June 1, 2022 2:35 am

No Alimony Deduction for Voluntary Payments

Those with divorces or legal separation agreements finalized before 2019 are subject to old alimony rules. These rules allow payors to deduct payments, while recipients must report the payments as income. This treatment only applies to payments qualifying as “alimony.”

A doctor has a pre-2019 separation agreement from his spouse, which stipulated that neither party would pay maintenance or request it. Nonetheless, the doctor paid $10,000 to his former spouse to help her relocate. He deducted the payment, which the IRS disallowed. The Tax Court agreed with the IRS (Jihad Y. Ibrahim, TC Summary Opinion 2022-7). One of the conditions for deductible alimony is that there can’t be any clear, explicit, and express direction in the document stating the payment is not to be treated as an alimony or separate maintenance payment. That’s what happened here…a clear statement, by way of the stipulation in the separation agreement, so no deduction for the purported alimony payment.

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Tax Glossary

Fair market value

What a willing buyer would pay to a willing seller when neither is under any compulsion to buy or sell.

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