Test Return #2

[Bees Knees]

Test your skills

In 2008, Mandy was 20 years old and lived at home in her mom’s house. Her mom’s name is Cindy. Cindy did not charge Mandy any rent for living at home. Cindy has an AGI of $65,000. Cindy provided over 50% for the cost of her household. Cindy provided over 50% for the cost of supporting Mandy.

Mandy has a 2 year old daughter named Ann Marie who lived with Mandy and Cindy. Ann Marie’s father is Jethro, who lives elsewhere. Jethro contributes nothing for the support of Ann Marie. Mandy and Cindy each contributed towards the cost of supporting Ann Marie, with Cindy contributing more than 50% of the total support. No other person contributed towards the support of Ann Marie.

Mandy is not a full time student. She works part time. Mandy has one W-2 from ABC, Inc. with the following amounts for 2008:

Box 1 = $1,500.00
Box 2 = $150.00
Box 3 = $1,500.00
Box 4 = $93.00
Box 5 = $1,500.00
Box 6 = $21.75

Mandy has money in a bank account earning interest that was gifted to her by her grandparents that she does not use for purposes of support. The bank account earned $1,700 interest in 2008.

Cindy wants to claim the largest amount of refund available to her and has already filed a return claiming both Mandy and Ann Marie as dependents. Mandy is single and wants to file a tax return claiming the largest refund amount available to her. She has since gotten in a fight with her mother over this issue and has moved out of the house, taking Ann Marie with her.

Mandy has come to you and wants you to prepare the return. You have no contact with or working relationship with Cindy. Mandy did not receive an advanced economic rebate check in 2008.

What is Mandy’s refund?

Vote and comment but do not give away anything on how you calculated the refund, or who gets who as a dependent / child tax credit / EIC / etc.

I will post the answer at the end of the week.

[PIGLEE]

shucks, voted to soon, and I can't change my vote. Will see if I was right with vote, or my my second opinion.

[Bonnie]

Was shocked when I saw the answer after putting the info in my software. Had to look to see what had happened and why the answer was what it was. Want to say I learned something, but I did already know this, just refreshed my memory about it. I love these exercises.

[Bees Knees]

Hint

Your software cannot possibly give you the correct answer on its own. You need to understand the law that applies before you can enter the correct data.

This test exercise and the last one from a few days ago both require us to understand the law. If we simply enter the data as presented, the answer will be wrong.

Another hint:

Use TheTaxBook to learn and understand the law that applies to this test. It’s covered in the book.

The point of these exercises is to illustrate that tax software is only a tool. We still need humans to understand the law so that the correct data is entered.

[Snaggletoof]

Facts in Question

Bees, we buy into the idea of preparing the return based on the facts as given.

What clouds our judgement is "Are we supposed to know ALL these facts as given in the exercise, or are we to know only those facts that the daughter is likely to give us?" Specifically, the example states that the preparer doesn't even know the mother. Does that also mean that the preparer knows none of the earlier facts as given? (In real life situations, we really don't, and have nothing except what the client tells us, which may not be true).

p.s. your example is very much the kind of thing we as preparers encounter many times during the tax season.

[BP.]

Cindy wants to claim the largest amount of refund available to her and has already filed a return claiming both Cindy and Ann Marie as dependents.

Can you please let us know if we're to read this as written or should the second use of the name "Cindy" in this passage be changed to "Mandy?" (Did Cindy claim Mandy? Not that it matters.) You're already throwing us enough curves in this one.

Thank-you!

[Bees Knees]

I'm sorry. I meant to say Cindy claimed both Mandy and Ann Marie on her return. (I edited my original post for this.)

However, even if I did not tell you that Cindy claimed Mandy and Ann Marie as dependents, it still should not affect the outcome of the return. The rule for dependency is whether a person can be claimed as a dependent. Not whether or not the person was actually claimed. If Cindy was allowed to claim Mandy as a dependent on her return, Mandy is her dependent regardless of whether or not Cindy actual does claim her as a dependent. Thus, that error should not have affected your answer.

[Jesse]

Awe Bees

You gave away part of the "trick" in the question.

[PIGLEE]

This is test return 2, where is test return 1?

[S T]

Test 1

Under H & R Poster

Sandy

[Bees Knees]

You gave away part of the "trick" in the question.

I did not intend for that part to be a trick. My original post should have made it clear that Mandy was claimed as a dependent on Cindy's return.

I have other tricks in the test return that are much more interesting.

[JG EA]

Are Jethro and Mandy married?

[erchess]

Suggestions to the editors

1 To generate more interest in the problems, offer prizes such as $10 off their order for people who get the right answer.

2. To build your business further offer the problems in your advertising and offer the discounts to new customers.

[Bees Knees]

Assume Mandy and Jethro are not married.

[erchess]

The Problem states

Are Jethro and Mandy married?

that Mandy is Single.