Senior Tax Specialist Complete Practice Test 2026

Which of the following taxpayers is insolvent?

Elizabeth, who owns assets with a fair market value of $7,500 and has no liabilities.

Gabe, who owns no assets, is unemployed, and has no liabilities.

Alex, who owns assets with a fair market value of $12,000, has liabilities of $12,000, and retired last year.

Maya, who owns assets with a fair market value of $6,000 and has total liabilities of $7,000.

Determining insolvency involves comparing a taxpayer's total assets to their total liabilities. A taxpayer is considered insolvent when their liabilities exceed their assets.

In this scenario, Maya has assets valued at $6,000 and liabilities totaling $7,000. This means that her liabilities surpass her assets, indicating that she is unable to meet her financial obligations with her current assets. Therefore, she is classified as insolvent because her negative net worth reflects a situation where she does not have the means to cover her debts.

When looking at the other taxpayers:

- Elizabeth, with assets valued at $7,500 and no liabilities, is solvent since she has assets that exceed her financial obligations.

- Gabe, who has no assets and no liabilities, also does not qualify as insolvent because he has no debts to pay.

- Alex has assets equal to his liabilities (both at $12,000), meaning he is neither solvent nor insolvent; he is effectively at a break-even point rather than in a state of insolvency.

These comparisons highlight why Maya is the only taxpayer considered insolvent in this context.

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