Facts
John and Janet Baker are husband and wife and maintain a household of 7, including Janet and John. Calvin and Florence Carter are Janet’s parents, who are retired. During the year, they received $19,000 in nontaxable funds (disability income, interest on municipal bonds and Social Security benefits) from which $8,000 was equally spent between them on clothing, transportation, and recreation. The remaining $11,000 was invested in tax-exempt securities. Janet Baker paid $1,000 for her mother’s dental work and $1,200 premium on her father’s own life insurance policy. Janet’s father, Calvin, incurred medical expenses that he paid for himself. Darin is the Bakers’ 18-year-old son who is not a student. Darin earned $14,000 from his pool-cleaning business. The cash earned is placed in a savings account. Andrea is the Bakers’ 19-year-old daughter who does not work or go to school. During the year, Andrea purchased a Camaro for $21,000 with her own funds. Morgan is the Bakers’ 23-year-old daughter who obtained a student loan of $20,000 and used the full amount to pay her college tuition at a local university. The Bakers’ fair rental value of their residence, including utilities, is $14,000, while their total food expense for the household is $10,500.

Issues
Do Calvin and Florence qualify for a dependency exemption as qualifying relatives by meeting the gross income test and the support tests? Are non-taxable funds to be included in determination of support cost of Carters? Did Bakers furnish more than half of the support of Carters? Does $1,200 payment of life insurance premium qualify for inclusion in computation of support? Do Bakers’ children qualify for a dependency exemption as qualifying children by meeting the age and support test? If not, would any of them qualify for a dependency exemption as