Advising the Individual Taxpayer — Enrolled Agent — SEE Part 1 (Individuals) Practice Test

This Enrolled Agent — SEE Part 1 (Individuals) Advising the Individual Taxpayer practice set has 70 practice questions based on the official exam materials, each with an instant explanation.

Sample questions

Three questions from the Advising the Individual Taxpayer bank with the correct answer and an explanation. The practice quiz above draws 30 questions at random from the same bank.

1. A client who runs a car dealership receives $12,000 in cash from a single buyer in one transaction. What federal reporting obligation does the dealership have?

   • File Form 8300 to report the receipt of more than $10,000 in cash in a single transaction — Correct answer
   • No reporting is required because the buyer, not the seller, reports large cash purchases
   • File a Schedule C only if the total exceeds $50,000 for the year
   • Issue the buyer a Form 1099-NEC for the cash received

   Explanation: A trade or business that receives more than $10,000 in cash in one transaction (or related transactions) must report it on Form 8300 (IRC §6050I). The $10,000 cash-reporting threshold is fixed by statute.

   Handbook: Advising the Individual Taxpayer — Cash Reporting (Form 8300)

2. How should you advise an individual client regarding the digital asset question that appears at the top of Form 1040?

   • Every taxpayer filing Form 1040 must answer the digital asset question 'Yes' or 'No,' even if they had no digital-asset activity — Correct answer
   • Only taxpayers who sold cryptocurrency at a gain need to answer the question
   • The question may be left blank if the taxpayer holds no digital assets
   • The question applies only to taxpayers engaged in a trade or business

   Explanation: The digital asset question on Form 1040 must be answered by ALL individual filers with a checkbox 'Yes' or 'No'; it cannot be left blank (Form 1040 Instructions). A 'Yes' is required when the taxpayer received, sold, exchanged, or otherwise disposed of a digital asset.

   Handbook: Advising the Individual Taxpayer — Digital Asset Reporting

3. When a self-employed client exchanges services with another business through a barter arrangement, the income the client must report is measured by ______.

   • the fair market value of the goods or services received in the exchange — Correct answer
   • the taxpayer's out-of-pocket cost of providing the service
   • zero, because no cash changed hands in the barter
   • only the amount reported to the client on a Form W-2

   Explanation: Bartering income is includible in gross income at the fair market value of the property or services received (IRC §61; Pub 525). Barter-exchange transactions are commonly reported to participants on Form 1099-B.

   Handbook: Advising the Individual Taxpayer — Bartering Income