Facts:Your clients Julie and Jenna Cartwright need tax preparation help. They sold a house for $257,000, basis of $95,000 bought another for $55,000. Julie received dividends from her inheritance, which was distributed in the form of an annuity, but her mother’s financial adviser told her to take the proceeds of the annuity and buy mutual funds because “she is so young and needs exposure to the market”. The basis in the annuity is $1,000,000 and Date of Death (DoD) value is $821,340. The mutual fund, American Income and Growth paid her $3,500 in qualified dividends. Your clients also have two dependents, Garrett Rockawell and Michael Ingerheim. Jenna has pension income from the military for $29,600 and Julie has a small business netting $400. Jenna had $3,700 withheld for federal income tax. The genius financial adviser had taxes withheld on the DoD transfer of the annuity in the amount of $86,000.Assignment:Please write 2 pages pertaining to the pension distribution and find a criminal case on why the distribution is NOT taxable. (Financial adviser had them sign for a Fixed Annuity but gave them a Variable Annuity).
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