Mrs. Allen, a 40-year-old cash basis taxpayer, earned $45,000 as a teacher and $5,000 as a part-time real estate agent in Year 2. Mr. Allen, who died on July 1, Year 2, had been permanently disabled on his job and collected state disability benefits until his death. For all of Year 2 and Year 3, the Allen’s residence was the principal home of both their 11-year old daughter, Joan, and Mrs. Allen’s unmarried cousin, Fran Phillips, who had no income in either year. During Year 2, Joan received $200 a month in survivor social security benefits that began on August 1, Year 2, and will continue at least until her 18th birthday. In Year 2 and Year 3, Mrs. Allen provided over one-half the support for Joan and Fran, both of whom were U.S. citizens. Mrs. Allen did not remarry.
a) What filing status should the Allen’s use for Year 2?
b) What filing status should Mrs. Allen use for Year 3?
c) How many exemptions can the Allen’s claim in Year 2?
d) How many exemptions can Mrs. Allen claim in Year 3?
