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Improve EA Results by Understanding Logical Indicators

So you’re studying for the SEE exam using the question bank from an EA course and you are sure that your answer is correct, but the test bank says your answer is wrong. Well, did you check for the double negative? How about during the real exam… you think you passed, but were two questions short. Did the double negative trick get you?

It is important to spend some of your EA practice time on actual EA problems from past exams to develop a familiarity with the question format and some of the common tricks.  Here are some examples of what to look for as you review each question.

Logical Qualifiers – NOT, EXCEPT, EXCLUDED, INCLUDED, and ONLY.  A qualifier is a word that determines the scope of the question. These words apply logic to the question, and can alter the answer dramatically.   The IRS may use Logical qualifiers alone or combine them with additional indicators to direct the test taker to the correct answer.  Be careful here as each qualifier, or indicator can affect the outcome of the question.

Quantity Indicators – ALL, NONE, ONLY.  These indicators refer to the amount or frequency of an occurrence.   A quantity indicator states the amount involved.

Probability Indicators – MUST, ALWAYS, NOT ALWAYS, NEVER, COULD, LIKELY, and MAY.   This indicator refers to the likelihood or frequency of occurrence.

Example Question: Which of the following applies to the allowable credit for prior year minimum tax?

A. Any unused portion may not be carried forward.

B.  It is allowed in full against the current year’s tax.

C. It may only be carried forward for five years.

D. The allowable credit cannot reduce the current year’s tax below the current year’s tentative minimum tax.

In this question, answer C is incorrect because of the word ONLY.  A taxpayer has other choices, for example, a carry back period can apply.  If an answer rules out the possibility of other outcomes, or states that there can be only one outcome you should question if that is always the case.

Example Question:  The following statements about dividends received from a dividend reinvestment plan are correct except:

A. Reinvested dividends are not taxable if not removed from the plan.

B. Reinvested dividends are taxable in the year paid.

C. Reinvested dividends are taxable and are added to the basis of the stock or mutual fund.

D. Reinvested dividends are treated as ordinary or qualified dividends.

In this question, the phrase “correct EXCEPT” implies that the answer is the only one that is FALSE (not correct).  Do not get caught by the wording of the question.  The correct answer (A) contains two qualifiers, which can easily trick you.    While two qualifiers are used, this is not a double negative.  A double negative is occurs when two negatives are used in the same sentence for emphasis. The two negatives cancel each other.   A double negative changes the answer to a positive, for example “The following statements about dividends received from a dividend reinvestment plan are not correct, except.”  In this case, the correct answer would be a true statement.   EA guidelines allow for the use of double negatives in test questions.  Careless mistakes occur when a prospective EA forms a quick opinion about a question without carefully reading it through.   Rushing through the questions does not produce optimal EA results.

 

Rain Hughes is the co-founder of Fast Forward Academy, a leading publisher of IRS EA course materials, ea practice questions and continuing education for all tax professionals.

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