Tax Research Case

Lucy and Ricky Ricardo are married and live in the Upper East Side of New York. Ricky, 53, is
a singer/bandleader and Lucy is an aspiring singer/actress (basically she wants to do anything
that involves performing). They both live at home full-time. You will be preparing their income
tax return for 2018. They will file married filing jointly and claim one dependent (Little Ricky).
Their household income in 2018 is expected to be $90,000 and they expect it to be the same next
year. Lucy has not worked in 2018 and does not plan to work for the remainder of the year, such
that Ricky’s self-employment (Schedule C) earnings represents the entire household income. In
October of 2018, you call Lucy and Ricky to find out if they have questions about year-end tax
planning.

Ethel Mertz (Fred’s widow, Fred was Ricky’s friend, and was past) and Lucy have always been as close as sisters although they
are not related in any way by blood. To be honest, Ricky feels that she spends far too
much time in their home since Fred died. Against his better judgement, Ricky has agreed
to let Ethel (who is in her 60s) move in with them permanently. His hope is that keeping
busy with Ethel will keep Lucy out of trouble. He also thinks that Ethel is going to cost
him a small fortune since Ethel eats a lot… at least, that’s what Fred always told him.
Once Ethel moves in, may the Ricardos claim her as a dependent on their joint return? If
so, what are the general requirements? How, if at all, will Ethel’s moving affect the
Ricardo’s tax return filing status? Ricky figures that since he is going to support Ethel, he
ought to get a tax break.