Choice "B" is correct. Under the tax benefit rule, Farb should report the $5,000 refund as income in Year 11 since Farb itemizes deductions and would have received a tax benefit from deducting the $8,000 paid in Year 10.
Choice "d" is incorrect. Since Farb paid $8,000 in property taxes in Year 10, Farb should deduct it in that year. This is true even though the $8,000 was paid under protest. Do not net the refund against the amount paid and deduct the net amount in Year 11.
Choice "c" is incorrect. Since Farb paid $8,000 in property taxes in Year 10, Farb should deduct it in that year. This is true even though the $8,000 was paid under protest. Do not net the refund against the amount paid and deduct the net amount in Year 10.
Choice "a" is incorrect. Since Farb paid $8,000 in property taxes in Year 10, Farb should deduct it in that year. There is no need to wait and file an amended Year 10 return in Year 11.