Detailed Answer
(a) The requirement is to determine the correct statement
regarding Farb, a cash-basis individual taxpayer who paid
an $8,000 invoice for personal property taxes under protest in
2011, and received a $5,000 refund of the taxes in 2012. If a taxpayer
receives a refund or rebate of taxes deducted in an earlier
year, the taxpayer must generally include the refund or rebate in
income for the year in which received. Here, Farb should deduct
$8,000 in his 2011 income tax return and should report the
$5,000 refund as income in his 2012 income tax return.