Tax Research Memo

Tax Research Memorandum

Subject: Chapter 3 Research Problem 2

Issues (Facts)

John and Janet Baker are married with five individuals living in the household besides them which include their children, Darin, Andrea, and Morgan along with Janet’s parents, Calvin and Florence Carter. Darin, 18-years old, is the Baker’s son who is not enrolled in school and works part-time cleaning pools. His income for the year was $14,000 which he deposits into a savings accounting for college expenses. Andrea, 19-years old, is the daughter of the Bakers’ who is not employed or enrolled in school. Andrea used money from an inheritance from her grandfather to purchase a vehicle in the amount of $21,000. Morgan, 23-years old, is the daughter of the Bakers’ who is enrolled in graduate school who took out $20,000 in student loans to pay for tuition. Janet’s parents, Calvin and Florence Carter, whose income in the amount of $19,000 are tax exempt, live with John and Janet Baker. John and Janet Baker provide for the parents by paying for Florence’s dental work in the amount of $1,000 and paying insurance premiums in the amount of $1,200 for Calvin. The father, Calvin, pay for his own medical expenses.

The issues that are presented are: How many personal exemptions and dependency exemptions are allowed for John and Janet’s family? Do John and Janet consider Calvin and Florence qualifying relatives and does their income disqualify them from being considered qualifying relatives? Are John and Janet’s children, Darin, Andrea, and Morgan considered qualifying children or qualifying relatives?

Rules:

Section 152(c) provides that a “qualifying child” "means, with respect to any taxpayer for any taxable year, an individual who bears a relationship to the taxpayer, who has the same principal place of abode as the taxpayer for more than one-half of such taxable year, who has not attained the age of 19 as of the close of the calendar year in which the taxable year of the taxpayer...