (Businesses) Business Tax Preparation practice set has 235 practice questions based on the official exam materials, each with an instant explanation.

Sample questions

Three questions from the Business Tax Preparation bank with the correct answer and an explanation. The practice quiz above draws 30 questions at random from the same bank.

1. For federal income tax purposes, a business's gross income under IRC §61 generally means:

   • All income from whatever source derived, unless a specific provision excludes it — Correct answer
   • Only the cash actually deposited into the business's bank account during the year
   • Net profit remaining after all ordinary and necessary business expenses
   • Only amounts reported to the business on a Form 1099

   Explanation: IRC §61 defines gross income broadly as all income from whatever source derived unless a specific Code section excludes it. It is not limited to cash deposits or amounts reported on information returns, and it is measured before (not after) deducting business expenses. See Pub 334.

   Handbook: Business Tax Preparation — Gross Income of a Business (IRC §61)

2. A retailer's gross receipts reported at the top of its business return generally include the total sales from its trade or business ______.

   • before subtracting returns, allowances, and the cost of goods sold — Correct answer
   • only after subtracting the cost of goods sold
   • reduced by all operating expenses for the year
   • net of the owner's draws taken during the year

   Explanation: Gross receipts are the total sales (and other business income) before any subtractions. On Schedule C and the business returns, returns and allowances are subtracted from gross receipts to reach net receipts, and cost of goods sold is then subtracted to arrive at gross profit. Operating expenses and owner draws are not netted against gross receipts. See Pub 334.

   Handbook: Business Tax Preparation — Business Gross Receipts

3. All of the following are generally included in a business's gross income EXCEPT:

   • A loan the business borrows from a bank and is obligated to repay — Correct answer
   • The fair market value of goods or services received in a barter exchange
   • Cash sales made to customers during the year
   • Recovery of a bad debt that was deducted and reduced tax in a prior year

   Explanation: Loan proceeds are not income because the borrower has an offsetting obligation to repay — there is no accession to wealth. Barter income (measured at fair market value), cash sales, and the recovery of a previously deducted bad debt (tax-benefit rule, IRC §111) are all includible in gross income under IRC §61. See Pub 334.

   Handbook: Business Tax Preparation — Items Included in Business Income (IRC §61)