Tax Return #1
Archibald R. Arcidiacono, Jr. (age 66 as of December 31, 2015) lives at 45687 Lake Wallenpaupack Lane, Schenectady, NY 12305. Archibald lost his late wife, Arlene, in August 2014 as a result of a commuter airplane crash. At the time of her death, Arlene was age 50. Archibald and Arlene were married for 25 years before her untimely death. Each year that they were married, Archibald and Arlene filed a joint tax return. Archibald is employed as an airline mechanic by US Airways, 582 Keuka Lake Road, Albany, NY 12205. In 2015, his gross salary received was $89,000. (Archibald’s Social Security wages and Medicare wages were the same amount.) Archibald has maintained qualified health insurance coverage through his employer for the entire year for himself and his dependents. Archibald chooses not to contribute $3 to the presidential election campaign fund. His daytime phone number is 518-833-1436. If Archibald is owed a refund, he wants it deposited directly into his checking account. The checking account number is 1472583960, and the bank’s routing number is 031000011.
Archibald provides support for the following children who lived at home with him during 2015 (ages as of December 31, 2015): Arielle (age 24), Abraham (age 23), Abigail (age 22), Alberto (age 20), and twins Alfredo and Aretha (age 16).
Arielle – Graduated from college 2 years ago. She continues to seek full-time employment. She earned $3,960 working part-time during 2015.
Abraham – Is a full-time law school student who pays his own tuition. He earned $4,060 working part-time during 2015.
Abigail – Is a full-time graduate student who pays her own tuition. She earned $4,160 working during the summer of 2015.
Alberto – Does not attend school and earned $9,000 during 2015 performing stand-up comedy shows in night clubs.
Alfredo – Attends high school full-time. During 2015, he earned $1,500 working for a lawn service during the summer.
Aretha – Attends high school full-time. During 2015, she earned $800 working as a camp counselor during the summer.
In addition to his own 6 children, Archibald also supports a nephew, Abelardo Anderson (age 19 as of December 31, 2015), who lived with him throughout 2015. Abelardo does not attend school and earned $3,930 working part-time during 2015. Archibald provides over half the support of all individuals living with him. Finally, Archibald also supports Arlene’s widowed mother, Ardella Ambrosino (age 86 as of December 31, 2015), who lives in a nursing home. Ardella receives Social Security benefits of $8,000, but has no other income.
Archibald has 2 adult children from a previous marriage: Addison and Andrea, ages 33 and 31 (at December 31, 2015) respectively. In previous years, Archibald paid child support to his ex-wife until Addison and Andrea each reached the age of 18. During 2015, Archibald paid $780 each month in alimony to his ex-wife who has never re-married since the divorce. His ex-wife’s social security number is 135-79-2486.
Archibald’s cash receipts for 2015 include the following:
City of Buffalo bonds $ 6,900
General Motors Corp. bonds 7,800
Rochester National Bank certificate of deposit 8,700
Gulf Corp. stock (qualified) $ 16,500
Exxon Corp. stock (qualified) 17,600
Chevron Corp. stock (unqualified) 18,700
Life insurance proceeds 60,000
Airline settlement –
Punitive damages $ 130,000
Physical personal injuries 120,000
The life insurance proceeds were paid to Archibald because he was the beneficiary of a policy he held on Arlene’s life. Archibald had purchased the policy that paid $800,000 in the event of accidental death. In 2014, Archibald elected to receive installment payments of $60,000 each year for a 20-year period. Archibald received his first installment from the life insurance policy in 2014, and his second installment this year. The inheritance represents what was left of Arlene’s estate after all debts and administration expenses were paid. Because Archibald believed that Arlene’s death was caused by the airline’s negligence, he threatened to file a lawsuit against the airline. In a settlement with the airline’s insurance carrier, Archibald signed a release of all claims in return for the $250,000 payment. The personal injury portion of the payment was designated as being for the “physical personal injuries suffered by Arlene Arcidiacono.” Archibald did not hire an attorney to represent him in this process.
On May 17, 2015 Archibald received a $1,600 income tax refund from the state of New York for the 2014 tax year. On his 2014 Federal income tax return, he reported total itemized deductions of $14,300, which included a $3,200 state income tax deduction.
During 2015, Archibald’s company experienced a slow period. As a result, Archibald was laid off by his company for 7 weeks. During that time, Archibald collected $430 per week in unemployment compensation.
During 2015, Archibald was voted airline mechanic of the year in the state of New York by the New York chapter of the federal airline mechanics union. As a result, he received a $3,500 prize. In addition, during 2015, Archibald bought a $5 raffle ticket and won a laptop computer valued at $1,500.
Throughout 2015, Archibald was covered by a group term life insurance policy offered by his employer. The employer offers coverage to all employees equal to the employee’s annual salary. The employer pays the policy’s premium.
At the age of 25, Archibald purchased a single life annuity from American Travelers Life Insurance Company. He paid $1,000 per month to the insurance company for exactly 35 years. Under the terms of the contract, at the age of 64, Archibald began receiving $3,500 per month for the rest of his life. During 2015, Archibald received $3,500 each month ($42,000 total) from American Travelers Life Insurance Company.
Archibald’s cash payments for 2015 include the following payments that qualify as itemized deductions:
Home mortgage loan interest $ 5,000
Property taxes 2,900
State and local income taxes paid 2,800
Charitable contributions 2,000
Archibald made no other payments in 2015 that qualified as an itemized deduction.
Archibald bought a used mini-van that he used for personal purposes for $4,350 on March 15, 2014. He purchased the vehicle from a friend who needed the cash. On September 12, 2015 he sold the vehicle to someone he did not know for $4,800. In addition, on October 11, 2015 Archibald sold his Italian sports car for $28,000. He had originally purchased the car on October 16, 2012 for $41,000, and used it exclusively for personal purposes.
Archibald sold the following securities during 2015, receiving a Form 1099-B from the broker for each transaction. In addition, the IRS received a copy of Form 1099-B for each transaction. However, the Form 1099-B did not include the cost basis for any securities sold.
# of Date Date Price Price
Corporation Shares Acquired Sold Per Share Per Share
Breckenridge Corp. 20 4/22/14 7/13/15 $31 $26
Keystone Corp. 30 5/23/14 7/14/15 $23 $36
Winter Park Corp. 40 6/24/14 7/15/15 $27 $34
Arapaho Basin Corp. 50 7/25/14 7/16/15 $60 $46
Vail Corp. 60 8/26/14 7/17/15 $41 $66
Copper Mountain Corp. 70 9/27/14 7/18/15 $61 $59
Telluride, Inc. 80 10/28/14 7/19/15 $51 $58
Relevant social security numbers are as follows:
Archibald Arcidiacono 123-98-2345
Arlene Arcidiacono 234-87-3456
Arielle Arcidiacono 345-76-4567
Abraham Arcidiacono 456-65-5678
Abigail Arcidiacono 567-54-6879
Alberto Arcidiacono 678-43-7890
Alfredo Arcidiacono 789-32-6789
Aretha Arcidiacono 890-21-5678
Abelardo Anderson 123-10-3456
Ardella Ambrosino 234-09-4576
The total amount of Archibald’s federal income taxes withheld by his employer in 2015 totaled $27,800. In addition, Archibald applied his 2014 refund of federal income taxes of $1,400 toward his 2015 tax liability. Finally, after receiving the airline settlement, Archibald made an estimated federal income tax payment of $36,000 in 2015.
Ignoring the alternative minimum tax (if applicable) and the net investment income tax (if applicable), prepare Archibald’s federal income tax return for 2015. Consider including the following forms and schedules with your return:
• Form 1040
• Form 8949
• Schedule A (only necessary if taxpayer chooses to itemize deductions)
• Schedule B
• Schedule D
Remember, you are to assume that you are a paid tax practitioner preparing the tax return for your client(s). Therefore, be sure to complete the “Paid Preparer Use Only” section of page #2 of the Form 1040. It is okay to make-up a fictitious firm name and address for this section. However, be sure to sign your name where the form says “Preparer’s signature”. In addition, include the appropriate date (on or before the filing date) next to your signature.
Attach behind the return, the cover page (first page) only from the set of IRS-prepared instructions for each IRS form and IRS schedule included with the return. However, the instructions for Schedule B are included on page 2 of Schedule B. Therefore, a separate cover page for Schedule B does not have to be attached behind the return.
In addition, supporting computations should be attached behind the return. Using good form, include the supporting computation for the tax liability; Form 1040, Line 44.
The solution shows that Archibald will be owed a refund of $775. Your answer could be a few dollars different due to either rounding or using the tax rate schedule instead of the tax table (or vice-versa) to compute the tax liability. No points will be deducted for differences due to either one of these two reasons.
1. If the information requested by the IRS does not fit in the allotted space on an IRS tax form (or IRS tax schedule), include the required information on a separate sheet of paper attached to the back of the return. Be sure to reference the attachment on the form by writing something like “See Attached Schedule”. Make sure the attachment includes the information that is required on the form, specifically states the line number on the form for which it is providing the requested information, and that it ties into the form. Attachments are included with the forms and schedules filed with the IRS. Attachments must be typed, and included in your packet before any sheets containing supporting documentation, and before the IRS instruction cover pages.
2. Including Schedule A with the return is only necessary if you choose to itemize deductions. If you choose to use the standard deduction, it is not necessary to include Schedule A.
3. Line 9a on Form 1040 includes both qualified and unqualified dividend income. Line 9b on Form 1040 only includes qualified dividend income.
4. The amount of the group term life insurance cost provided by the employer that is included in income is explained on pages 48-49 of IRS Publication 17 (2015), and on pages 6-7 of IRS Publication 525 (2015).
5. When life insurance proceeds are received in installments, the tax treatment is explained on pages 21-22 of IRS Publication 525 (2015).
6. The annuity purchased by Archibald is a commercial annuity purchased from an insurance company. Archibald did not purchase the annuity through his employer. Therefore, when determining the taxable portion of annuity payments received during the year, use the “General Rule” described on pages 1-6 in Publication 939. Do not use the “Simplified Method” since that method applies to annuities purchased through an employer.
7. On Form 8949, either box “A”, “B”, or “C” must be checked. If multiple boxes must be checked, then include multiple copies of Form 8949 with the tax return.
8. The phaseout of personal and dependency exemptions (if applicable) is explained on page 36 of Publication 17 (2015).
9. Assemble any schedules and forms behind Form 1040 in order of the “Attachment Sequence No.” This concept is explained on page 76 of the 2015 IRS instructions for Form 1040.
10. Social security benefits received are nontaxable unless the taxpayer’s income exceeds a specified base (threshold) amount described on pages 29 and 30 of chapter 4.