During Year 1, Andy received $18,000 in wages from his job at the pizza parlor. He paid $2,500 in estimated New York state and local income taxes and he took the standard deduction for federal income tax purposes. In Year 2, he received a refund of $1,250 of the state and local taxes. With this money, Andy invested in an illegal business, in which he earned an additional $10,000. Also in Year 2, Andy became disabled in a hit-and-run automobile accident while deliver-ing pizzas. He received $2,000 in workers compensation and $5,000 in punitive damages from the pizza parlor for physical injuries suffered in the accident. How much can Andy exclude from his Year 2 gross income?

(a) $2,500

(b) $3,250

(c) $8,250

(d) $18,250

Identify the correct response and then elaborate on why you chose that response and why you believe the others to be incorrect. Word count range: 250-300.

Fact Pattern:

A simplified annuity table:

Age of Primary Annuitant on	Number of
the Annuity Starting Date	Anticipated Payments
55 and under	360
56-60	310
61-65	260
66-70	210
71 and over	160