24 Tips for Passing the Enrolled Agent Exam the First Time – Part 2

Twenty-Four Study Tips Part 2 – When Exam Day Arrives

13. It is All Relative, So Go Ahead and Anoint Yourself Master of the Universe. We all have feelings of anxiety and inadequacy as a big day in our lives approaches, and the SEE is no different. However, try not to forget that the exam is in many respects graded on a curve, and many others taking the exam are a lot less prepared than you are. So if you have put the time in and believe you are ready, approach the exam with an air of confidence and defy them to ask any question that you can’t answer. For test days, you should firmly believe that you are the master of the universe.

14. Respond to Those Guilt Pangs. Most authorities on exam taking will suggest that you study very little (if at all) on the night prior to an exam. And generally this is good advice. But if there is a big part of you that feels guilty about doing this, then go ahead and study for a short period the night before the exam. However, do not turn this into a panic attack; just brush up on topics that you just know are going to be on the exam. Allocate a maximum of one to two hours to this and then go to bed for hopefully some guilt-free rest.

15. Budget Your Time and Answer Each Question Correctly. Now, this is sure a keen insight into the obvious, isn’t it? The point is a simple one; make sure you mark each question as you intend to, and make liberal use of the flagging feature of the software for questions you would like to review before completing the exam. If you budget 1½ minutes for each exam question, that would leave almost an hour for reconsidering flagged questions and reviewing the entire exam. Mark estimated times for every question (i.e., at Question 21 you should be 30 minutes into the exam, at Question 41 you should be 1 hour into the exam, etc.). Try to stick with this rough schedule so that you will have plenty of time for reviewing the exam.

16. Move On, As First Impulses Are Usually Your Best Answers. There are several studies indicating that a person’s first instinct as to an answer is more likely to be correct than a revised answer. This is especially true for multiple-choice questions. Answer the question and move on. If you are quite unsure about your answer, flag the question and return to it as time permits. But again, don’t talk yourself out of your first impulse unless a light bulb suddenly comes on and this revelation was not considered the first time. And remember; for each possible answer you can eliminate as not being feasible, this greatly increases your odds of guessing the correct answer.

17. Remember: This is a Tax Exam, Not an Accounting Exam. Anytime you believe the answer to a question is the same answer that you would have for financial accounting purposes, stop and ask yourself if you have missed something. There are a number of areas where accounting and tax rules differ, and many of these instances are tested on the exam. For example, suppose that a calendar- year, accrual-basis lessor receives a $36,000 prepayment for 3 years rent from a calendar-year, cash-basis taxpayer. Financial accounting would dictate that the lessor report $12,000, or one-third, as rental income in Year 1 under the matching theory, while tax law states that the entire $36,000 prepayment is taxed immediately under the wherewithal-to-pay doctrine. Likewise, the tax law states that an item cannot be deducted by a cash-basis taxpayer until it is both paid and incurred, so the lessee could only deduct $12,000 in Year 1 (even though $36,000 was paid).

18. Watch For Clues in the AnswersSometimes a little knowledge can go a long way and help you eliminate some answer choices. For example, assume that you remember that a personal casualty and theft loss must always be reduced by a $100 floor, and you are confronted with the following exam question:

Several years ago, Mr. B purchased an antique vase for his personal use at a flea market sale for $500. This vase was stolen on July 1, 2006, when its fair market value was $1,000. Mr. B had insurance on the vase, but only for $300 with no deductible amount. B had no other casualty losses. What is the amount of B’s allowable casualty loss for the year, disregarding the limitation based on adjusted gross income? 

      1. $100
      2. $200
      3. $500
      4. $600

Since you know that the $100 floor per casualty or theft must be subtracted, there is no way that answers (b) or (c) could be correct with any combination of the numbers. If you start with $1,000 as the initial loss and subtract the $300 insurance and $100 floor, you obtain an answer of $600; if you start with $500 as the initial loss and subtract the $300 insurance and $100 floor, you obtain an answer of $100. Even if you forget to subtract the insurance, your answers would be either $900 or $400, and these are not among the answer choices. So the answer has to be either (a) or (d), and hopefully you will choose answer (a), since the tax law never permits a loss greater than the actual cost of the item since the appreciation in value of the item was never reported as income.

19. Do Not Let the Part 2 “Advanced Topics” Scare You. Some of the real fears of many SEE candidates are questions related to aspects of taxation that they do not normally encounter in their practice. This is only natural, and many times this fear discourages individuals from ever taking the exam. However, there is a key point worth remembering here. Generally, only a fundamental knowledge is required for the exam, and this is especially true for questions on tax entities other than the sole proprietor in Part 2 (e.g., partnerships, corporations, S corporations, and estates and trusts).

Here the exam questions look more like “book exam” questions, and some candidates find that they actually do better on these parts of the exam than Part 1 (where no question related to individual taxpayers is considered too picky; once again, just look at the recent pass percentages mentioned earlier). These areas are where review courses and/or college textbooks can be of immense help in preparing for the exam. You will most likely have to devote more time to studying Part 2 than the other two parts, but this extra time should pay off. The pass percentage has been lower on Part 2, and for that reasons the questions will probably veer more to straight-forward, fundamental questions in the future.

In some respects, the closed exam format actually lessens the weight assigned to a few of these “advanced topics.” For example, the sole proprietorship and partnerships, formerly tested separately, are now tested on Part 2, along with C corporations and S corporations. And all of the business income (e.g., farm income, inventories, etc.) and deduction principles (e.g., depreciation, bad debts, etc.) that were formerly tested on Part 1 are now in Part 2.

20. You May Know More Than You Think You DoSometimes the answer to a question that you think you know nothing about may be answered by applying a few basic tax fundamentals that you do know something about. For example, the basic principles of Sec. 1031 like-kind exchanges of properties are applicable to a variety of other situations. What if a question involves the formation of a corporation, and a contributing shareholder receives shares of stock and cash? Or perhaps the transaction is a corporate reorganization, where the shareholder surrenders old stock and receives new stock and some cash. In both cases, taxable gain is limited to the “boot” received in the exchange (the non-similar property received, in these cases the cash). Both illustrations are just a variation in the more familiar like-kind exchange rules, where the taxable gain is limited to the taxpayer’s wherewithal to pay tax. In fact, the wherewithal to pay principle, which states that the tax is imposed when the taxpayer is best able to pay and the government is best able to collect, can answer a variety of tax questions and may become your best friend come examination time.

21. Settle for Less Than 100 Percent. No matter how prepared you are, there will be a few questions that you will know absolutely nothing about. Some of the questions will be unbelievably picky and pulled out of obscure documents on the IRS Study List. Maybe it’s an unwritten rule that candidates must be taught humility at some point in the exam, and perhaps that’s a good thing—we’ll never know all the rules in practice either. Don’t be alarmed, as other candidates will have the same reaction as you. Just give the examiners that question (after making your best guess, of course – there is no penalty for guessing!) and move on. Hopefully, these questions will be few and far between, and your time is better spent on questions you do know something about.

22. Experimental Questions. As noted in the Prometrics Bulletin:

Your examination may include some experimental questions that will not be scored. If present, they are distributed throughout the examination and will not be identified as such. These are used to gather statistical information on the questions before they are added to the examination as scored items. These experimental questions will not be counted for or against you in your final examination score.

What does all of this mean? It goes back to one fundamental idea: a statistically “good” question is one answered correctly by those candidates passing the exam and incorrectly by those candidates failing the exam. (I know, you’re thinking, “Gee what an insight!”) Nonetheless, once a question is asked the first time, the statistical analysis will tell the examiners whether or not it was a “good” question to use again. So if you have a question that baffles you, it may well be an experimental question that will not count against you. A nuanced question on the health care law definition of coverage may likely be an experimental question, but a computational question on the individual basic credit computation or the shared responsibility payment is likely to be a real question for credit. Incidentally, the revised test specifications list now states that each part of each exam will include 85 regular test questions and 15 experimental questions.

23. Post-Mortems: Avoid at All Costs. It is a natural tendency to want to obsess about an exam right after taking the test. But, there’s nothing you can do about it after the fact. If you fall short on an exam, redouble your study efforts the next time. And, if you are taking another part of the exam soon, just view the previous test as a past history and move on with optimism and determination. Fortunately, the new exam format provides instant gratification (or instant mortification), as the exam score will appear on your screen immediately at the end of the exam, and you’ll receive a printed copy. If you pass, you will not receive a score, only notification that you have passed; if you fail, you will be given your scaled score (between 40 and 104), and some diagnostic information by topic area as to whether or not you score considerably below, marginally below, or at or above the minimally accepted score.

24. Success! If you decide to study hard, take this big step in your career, and stand out in your profession, this is what you will see on the screen when you press that little button to submit the exam:

Score Report for Lastname, Firstname, MI

Special Enrollment Examination – Part 1: Individuals

Scaled

Topic Area:

Grade: Pass

(A total score of 105 is required to pass)

You Did It! Successful candidates may apply for enrollment when notified that they have passed all three parts of the Special Enrollment Examination. They must file a completed Form 23, along with a check for $125, within one year of passing all three parts of the exam. Expect a few weeks delay before receiving your enrollment card, but this is something definitely worth waiting for!

Good luck on the exam!  YOU CAN DO THIS!

Return to Part 1


John Everett photographAbout the Author

John O. Everett, CPA, Ph.D., is Professor Emeritus of Accounting at Virginia Commonwealth University in Richmond, VA. He has coauthored numerous articles and textbooks and has taught for national CPA firms. John is the author of the NSA Enrolled Agents Exam Review Course, and John and Bill Duncan of Arizona State University co-present the Live Enrolled Agents Exam Review Course each year prior to the NSA Annual Meeting.

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