Divorce Divorce and Taxes 2

Question 1

What is the tax basis of assets transferred between spouses as part of a divorce property settlement under IRC Section 1041?

Accepted Answer

The transferor's adjusted basis carries over to the recipient

Answer

Fair market value at the time of transfer

Answer

Zero basis

Answer

The average of both spouses' original basis

Question 2

A spouse receives a Roth IRA as part of a divorce settlement via a transfer incident to divorce. What are the immediate tax consequences?

Accepted Answer

No immediate tax consequences; the account retains its tax-free status

Answer

The full value is taxed as ordinary income

Answer

Early withdrawal penalties apply if under 59½

Answer

The recipient must pay a 10% excise tax

Question 3

Which IRS form must the custodial parent sign to allow the noncustodial parent to claim the child dependency exemption?

Accepted Answer

Form 8332

Answer

Form 2120

Answer

Schedule EIC

Answer

Form 1040-X

Question 4

If a divorcing spouse receives a traditional IRA as part of the settlement and immediately cashes it out, what taxes apply if they are 45 years old?

Accepted Answer

Ordinary income tax plus a 10% early withdrawal penalty

Answer

Ordinary income tax only

Answer

Capital gains tax only

Answer

No tax because it was part of a divorce settlement

Question 5

For tax year purposes, a couple separated in March but their divorce was not finalized until the following January. How should each file their taxes?

Accepted Answer

Both must file as Married (either jointly or separately)

Answer

Both file as Single because they were separated

Answer

One files as Head of Household and the other as Single

Answer

They can each choose their preferred filing status

Question 6

A divorced parent paying child support wishes to deduct those payments on their federal tax return. What will the IRS allow?

Accepted Answer

No deduction — child support is never tax-deductible

Answer

Full deduction up to $5,000

Answer

Partial deduction based on income level

Answer

Deduction only if the child lives with the payer at least 50% of the time

Question 7

What does 'innocent spouse relief' allow a divorced person to do with the IRS?

Accepted Answer

Be relieved of responsibility for tax, interest, and penalties from a joint return where the other spouse understated taxes

Answer

Avoid paying taxes on all marital assets received in the divorce

Answer

Claim a larger refund than originally filed

Answer

File amended returns for all years of marriage