Tax Section Review

Question 1

IRC 1041

Answer 1

Transfer of property between spouses during marriage and incident to divorce is tax free / basis transfers. Must be within 1 year of divorce, or incident to divorce degree and <= 6 years

Question 2

Two exceptions to non-recognition rule:

Answer 2

(1) One spouse non-resident alien
(2) Transfer of services doesn’t count

Question 3

What is Innocent Spouse Rule? Purpose, IRC Section, and requirements?

Answer 3

IRC 6015, provides relief for spouse who signs a JNT tax return without knowledge of understatement of tax. Requirements:
- Elects benefits <=2 years from date IRS began collection services
- Taking everything together, it would be inequitable to hold innocent spouse liable for deficiency
- IN signing the return, the innocent spouse didn’t know and had no reason to know about understatemnt of tax
- Understatement of tax attributable to erroneous items from one spouse filing the joint return.

Question 4

Earned Income Tax Credit

Answer 4

IRC 32, states that custodial parent is entitled to increased earned tax income credit if he/she has qualifying child and meets the requirements.

Question 5

Abandoned Spouse Rule Conditions:

Answer 5

1. A.S pays >1/2 the costs of maintaining the household for the year
2. A.S files a separate tax return
3. A.S is the principle home of a dependent child for >6mo of the tax year, and they can claim the dependency exemption (even if they don’t)
4. Individual lives in residence separate from spouse for last 6 months of year

Question 6

If you have a government pension no covered by Social Security, how much do you decrease SS benefits?

Answer 6

2/3 of pension amount.

Question 7

When you’re discounting back to today from a calculated Future Value of a pension (at age 65 for example), what interest rate do you use?

Answer 7

Annual 1P rate, do NOT use inflation adjusted.

For FV calculation, use inflation adjusted (1-interest / 1+inflation)-1*100

Question 8

Calculating recapture for Alimony

Answer 8

Y3-Y2-15K= Yr 2 Recapture

Average Y3 and Y2 payments, less recapture amount (Y3+Y2-Y2R)/2

Take Above - Y1 Pmts, -15K to get Y1 recapture.

Question 9

2 Exceptions to ALimony Recapture, if payments decrease more than 15K in first 3 years?

Answer 9

• Either spouse dies before the end of the third post separation year, or the recipient remarries before end of Y3
• Payment amount fluctuates for reasons ouside the control of the payor.