Keeping CPAs Up to Date on Tax Matters
A site devoted to articles on current developments in federal taxes geared toward CPAs in tax practice.
While the Tax Cuts and Jobs Act ended the deduction for alimony payments for divorces finalized after 2018, we still have to deal with the status of payments for divorces prior to that date. In the case of Ibrahim v. Commissioner, TC Summary Opinion 2022-7,[1] the Tax Court ruled payments from a physician to his former spouse did not meet the criteria to be alimony under the law.
Read MoreThe basic question the Court had to decide in the case of Wolens v. Commissioner, TC Memo 2017-236 seemed to be one often encountered in alimony court cases. Did the payment stream in question stop upon the death of the recipient spouse? Answering that question in the affirmative would satisfy one of four initial requirements for a payment stream to be treated as alimony for tax purposes.
As has often been true in previous cases, the divorce document did not specifically address whether these payments would continue after the death of the recipient. And, as happens in those cases, the Court next looks to the relevant governing law (referred to in the cases as “state’ law) to determine if the underlying law would cause the payment stream to stop.
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Read MoreAt first glance the payments made by the taxpayer in the case of Quintal v. Commissioner, TC Summary Opinion 2017-3 would appear to be deductible alimony—but last minute changes made to the divorce documents would end up changing the nature of the payments in the view of the Court.
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Read MoreDetermination of what is alimony is known to be a contentious issue in taxes, especially because Congress in 1984 created a full independent federal definition by which payments are tested for classification as tax alimony, regardless of the intent of the parties or what state law may call a payment. In the case of Leslie v. Commissioner, TC Memo 2016-171 the payments involved amount to $5,568,200.
These payments represented 10% of the fee the taxpayer’s former spouse received for his work as an attorney in litigation related to the failure of Enron. There were three payments made, one for $4,000,000 in November of 2008, one for $1,560,000 in December of 2009 and a final payment of $8,200 made in June of 2010.
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Read MoreGeorge Resnik paid funds on behalf of his ex-spouse that initially met all of the requirements for deductible alimony and were labeled as support in his divorce decree. George’s payments met all of the basic “big four” requirements found in IRC §71(b)(1):
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