IRS SEE Practice Questions (2026) — Free Sample Questions with Answers

Answer: C

1. Start with the Okafors' modified AGI: $62,000.
2. Samuel's $16,500 of earned income exceeds the 2025 dependent filing threshold for earned income ($15,750), so he is required to file; add his MAGI: $62,000 + $16,500 = $78,500.
3. Ruth's $4,000 is below the threshold; filing only for a refund does not make her required to file, so exclude it.
4. Household income = $78,500.

$62,000: Omits Samuel, whose MAGI must be included because he is a dependent required to file a return.

$66,000: Adds Ruth instead of Samuel; a dependent who files only to claim a refund is not required to file, so her income is excluded.

$78,500: Correct. Household income is the MAGI of the taxpayers plus the MAGI of each dependent who is required to file: $62,000 + $16,500 (IRC §36B(d)(2); Form 8962 instructions).

$82,500: Includes Ruth's $4,000; her wages are below the $15,750 dependent filing threshold, so she is not required to file.

PTC household income = MAGI of the taxpayer and spouse plus MAGI of dependents who are required to file, not dependents who file only for a refund.

Answer: B

1. Net short-term: $4,000 − $9,000 = ($5,000).
2. Net long-term: $2,000 − $6,500 = ($4,500).
3. Net capital loss: ($9,500); deduct $3,000 against ordinary income.
4. The deduction uses the short-term loss first: $5,000 − $3,000 = $2,000 short-term carryover.
5. The long-term loss of $4,500 carries over in full. Total carryover: $6,500.

$6,500, all long-term: The carryover keeps its character; part of it is short-term.

$2,000 short-term and $4,500 long-term: Correct. Net short-term loss is $5,000 and net long-term loss is $4,500; the $3,000 deduction uses the short-term loss first, leaving $2,000 short-term and $4,500 long-term to carry over (IRC §§1211(b), 1212(b); Schedule D instructions).

$5,000 short-term and $1,500 long-term: Applies the $3,000 deduction against the long-term loss first; the short-term loss is used first.

$9,500, split $5,000 short-term and $4,500 long-term: Ignores the $3,000 deduction allowed against ordinary income for 2025.

Net short-term and long-term separately; the $3,000 ($1,500 MFS) deduction absorbs net short-term loss first, and the rest carries over with its character.

Answer: B

1. Taxes paid: $38,000 + $14,000 = $52,000.
2. Excess MAGI: $560,000 − $500,000 = $60,000.
3. Reduction: 30% × $60,000 = $18,000.
4. Reduced cap: $40,000 − $18,000 = $22,000 (not below $10,000).
5. Deduction: lesser of $52,000 or $22,000 = $22,000.

$10,000: Applies the $10,000 floor (the old TCJA cap); the reduced cap here is still above the floor.

$22,000: Correct. The $40,000 cap is reduced by 30% of MAGI over $500,000 ($18,000), leaving $22,000, which is above the $10,000 floor (IRC §164(b)(7)).

$40,000: Ignores the phase-down that applies once MAGI exceeds $500,000.

$52,000: Deducts all taxes paid with no cap at all.

For 2025 the SALT cap is $40,000 ($20,000 MFS), reduced by 30% of MAGI above $500,000 ($250,000 MFS) but never below $10,000 ($5,000 MFS).

Answer: C

The allowance is excludable from income tax only up to the least of the amount designated, the amount used, or fair rental value plus utilities.: True: the §107 exclusion is limited to the smallest of these amounts.

He is treated as self-employed for Social Security and Medicare purposes on his ministerial earnings.: True: a minister's earnings from ministerial services are subject to SE tax unless an exemption (Form 4361) is approved.

The allowance is excluded from his net earnings from self-employment on Schedule SE.: Correct (this is the false statement). The housing allowance is excluded only for income tax; it is included in net earnings from self-employment (IRC §1402(a)(8); Pub. 517).

He may cover his income tax by requesting voluntary withholding or by making estimated tax payments.: True: a minister's wages are exempt from mandatory withholding, so voluntary withholding or estimated payments are used.

A minister's housing allowance is excludable for income tax within limits but is still subject to SE tax unless the minister has an approved Form 4361 exemption.

Answer: A

deductible by Nathan and includible in his former spouse's income.: Correct. The instrument was executed before 2019, and a later modification brings it under the new rules only if it expressly adopts them (TCJA §11051(c); Publication 504).

not deductible by Nathan and not includible in his former spouse's income.: This is the treatment for instruments executed after 2018 or modifications that expressly adopt the new rules.

deductible by Nathan only as an itemized deduction on Schedule A.: Pre-2019 alimony is an adjustment to income on Schedule 1, not an itemized deduction.

not deductible by Nathan but includible in his former spouse's income.: Deductibility and inclusion are symmetrical; one never applies without the other.

Alimony under a divorce instrument executed before 2019 stays deductible by the payer and taxable to the recipient unless a post-2018 modification expressly states that the TCJA repeal applies.

Answer: D

1. Amount realized: $80,000 stock + $10,000 cash + $30,000 liability = $120,000.
2. Realized gain: $120,000 − $50,000 = $70,000.
3. Liability relief is not boot (§357(a)) and $30,000 does not exceed the $50,000 basis (§357(c) does not apply).
4. Recognized gain = lesser of $70,000 realized or $10,000 boot = $10,000 (§351(b)).
5. Stock basis: $50,000 + $10,000 − $10,000 − $30,000 = $20,000 (§358).

$70,000 gain; $80,000 stock basis: This is the fully taxable result; Dmitri has 100% control, so §351 applies and only boot triggers gain.

$10,000 gain; $50,000 stock basis: The gain is right, but stock basis must also be reduced by the $30,000 liability assumed (§358(d)).

$40,000 gain; $50,000 stock basis: This treats the assumed liability as boot; under §357(a) it is not boot, and it does not exceed basis, so §357(c) does not apply.

$10,000 gain; $20,000 stock basis: Correct. Only the $10,000 cash is boot; stock basis is $50,000 + $10,000 gain − $10,000 cash − $30,000 liability = $20,000 (§358).

In a §351 exchange, gain is recognized only to the extent of boot; an assumed liability is not boot unless it exceeds basis or has a tax-avoidance purpose, but it reduces stock basis.

Answer: C

1. $30,000 + $18,000 ordinary income = $48,000.
2. $48,000 + $1,200 tax-exempt interest = $49,200.
3. $49,200 + $4,000 liability increase (§752(a)) = $53,200.
4. $53,200 − $25,000 cash distributions = $28,200.
5. $28,200 − $800 nondeductible expenses = $27,400.
6. Guaranteed payments: no adjustment (deducted by the partnership, taxed to Ingrid outside her distributive share).

$23,400: This omits the $4,000 increase in her share of liabilities, which is treated as a cash contribution under §752(a).

$26,200: This leaves out her $1,200 share of tax-exempt income, which increases basis under §705(a)(1)(B).

$27,400: Correct. Basis increases for income, tax-exempt income and the liability increase, then decreases for distributions and nondeductible expenses; the guaranteed payment has no basis effect.

$39,400: This adds the $12,000 guaranteed payment; it is ordinary income to her but is not part of her distributive share and does not change her basis.

Outside basis rises for all income (taxable and exempt) and liability increases, then falls for distributions and nondeductible expenses; guaranteed payments do not affect it.

Answer: D

1. 1. Tentative deduction: $500,000 × 20% = $100,000.
2. 2. Wage test: $120,000 × 50% = $60,000.
3. 3. Wage-and-UBIA test: $120,000 × 25% = $30,000; $2,000,000 × 2.5% = $50,000; $30,000 + $50,000 = $80,000.
4. 4. Limit = greater of $60,000 and $80,000 = $80,000; lesser of $100,000 and $80,000 = $80,000.
5. 5. Taxable income cap: $610,000 × 20% = $122,000, which does not bind. Deduction = $80,000.

$30,000: Uses only 25% of W-2 wages and leaves out the 2.5% of UBIA in the alternative test.

$50,000: Uses only 2.5% of UBIA and leaves out 25% of W-2 wages in the alternative test.

$60,000: Uses only the 50%-of-wages test; the limit is the greater of the two tests.

$80,000: Correct. Taxable income is above $494,600, so 20% of QBI ($100,000) is limited to the greater of 50% of wages ($60,000) or 25% of wages plus 2.5% of UBIA ($80,000); the 20%-of-taxable-income cap ($122,000) does not bind (IRC §199A(b)(2)).

Above the top of the phase-in range, the QBI deduction for a non-SSTB is the lesser of 20% of QBI or the greater of 50% of W-2 wages or 25% of wages plus 2.5% of UBIA.

Answer: B

1. 1. Excess investment: $4,300,000 − $4,000,000 = $300,000.
2. 2. Reduced dollar limit: $2,500,000 − $300,000 = $2,200,000.
3. 3. Taxable income limit: $1,900,000.
4. 4. Deduction = lesser of $2,200,000 and $1,900,000 = $1,900,000.
5. 5. Carryforward: $2,200,000 − $1,900,000 = $300,000.

$80,000: Uses the pre-OBBBA 2025 figures ($1,250,000 limit reduced by the excess over $3,130,000).

$1,900,000: Correct. The $2,500,000 limit is reduced dollar for dollar by the $300,000 above $4,000,000, to $2,200,000, and then capped at $1,900,000 of business taxable income; $300,000 carries forward (IRC §179(b)).

$2,200,000: Applies the investment phase-out but ignores the business taxable income limitation.

$2,500,000: Ignores both the phase-out above $4,000,000 and the taxable income limitation.

For tax years beginning after 2024, §179 is $2,500,000, reduced by property placed in service above $4,000,000, and the deduction cannot exceed business taxable income (excess carries forward).

Answer: A

The IRA is treated as distributing its entire value as of January 1, 2025.: Correct. Borrowing from the IRA is a prohibited transaction; under §408(e)(2) the account stops being an IRA as of January 1, 2025, and its full value is includible (with the 10% additional tax, since she is under 59½).

Only the $30,000 is taxable, plus a 10% additional tax on that amount.: A loan from an IRA is a prohibited transaction, so the whole account, not just the amount borrowed, loses IRA status.

She owes a 15% excise tax on the $30,000, but the account remains an IRA.: The §4975 excise tax applies to other disqualified persons; for the IRA owner, the remedy is loss of IRA status.

No tax results, because an IRA may lend its owner up to $50,000.: The $50,000 loan rule applies to qualified employer plans under §72(p); IRAs cannot make loans to owners.

If an IRA owner engages in a prohibited transaction, such as borrowing from the IRA, the account ceases to be an IRA as of the first day of that year and is treated as fully distributed.

Answer: D

1. Days from March 3 to May 20, 2025: 28 (March) + 30 (April) + 20 (May) = 78 days, within 120.
2. Days from March 3 to August 15, 2025: 28 + 30 + 31 + 30 + 31 + 15 = 165 days, beyond 120.

Preparing her original 2025 return, for a fee of 15% of the refund: §10.27(b)(1) bars a contingent fee for preparing an original return, and no exception covers original-return preparation.

Preparing an amended 2022 return, for a fee of 20% of the refund it produces: Preparing an amended return or refund claim is barred from contingent fees unless an exception applies; 2022 is not under examination and the claim is not limited to statutory interest or penalties (§10.27(b)(2)(iii)).

Representing her in an IRS exam of an amended 2023 return filed August 15, 2025: Filed 165 days after the March 3 notice, outside the 120-day window, so the exception does not apply.

Representing her in an IRS exam of an amended 2023 return filed May 20, 2025: Correct. A contingent fee is allowed for services in connection with the IRS examination of an amended return filed within 120 days of written notice of the examination of the original return; May 20 is 78 days after March 3 (§10.27(b)(2)(ii)).

Contingent fees are allowed for services in connection with an IRS exam of an original return, or of an amended return or refund claim filed within 120 days of written notice of that exam, for interest and penalty refund claims, and for judicial proceedings; never for preparing an original return.

Answer: C

The 2021 tax is not dischargeable, because it was assessed less than 240 days before the petition date.: Arithmetic error: an April 2025 assessment is about 14 months before June 1, 2026, so the 240-day test is met.

The 2021 tax is dischargeable, because the return was due more than 3 years before the petition date.: Applies only the 3-year due-date test and ignores the 2-year rule for late-filed returns.

The 2021 tax is not dischargeable, because the return was filed less than 2 years before the petition date.: Correct. Income tax is dischargeable only if the return was due more than 3 years before the petition, a late return was filed more than 2 years before it, and the tax was assessed more than 240 days before it; the March 2025 filing fails the 2-year test (11 U.S.C. §523(a)(1); §507(a)(8)).

The 2021 tax is dischargeable, because income taxes are always discharged in a Chapter 7 case without fraud.: Absolute claim: income tax must satisfy the timing tests as well as the no-fraud requirement.

For income tax to be discharged, all three timing tests must be met (due 3+ years, filed 2+ years, assessed 240+ days before the petition) and there must be no fraudulent return or willful evasion.

Answer: B

A client with an accuracy-related penalty for 2024 who has a clean penalty history and has filed all returns: Wrong penalty: the accuracy-related penalty is not eligible for first-time abatement.

A client with a failure-to-file penalty, all returns filed, and only a 2022 estimated tax penalty in prior years: Correct. First-time abatement needs no significant penalties in the 3 prior years (an estimated tax penalty is disregarded), all required returns filed and the tax paid or arranged; it covers FTF, FTP and FTD penalties (IRM 20.1.1.3.3.2.1).

A client with a failure-to-pay penalty who also had a failure-to-file penalty for 2022 that was never abated: Fails the clean-history test: a significant penalty in the 3 prior years disqualifies the client.

A client with a failure-to-file penalty who has a clean history but still has not filed the required 2023 return: Fails the filing-compliance test: all currently required returns must be filed.

First-time abatement applies to FTF, FTP and FTD penalties when the taxpayer has a clean 3-year history (ES penalties aside), filing compliance and payment compliance.

Answer: C

She may appeal under the Collection Appeals Program, and that decision can then be reviewed by the Tax Court.: Neighbouring procedure: CAP is available, but CAP decisions are final with no judicial review.

She may still request a full CDP hearing, because the 30-day period runs from the date she received the notice.: Wrong start date: the 30-day period runs from the date of the notice, so it ended in early April.

She may request an equivalent hearing on Form 12153, but the decision cannot be reviewed by the Tax Court.: Correct. The 30-day CDP period ran from the notice date and has passed; a hearing request made within one year after that period gets an equivalent hearing, which carries no Tax Court review and no automatic levy suspension (Treas. Reg. §301.6330-1(i)).

She has no administrative remedy left and must pay the tax and sue for a refund to contest the levy.: Absolute claim: an equivalent hearing and CAP remain available.

A timely CDP request (30 days from the notice date) preserves Tax Court review and suspends levy; a later request within the 1-year window gets an equivalent hearing only; CAP is faster but has no judicial review.

Answer: A

The ERO must try to tell the client within 24 hours, with the reject reason: Correct. Publication 1345 requires the ERO to take reasonable steps to inform the taxpayer within 24 hours and to provide the business rule and an explanation.

The ERO should retrieve the son's IP PIN through e-Services and resubmit: Preparers cannot retrieve a client's IP PIN; the taxpayer gets it from the IRS (for example, the Get an IP PIN tool).

The return is timely only if a corrected return is resubmitted by April 15: A timely rejected return is still timely if resubmitted electronically by the fifth calendar day after the due date.

The return must now be filed on paper, since a rejected return cannot be e-filed again: A rejected return can be corrected and resubmitted electronically once the IP PIN is obtained; paper filing is an option, not a requirement.

On an uncorrectable rejection, the ERO must notify the taxpayer within 24 hours; a corrected e-file within 5 calendar days after the due date, or a paper return within 10 days of the reject notice, keeps the return timely.