Mr. Top received $25,000 in disability payments while he was recuperating from heart surgery. Mr. Top, age 65, is a business consultant and works out of the home. You are asked to prepare this taxpayer's return.
a. What is your initial research question or issue?
b. Do you need additional facts or information to answer this question? If so, what?
c. In Step Two of your research - identifying and locating authority - you discover the following rules:
* Disability payments received when the taxpayer paid the premiums on the disability insurance are generally excluded from taxable income.
* Disability payments received when an employer paid for the premiums usually must be included as taxable income unless special requirements are satisfied (which the taxpayer fails).
Does this additional information change any of your answers in parts a and b?
d. You assume that Mr. Top is self-employed since he works out of the home. What is your initial conclusion to your research question?
e. In reality, Mr. Top simply telecommutes and is an employee with a large corporation. The corporation has always paid for the disability insurance of its employees. How does the discovery of this new fact impact the initial conclusion you drew in part d? What is the danger of assuming something without confirmation?
f. Do you have an initial belief regarding the tax treatment in this circumstance?