More Study Questions!

[Giselle Sotelo]

1.  A married couple has one child.  They couple and child live together the whole year but they just choose to file separately (for whatever reason).  The child is a QC of both.  Who claims the child???  The rule for children of divorced/separated parents doesn't apply because the couple is neither divorced nor separated, they are just filing separate returns.  Does prong two of the tiebreaker rules apply or can the parents just CHOOSE which of them will claim the dependency exemption??? And if they can't choose, isn't it impossible for one parent to have a higher AGI if they split their income down the middle according to community property rules (let's assume the couple has only community property and neither has separate property)???  

2. Let's say you have a married couple who have been living apart for seven months.  They have two kids.  One kid lives with one child, the other with the other child.  Both children qualify as the QC of the parent with whom they live.  Each parent pays more than one-half the costs of maintaining a household for the child who lives with them. Can you have two heads of household in this situation????  I've never heard of having two heads of household for a couple that is still married, but each parent meets the HOH requirements so it would seem like it's possible in this situation.  Any thoughts?

[Tax Pro]

I'll give others the chance to answer.  I met my quota for the week. 

---

From: Giselle Sotelo <sotelo...@gmail.com>
To: enrolled-agen...@googlegroups.com
Sent: Saturday, June 8, 2013 12:41 PM
Subject: More Study Questions!

1.  A married couple has one child.  (is the child a boy or a girl? j/k) They couple and child live together the whole year but they just choose to file separately (for whatever reason).  ~ This ruins it for me; I just might send them to Western/5th to straighten them out.  The child is a QC of both.  Who claims the child???  The rule for children of divorced/separated parents doesn't apply because the couple is neither divorced nor separated, they are just filing separate returns.  Does prong two of the tiebreaker rules apply or can the parents just CHOOSE which of them will claim the dependency exemption??? And if they can't choose, isn't it impossible for one parent to have a higher AGI if they split their income down the middle according to community property rules (let's assume the couple has only community property and neither has separate property)???  Observations: (1) When is it beneficial for a married couple to file separately if they live together?  I could think of at least one scenario; and NO it would not have anything to do with one of them owing back-taxes;  past-due student loans and unpaid child support. (2) Do we all remember who applies the tie-breaker rules?

2. Let's say you have a married couple who have been living apart for seven months.  Seriously, which months? They have two kids.  One kid lives with one child, the other with the other child.  Both children qualify as the QC of the parent with whom they live.  Each parent pays more than one-half the costs of maintaining a household for the child who lives with them. Can you have two heads of household in this situation????  I've never heard of having two heads of household for a couple that is still married, but each parent meets the HOH requirements so it would seem like it's possible in this situation.  Any thoughts? I think you just described the classic idea of 'being unmarried for tax purposes.'  What I am really worried about is what really goes on in the real world for some married couples as discussed in our last meeting.

--
You received this message because you are subscribed to the Google Groups "Enrolled agents study group" group.
To unsubscribe from this group and stop receiving emails from it, send an email to enrolled-agents-stu...@googlegroups.com.
For more options, visit https://groups.google.com/groups/opt_out.
 
 

[Tax Pro]

I'm a little sad that the members are not posting questions and answers for the group as much as I wanted to see.  I think we still have some unanswered questions (and I have stopped taking notes).  Here's one that I remember from a previous meeting:

Are complimentary hotel rooms from casinos, etc. taxable?  Or are they nontaxable gifts from the casino?

A. http://www.youtube.com/watch?v=oh7SAxaMpGE Comp. rooms are always taxable

B. http://www.youtube.com/watch?v=PhoLkqlpmoI Comp. rooms are never taxable

C. http://www.youtube.com/watch?v=8AimnD68l-w Comp. rooms are nontaxable return of gambling losses

D. http://www.ustaxcourt.gov/InOpHistoric/LIBBUTI.TCM.WPD.pdf It depends upon the situation.

Let's check and see if we are good at choosing reference materials for research questions.

----- Forwarded Message -----
From: Tax Pro <taxpr...@ymail.com>
To: "enrolled-agen...@googlegroups.com" <enrolled-agen...@googlegroups.com>
Sent: Saturday, June 8, 2013 6:58 PM
Subject: Re: 2 More Study Questions!

I'll give others the chance to answer.  I met my quota for the week. 

[Giselle Sotelo]

Hello,

What is the difference between disability pensions and disability benefits???  I know that they are treated differently for tax purposes, but I don't understand the difference between the two. Is it just that with disability pensions you've actually retired, and with benefits you are only not working temporarily???

Any help would be appreciated! Thanks.

Giselle

[IdaRowe Tuttle]

Giselle and group, I don't know the answer to the difference between disability pensions and disabilities benefits. So, my question to you is where have you looked for the answer. As tax professionals, we should attempt to look in two or three places, First, I looked in the Pub 17. I found some answers. But was it enough? When you are injured on the job and get state disability, it is not taxable. When you are forced to retire because of a disability, then you may get a pension. Remember that this non-taxable. Disabiity pensions whether you are old enough for retirement or not, is taxed. Under retirement age, it is salary, after retirement it is treated as a pension. If you Google the question you get several articles that have been written. I am going to do a bit more research. How about you?

[Giselle Sotelo]

Hi Ida and Group,

Thank you for your input. I was curious about the distinction between disability pensions and disability benefits because in the Gleim study materials it states in one section: 

1.  Proceeds from disability insurance policies are tax-free if paid for by the EE.  

     If the ER contributed to the coverage (ER contributions are excluded...["from the EE's income"]), then the amount received must be prorated into taxable and nontaxable amounts....For example, if the ER pays 75% of the insurance premiums of a disability policy, 75% of the proceeds are includible in income.

Then it states later under Pensions:

Persons retired on disability before they reach minimum retirement age must report their taxable disability payments as wages. 

So, I was confused about the difference between pensions and benefits because they are being treated differently for tax purposes.  I googled "disability insurance benefits taxable" and  Ameriprise Financial pretty much reiterates what Gleim says about proceeds from disability insurance policies.  So, I think disability benefits are when an EE (or ER) purchases insurance coverage for self or EE in the event of a disability.  The EE and/or ER pays the premiums and then when the person becomes disabled, they get the benefits (like car insurance???).   When they get the benefits, whether the benefits are included in gross income depends on who paid the premiums (eg, EE or ER).

I suppose disability pensions require that you retire (from all jobs? one job? not sure) to receive them (at least, that's how I interpret what I read in Pub. 17).  If you look up "pension" on wikipedia, it's a fixed sum received following retirement.  So I guess one is an insurance plan and the other is a pension you get after you retire.  

That's what I've come up with so far.

Giselle

    

[Tax Pro]

Last year, in TS2012, a colleague of mine opened up a chat conversation to ask a group of EAs, lawyers, and CPA this question.  She was trying to answer the question of a taxpayer.

The responders asked back:

   How old is the taxpayer?

      (As Ida touched upon below, it could either be on 1040 line 7, 16a and 16b, or not in the 1040 at all)

   What kind of disability income was it?

      (Depending on the type, it can be taxable or not taxable)

   What is the taxpayer's domicile state?

      (Yes, though potentially not covered in the SEE, it is important to know that states have different rules)

But you already know all of the above.  The only reason I brought this up is that you might want to bookmark this web page for your list of references.

https://www.disability.gov/benefits#map

I don't have that many clients so I have not yet used it.  But it gives me great peace of mind to know that I have it accessible in case I need it.

----- Forwarded Message -----

From: IdaRowe Tuttle <idar...@gmail.com>
To: enrolled-agen...@googlegroups.com

[Tax Pro]

Consider this:

Can a person who received $12k disability pension in 2012 say that he received disability benefits in 2012?  Realistically, a TP at the tax desk would probably say he received $12k in disability payments (or income) in 2012 and then the tax pro probes further what type of disability payment (or income) was received to determine whether it was taxable or not.  (I want to add that typically, a TP could also say he received $12k in disability benefits in 2012 which could lead a tax pro to immediately say "that is not taxable; did you receive any other income?"  Remember, there are TPs who tell us what they think sounds good for their bottom line)

Here are my thoughts:
(a) I will not be violently opposed to someone who says that "disability pensions are a small subset of disability benefits."

BENEFIT (dictionary.com)

a payment or gift, as one made to help someone or given by a benefit society, insurance company, or public agency: The company offers its employees a pension plan, free health insurance, and other benefits.

But I will not disagree with someone who says "pensions are received by people who actually worked at some point while you can get benefits whether you worked or not." (Yes, I will not disagree, even if I know that a surviving spouse sometimes receives the pension/benefits from a deceased spouse regardless of whether the surviving spouse actually worked at any point in his/her life)

(b) Given the confusion as to what differentiates disability pension from disability benefit, I'd be happy if I know what disability pension is, then I would know what is not disability pension.

A pension is generally a series of payments made to you after you retire from work. Pension payments are made regularly and are for past services with an employer.

Particular types of pensions and annuities include:

1. Fixed period annuities. You receive definite amounts at regular intervals for a definite length of time.
2. Annuities for a single life. You receive definite amounts at regular intervals for life. The payments end at death.
3. Joint and survivor annuities. The first annuitant receives a definite amount at regular intervals for life. After he or she dies, a second annuitant receives a definite amount at regular intervals for life. The amount paid to the second annuitant may or may not differ from the amount paid to the first annuitant.
4. Variable annuities. You receive payments that may vary in amount for a definite length of time or for life. The amounts you receive may depend upon such variables as profits earned by the pension or annuity funds or cost-of-living indexes.
5. Disability pensions. You are under minimum retirement age and receive payments because you retired on disability. If, at the time of your retirement, you were permanently and totally disabled, you may be eligible for the credit for the elderly or the disabled discussed in Publication 524.

Reference: Pub 939, General Rule for Pensions and Annuities.

(c) I would focus on the uniqueness of "disability pension" to help me answer questions on the SEE1.  Remember, the exam does not have essay-type questions.  Focus on this: What gets asked in this area of taxation?  [Answer: they test you if you know the difference between taxable and nontaxable income; they test you when disability pension is treated as wages (line 7 of Form 1040) or retirement income (line 16a, 16b of Form 1040); they test you if you know the consequences of disability insurance proceeds paid with after-tax employee payments vs. employer payments that have not been taxed to the employee; etc.]

(d) Insert the "AFLAC commercial" somewhere in here.

(e) If none of this blah helped at all, then this one will: Is it possible for anyone to pass SEE1 even if he/she cannot differentiate disability pensions from disability benefits? Absolutely, YES!

----- Forwarded Message -----
From: Giselle Sotelo <sotelo...@gmail.com>
To: IdaRowe Tuttle <idar...@gmail.com>
Cc: enrolled-agen...@googlegroups.com
Sent: Saturday, June 22, 2013 5:47 PM
Subject: Re: More Study Questions!

Hi Ida and Group,

Thank you for your input. I was curious about the distinction between disability pensions and disability benefits because in the Gleim study materials it states in one section: 

1.  Proceeds from disability insurance policies are tax-free if paid for by the EE.  (with EE's after-tax money; if the employer paid some of the premium and did not include the premiums in the employee's income, then that prorated portion of the proceeds is taxable to the employee.  So take this piece of information as it is and do not lump it with other things.)

     If the ER contributed to the coverage (ER contributions are excluded...["from the EE's income"]), then the amount received must be prorated into taxable and nontaxable amounts....For example, if the ER pays 75% of the insurance premiums of a disability policy, 75% of the proceeds are includible in income.

Then it states later under Pensions:

Persons retired on disability before they reach minimum retirement age must report their taxable disability payments as wages.  (1040, line 7; then they report it on Line 16a and 16b after they reach the minimum retirement age.  Take this information as it is and do not mix it with other things.)

So, I was confused about the difference between pensions and benefits because they are being treated differently for tax purposes.  I googled "disability insurance benefits taxable" and  Ameriprise Financial pretty much reiterates what Gleim says about proceeds from disability insurance policies.  So, I think disability benefits are when an EE (or ER) purchases insurance coverage for self or EE in the event of a disability.  The EE and/or ER pays the premiums and then when the person becomes disabled, they get the benefits (like car insurance???).   When they get the benefits, whether the benefits are included in gross income depends on who paid the premiums (eg, EE or ER).   (What you are differentiating here is disability pension vs. disability insurance.  Comment: I don't think we can use "disability benefit" and "disability insurance" or "disability insurance proceeds" interchangeably.  Remember, there are disability benefit recipients who receive nontaxable benefits without ever having to pay any insurance premium.)

I suppose disability pensions require that you retire (from all jobs? one job? not sure) to receive them (at least, that's how I interpret what I read in Pub. 17).  If you look up "pension" on wikipedia, it's a fixed sum received following retirement.  So I guess one is an insurance plan and the other is a pension you get after you retire.  (To get a better grasp of what disability benefits are, consider enumerating a list of examples of disability benefits.  Doing so would probably help us understand that disability benefit do not necessarily have anything to do with insurance plans.)

That's what I've come up with so far.

Giselle