Jay, a Single Taxpayer, Retired from His Job as a Public

question 109

Multiple Choice

Jay, a single taxpayer, retired from his job as a public school teacher in 2018. He is to receive a retirement annuity of $1,200 each month and his life expectancy is 180 months. He contributed $36,000 to the pension plan during his 35- year career? so his adjusted basis is $36,000. Jay collected 192 payments before he died. What is the correct method for reporting the pension income?

• A) Since Jay is no longer working, none of the pension payments must be included in his gross income.
• B) The first $36,000 received is a nontaxable recovery of capital, and all subsequent annuity payments are taxable.
• C) The first $180,000 he receives is taxable and the last $36,000 is a nontaxable recovery of capital.
• D) All of the last 12 payments he received ($14,400) are taxable.
• E) None of these.

---

Definitions:

Liable

The state of being legally responsible for something, especially in the context of debts or legal judgments.

Warn Consumers

The act of informing consumers about potential risks, hazards, or defects associated with a product or service.

Foreseeable Misuse

The misuse of a product or service in a manner that could reasonably be predicted by the manufacturer or provider, potentially leading to harm or liability.

Limit Liability

means to legally restrict the amount of money a person or organization can be responsible for paying in the case of a lawsuit or debt.