Frank and Lilly Are Negotiating a Divorce Settlement

question 12

Multiple Choice

Frank and Lilly are negotiating a divorce settlement.Frank has offered to pay Lilly $12,000 each year for 10 years,but payments cease upon Lilly's death.What are the tax implications of this proposition?
I.Lilly must recognize Gross Income when the money is received.
II.Frank has a deduction for Adjusted Gross Income in the year of payment.
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• A)Only statement I is correct.
• B)Only statement II is correct.
• C)Both statements are correct.
• D)Neither statement is correct.

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