Examworthyexamworthy.comIRS Enrolled Agent - SEE Part 2: Businesses cheat sheet
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At a glance
Format: Multiple choice, closed book
Domain weight map
Heaviest first - spend your time hereHow this exam thinks
SEE-2 rewards exact business-return computation and entity-by-entity precision, especially around basis, depreciation, and how losses and distributions interact with basis.
Spot the trap
Tempting wrong answers, and why they failTempting but wrong
Take the 14.29 percent 7-year rate and halve it again because the asset was only held part of the year.
Why it fails
Halving the table percentage is tempting if you think the half-year convention must be applied on top of the rate. But the published 14.29 percent rate already builds in the half-year convention, so applying a second half is double-counting.
Business Tax Preparation
Tempting but wrong
A transfer of property solely to a controlled corporation under Section 351 is fully tax-free regardless of any cash received.
Why it fails
It is tempting to treat Section 351 as completely tax-free, but nonrecognition does not extend to boot. Cash received is boot that triggers recognised gain, so the answer is not zero.
Business Entities and Considerations
Tempting but wrong
A charity seeking 501(c)(3) status applies on Form 1024.
Why it fails
Tempting as another recognition form, but Form 1024 is used by organisations seeking exemption under most other paragraphs of Section 501(c), such as 501(c)(4) or 501(c)(6), not by 501(c)(3) charities, so naming it applies the wrong application form.
Specialized Returns and Taxpayers
Tempting but wrong
Apply the 200 percent declining balance rate of two divided by seven to the full basis with no convention adjustment.
Why it fails
Computing two divided by seven of basis (28.58 percent) looks like the declining balance method, but it ignores the half-year convention that halves the first-year deduction. The 14.29 percent table rate already reflects that convention.
Business Tax Preparation
Tempting but wrong
Once any cash boot is received under Section 351, the entire built-in gain in the property must be recognised.
Why it fails
Receiving boot does not strip away all nonrecognition. Recognised gain is capped at the boot received, not the full 150,000 dollar realised gain, so this overstates the taxable amount.
Business Entities and Considerations
Tempting but wrong
A 501(c)(3) charity can always use the streamlined Form 1023-EZ regardless of its expected gross receipts.
Why it fails
Tempting because the short form is simpler, but Form 1023-EZ is restricted to small organisations that meet the eligibility limits, including projected annual gross receipts of 50,000 dollars or less. An organisation expecting more is not eligible and must file the full Form 1023.
Specialized Returns and Taxpayers
Tempting but wrong
Taxable income exceeds the limit, so the firm takes the full indexed dollar cap of 1,220,000 dollars with no reduction.
Why it fails
Taking the full cap ignores the investment-based phase-out, which reduces the limit dollar for dollar once property placed in service passes 3,050,000 dollars. With 3,300,000 dollars placed in service the full cap is not available.
Business Tax Preparation
Tempting but wrong
A Section 351 transferor's stock basis equals the fair market value of the property contributed.
Why it fails
Using fair market value ignores the substituted-basis rule of Section 358. The shareholder carries over her old basis with adjustments for boot and recognised gain, so fair market value is incorrect.
Business Entities and Considerations
Key terms
Exam-day rules
- Identify the entity before you compute anything. The same fact pattern gives different answers for a partnership, an S corporation, and a C corporation, and the most common trap is the correct rule applied to the wrong entity.
- Check which year property was placed in service. Bonus depreciation phases down, and for 2024 it is 60 per cent, not 100 per cent, so a stem dated 2024 rules out the full-expensing distractor.
- Apply cost recovery in order: Section 179 first, then bonus on the reduced basis, then MACRS, and test the Section 179 business-income cap before the dollar limit.
- For recapture, ask the lesser of two numbers. Section 1245 recaptures the lesser of depreciation taken or gain realised as ordinary income, so a full-gain answer is usually wrong.
- Watch for limitation distractors. Many questions give the tentative figure and the limited figure as separate options; read whether the question wants the amount before or after the cap.
Revision schedule
- Day 1Map the blueprint and book a date
- Weeks 1-2Lock entity taxation and basis (Section 1)
- Weeks 2-4Go deep on business tax preparation (Section 2)
- Week 4Cover the specialised returns (Section 3)
- Week 5Practise on worked problems with explanations