Paul and Hannah,who Are Married and File a Joint Return,are

question 39

Essay

Paul and Hannah,who are married and file a joint return,are in the process of adopting a child who is born in December 2015.The child,a son,comes to live with them a week after his birth on December 12.The adoption is not finalized until February of 2016.What tax issues are present in this situation?

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Definitions:

Equity Method

An accounting technique used by firms to assess the profits earned by their investments in other companies by reporting these profits as income.

Intra-entity Gross Profit

The profit recognized on transactions carried out between divisions or departments within the same company.

January 1 Retained Earnings

The amount of net income left over for a business at the start of a new calendar year after all dividends have been paid out to shareholders.

Equity Method

An accounting technique used to record investments in which the investor has significant influence over the investee but does not have full control.