Enrolled Agent Exam Sample Questions: Part 2 Business

Written by Vicky Sarin, CA (INSEAD), Founder of Eduyush. Original questions are Eduyush's own; verbatim items are reproduced from the IRS SEE sample set (public domain).

Part 2 Exam Format & How to Use These Questions

Part 2 (Businesses) has 100 multiple-choice questions — 85 scored and 15 unscored experimental — in 3.5 hours. Questions come in three formats: a direct question, an incomplete sentence, and an "all of the following except" narrative. The 85 scored questions span three domains in roughly this weighting:

Most questions below are original Eduyush practice questions testing the same law the exam tests; a few are verbatim official IRS samples (labelled), so you can see exactly how the IRS phrases them. For the full official set, see the IRS SEE sample questions page.

Domain 1 — Business Entities and Considerations Questions

Q1. Priya is the sole owner of an LLC and has made no entity election with the IRS. By default, how is her single-member LLC taxed for federal purposes?

A. As a C corporation, filing Form 1120
B. As a disregarded entity — she reports the business on her own return (e.g., Schedule C)
C. As a partnership, filing Form 1065
D. As an S corporation, filing Form 1120S

Show answer & explanation

Answer: B. A single-member LLC is a disregarded entity for federal tax by default; the owner reports the activity on their own return (Schedule C for an individual) unless it elects corporate treatment on Form 8832.
Eduyush original question · entity classification rules; Form 8832.

Q2. Two individuals form a general partnership. One contributes $50,000 cash; the other contributes property worth $50,000 (basis $20,000), each for a 50% interest. How much gain does the contributing partner generally recognise?

A. $30,000 — the built-in gain
B. $50,000 — the full fair market value
C. No gain or loss is generally recognised on a contribution of property for a partnership interest
D. $20,000 — the property's basis

Show answer & explanation

Answer: C. Under §721, no gain or loss is generally recognised when a partner contributes property for a partnership interest; the partner's outside basis carries over ($20,000 here).
Eduyush original question · IRC §721; §722.

Q3. When must a calendar-year partnership generally file its Form 1065, and does it pay income tax?

A. April 15; the partnership pays tax on its profits
B. March 15; the partnership files an information return and does not pay income tax — income passes through to partners
C. December 31; the partnership pays a flat 21% tax
D. There is no filing requirement for partnerships

Show answer & explanation

Answer: B. A partnership files Form 1065 by the 15th day of the 3rd month after year end (March 15 for a calendar year) and furnishes Schedule K-1s to partners. It's an information return — the partnership pays no income tax; profits and losses pass through.
Eduyush original question · IRC §6031; §701; Form 1065 instructions.

Q4. A partnership pays a partner a fixed $60,000 for services, determined without regard to partnership income. This guaranteed payment is:

A. A tax-free distribution
B. Ordinary income to the partner, and not subject to income tax withholding
C. Wages reported on a Form W-2
D. A capital gain to the partner

Show answer & explanation

Answer: B. Guaranteed payments are determined without regard to partnership income and are ordinary income to the partner; they are not wages and are not subject to withholding (partners aren't employees).
Eduyush original question · IRC §707(c); Publication 541.

Q5. Which statement best contrasts a C corporation with an S corporation?

A. Both are pass-through entities that pay no entity-level tax
B. A C corporation's profits are taxed at the corporate level (Form 1120) and again as dividends to shareholders; an S corporation generally passes income through, untaxed at the entity level
C. An S corporation pays tax twice; a C corporation never does
D. Neither files a federal return

Show answer & explanation

Answer: B. C corporations face "double taxation" — corporate tax on Form 1120, then shareholder tax on dividends. S corporations are pass-through: income is generally taxed once, on the shareholders' returns via Schedule K-1.
Eduyush original question · IRC §11 (C corp); §1366 (S corp).

Q6. (Official IRS sample — verbatim) What is the maximum number of shareholders a corporation may have to be eligible to elect S corporation status?

A. 25
B. 50
C. 75
D. 100

Show answer & explanation

Answer: D. An S corporation may have no more than 100 shareholders (family members can be counted as one).
Official IRS sample question (verbatim, public domain) · IRC §1361(b)(1)(A); Form 2553 instructions.

Q7. (Official IRS sample — verbatim) If a corporation makes a below-market loan to a shareholder, the deemed payment is generally treated as a(n):

A. Gift
B. Dividend
C. Honorarium
D. Payment of compensation

Show answer & explanation

Answer: B. A corporation's below-market loan to a shareholder produces a deemed dividend (the forgone interest). To an employee it could instead be compensation.
Official IRS sample question (verbatim, public domain) · IRC §7872(c)(1)(C); Publication 550.

Domain 2 — Business Tax Preparation Questions

This matches the real exam weighting — Domain 2 carries the most scored questions, so it deserves the most practice.

Q8. A business takes a client to a restaurant for a legitimate business meal costing $200. Generally, how much is deductible?

A. $200 — fully deductible
B. $100 — generally 50% of the cost
C. $0 — business meals are never deductible
D. $150 — 75% of the cost

Show answer & explanation

Answer: B. Business meals are generally 50% deductible. (The temporary 100% restaurant-meal deduction for 2021–2022 has expired.)
Eduyush original question · IRC §274(n).

Q9. A business produces and sells merchandise. Which accounting method must it generally use for purchases and sales of that merchandise?

A. The cash method only
B. An accrual method (generally required when inventories must be accounted for), though a small-business exception may allow the cash method
C. The instalment method
D. Any method, with no restrictions

Show answer & explanation

Answer: B. When a business must account for inventory, it generally must use an accrual method for purchases and sales — though small businesses under the gross-receipts threshold (§448(c)) may qualify to use the cash method.
Eduyush original question · IRC §§446, 471, 448(c); Publication 334.

Q10. Under Section 179, a business may elect to:

A. Deduct all business losses immediately
B. Expense the cost of qualifying property placed in service in the year, subject to dollar and taxable-income limits
C. Skip depreciation entirely on all assets forever
D. Defer all income to a future year

Show answer & explanation

Answer: B. Section 179 lets a business elect to expense (rather than depreciate) the cost of qualifying property placed in service that year, capped by annual dollar limits and limited to taxable income from the active business.
Eduyush original question · IRC §179; Publication 946.

Q11. A C corporation expects to owe $4,000 of tax this year. When are its estimated tax payments generally due?

A. Only once, with the annual return
B. In four instalments — the 15th day of the 4th, 6th, 9th and 12th months of the tax year
C. Monthly
D. C corporations never pay estimated tax

Show answer & explanation

Answer: B. A C corporation that expects to owe $500 or more must pay estimated tax in four instalments — the 15th day of the 4th, 6th, 9th and 12th months of its tax year.
Eduyush original question · IRC §6655; Form 1120-W concepts.

Q12. A business wrote off a $1,000 account as a bad debt and deducted it last year. This year the customer pays the $1,000. The recovery is:

A. Not taxable — it's a return of capital
B. Income this year, to the extent the earlier deduction produced a tax benefit
C. A capital gain
D. Reported by amending last year's return

Show answer & explanation

Answer: B. Under the tax-benefit rule, recovering a previously deducted bad debt is income in the year of recovery to the extent the deduction reduced tax.
Eduyush original question · IRC §111; Publication 334.

Q13. A calendar-year business buys equipment (5-year property) in March and uses no special convention exception. Under MACRS, how much depreciation does it generally claim in the year placed in service?

A. A full year's depreciation
B. A half-year's depreciation, under the half-year convention
C. No depreciation until the following year
D. The entire cost, immediately

Show answer & explanation

Answer: B. Personal property under MACRS generally uses the half-year convention — a half-year of depreciation in the year placed in service and in the year of disposition (unless the mid-quarter convention applies).
Eduyush original question · IRC §168(d); Publication 946.

Q14. (Official IRS sample — verbatim) An accrual-basis company has service income $25,000; gain on sale of an asset $1,500; interest on accounts receivable $3,000. What gross receipts are reported on Schedule C?

A. $25,000
B. $26,500
C. $28,000
D. $29,500

Show answer & explanation

Answer: C — $28,000. Gross receipts = service income $25,000 + interest on accounts receivable $3,000 = $28,000. The $1,500 asset gain is reported separately (Form 4797), not in Schedule C gross receipts.
Official IRS sample question (verbatim, public domain) · §451(b); Publication 334.

Q15. (Official IRS sample — verbatim) Under the capitalisation rules, amounts paid for which activity must generally be capitalised?

A. Repair/maintenance that does not improve a unit of property
B. A new $8,000 heating system where §179 is elected
C. Materially enlarging a unit of property
D. Replacing a minor component that does not extend the property's life

Show answer & explanation

Answer: C. Materially enlarging a unit of property is a capital improvement that must be capitalised, not expensed as a repair.

Repair vs capital improvement, at a glance.

Action	Treatment
Routine repair/maintenance (no improvement)	Deduct as a current expense
Materially enlarging a unit of property	Capitalise and depreciate

Official IRS sample question (verbatim, public domain) · IRC §263; Treas. Reg. §1.263(a)-3.

Domain 3 — Specialised Returns and Taxpayers Questions

Q16. An estate or trust that has gross income for the year generally reports its income on which federal return?

A. Form 1040
B. Form 1041, U.S. Income Tax Return for Estates and Trusts
C. Form 1120
D. Form 706 only

Show answer & explanation

Answer: B. Estates and trusts report income on Form 1041. (Form 706 is the estate tax return for transfer tax, a different filing.)
Eduyush original question · IRC §641; Form 1041 instructions.

Q17. A tax-exempt organisation that is not eligible to file the postcard (990-N) generally reports its activities to the IRS on which return?

A. Form 1120
B. The Form 990 series (990, 990-EZ or 990-PF, depending on the organisation)
C. Form 1065
D. Exempt organisations never file

Show answer & explanation

Answer: B. Exempt organisations generally file in the Form 990 series — Form 990, 990-EZ, the 990-N e-postcard for small orgs, or 990-PF for private foundations.
Eduyush original question · IRC §6033; Form 990 instructions.

Q18. A paycheck for work done before death is issued to the taxpayer's estate after death. For the recipient, the wages are:

A. Tax-free, because they were inherited
B. Income in respect of a decedent, taxed as ordinary income — the same character it would have had for the decedent
C. A long-term capital gain
D. A nontaxable gift

Show answer & explanation

Answer: B. Wages earned before death but paid afterward are income in respect of a decedent (IRD); IRD keeps the same character it would have had for the decedent, so wages are ordinary income to whoever receives them.
Eduyush original question · IRC §691(a); Publication 559.

Q19. A sole-proprietor farmer reports the income and expenses of the farming business on which schedule?

A. Schedule C
B. Schedule E
C. Schedule F
D. Schedule D

Show answer & explanation

Answer: C. A farmer operating as a sole proprietor reports farm profit or loss on Schedule F (not Schedule C).
Eduyush original question · IRC §61; Schedule F instructions; Publication 225.

Q20. (Official IRS sample — verbatim) Which is true regarding Income in Respect of a Decedent (IRD)?

A. The character of the IRD changes once the decedent dies
B. IRD was already properly included on the decedent's final return
C. The recipient gets no deduction for estate tax attributable to the IRD
D. IRD is included by whoever receives it — the estate, the beneficiary, or a person to whom the estate distributes the right to it

Show answer & explanation

Answer: D. IRD is taxed to whoever actually receives it — the estate, the beneficiary, or the person to whom the estate distributes the right. Its character is unchanged, and a deduction is allowed for related estate tax.
Official IRS sample question (verbatim, public domain) · IRC §691(a),(c); Publication 559.

Q21. (Official IRS sample — verbatim) An organisation may qualify under Section 501(c)(3) if it is organised and operated exclusively for which purpose?

A. Charitable
B. Business
C. Political action
D. Personal

Show answer & explanation

Answer: A. 501(c)(3) status requires exclusively exempt purposes such as charitable, religious, educational or scientific — not business, political or personal purposes.
Official IRS sample question (verbatim, public domain) · IRC §501(c)(3); Treas. Reg. §1.501(c)(3)-1.

From Practice Questions to Exam-Ready

Part 2 is the densest of the three parts — entity rules, basis, depreciation, IRD, exempt organisations — and 21 questions only scratch the surface. That's where an AI-based platform earns its keep. Surgent EA Review, available via Eduyush, runs on adaptive A.S.A.P. technology that pinpoints your weakest business-tax topics and feeds you questions from a 2,000+ MCQ bank until you've closed the gap — so you don't waste time re-drilling what you already know. Its ReadySCORE mirrors the real exam and shows the score you'd get if you sat today.

EA Part 2 Practice Questions — FAQs

Are these real EA exam questions?

Most are original Eduyush practice questions written to the same tax law the exam tests; a few are official IRS sample questions (clearly labelled). No one can publish live exam questions — these mirror the format and difficulty so you practise realistically.

How many questions are on EA Part 2?

100 multiple-choice questions — 85 scored and 15 unscored experimental — in 3.5 hours, across three domains of business taxation.

Is Part 2 the hardest part of the EA exam?

By pass rate, Part 1 is the toughest (around 58%); Part 2 sits around 71%. But Part 2 has the most content — business entities, basis, depreciation and specialised returns — so it demands the most memorisation. See the pass-rate breakdown.

What tax year does the exam test?

The July 2026 – February 2027 testing window tests federal tax law as of 31 December 2025 (tax year 2025). Each new window updates to the prior calendar year's law.

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