DIVORCE DECREE


G

GenFinSvcs

This is a new one on me. I have a client with a divorce
decree that specifically states that he is not to deduct his
alimony payments and the wife is not to report the payments.
Has anybody seen this before? I havn't done any research
yet, however, do you think this would bypas the normally
handling of alimony?
 
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H

Harlan Lunsford

GenFinSvcs said:
This is a new one on me. I have a client with a divorce
decree that specifically states that he is not to deduct his
alimony payments and the wife is not to report the payments.
Has anybody seen this before? I havn't done any research
yet, however, do you think this would bypas the normally
handling of alimony?
No, I've never actually seen this before, but look at
publication 504 for 2002, in particular page 13. This
speaks of conditions, one of which is that the "the
instrument (divorce decree) does NOT designate the payment
as NOT alimony". Talk about a double negative!

Cheer$,
Harlan Lunsford
 
D

Drew Edmundson

This is a new one on me. I have a client with a divorce
decree that specifically states that he is not to deduct his
alimony payments and the wife is not to report the payments.
Has anybody seen this before? I havn't done any research
yet, however, do you think this would bypas the normally
handling of alimony?
Never seen it but it is allowed. See 71(b)(1):

The term "alimony or separate maintenance payment" means any
payment in cash if--

(A) such payment is received by (or on behalf of) a spouse
under a divorce or separation instrument,

(B) the divorce or separation instrument does not designate
such payment as a payment which is not includible in gross
income under this section and not allowable as a deduction
under section 215,

--- end quoted text

Right there in 71(b)(1)(B).

Drew Edmundson, CPA (NC)
 
D

Dick Adams

GenFinSvcs said:
This is a new one on me. I have a client with a divorce
decree that specifically states that he is not to deduct his
alimony payments and the wife is not to report the payments.
Has anybody seen this before? I havn't done any research
yet, however, do you think this would bypas the normally
handling of alimony?
I have seen a divorce degree where all support was referred
to as unallocated maintenance taxable to the recipient and
deductible to the non-custodial spouse who also got all of
the children as dependents PLUS health insurance and life
insurance payments were included in the unallocated
maintenance.
 
C

CLJ1219

This is a new one on me. I have a client with a divorce
decree that specifically states that he is not to deduct his
alimony payments and the wife is not to report the payments.
Has anybody seen this before? I havn't done any research
yet, however, do you think this would bypas the normally
handling of alimony?
It is my understanding that divorce decrees are virtually
meaningless when it comes to taxes. I would be inclined to
believe that your client *has* to report the alimony paid.
After all, I'd be more afraid that the IRS would get me for
false reporting of income than the fact that I violated a
divorce decree. <G>

Carol
What can one expect of a day that begins with getting out of bed.
 
W

Wayne Brasch

GenFinSvcs said:
This is a new one on me. I have a client with a divorce
decree that specifically states that he is not to deduct his
alimony payments and the wife is not to report the payments.
Has anybody seen this before? I havn't done any research
yet, however, do you think this would bypas the normally
handling of alimony?
Divorce decrees set up in divorce situations may say many
things that are not adhered to by the tax law. Alimony is
taxable to the one getting it and is allowed as an
adjustment to income for the one who is paying it despite
the divorce decree.

Wayne Brasch, CPA, M. S. Taxation
 
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J

John H. Fisher

This is a new one on me. I have a client with a divorce
decree that specifically states that he is not to deduct his
alimony payments and the wife is not to report the payments.
Has anybody seen this before? I havn't done any research
yet, however, do you think this would bypas the normally
handling of alimony?
As long as neither of them is reporting it, there wouldn't
be a problem. I've never seen it before but it seems like a
lucky break for the one 'n' a bummer for t'other!!=:)

"Jack" - John H. Fisher - (e-mail address removed)
Philadelphia, Pa - Atlantic City, NJ - West Wildwood, NJ
My Newsgroups & Boards at: http://members.aol.com/TaxService/index.html

Where Ignorance is bliss, 'tis folly to be wise!=:)
 
J

John H. Fisher

This is a new one on me. I have a client with a divorce
decree that specifically states that he is not to deduct his
alimony payments and the wife is not to report the payments.
Has anybody seen this before? I havn't done any research
yet, however, do you think this would bypas the normally
handling of alimony?
As long as neither of them is reporting it, there wouldn't be a
problem. I've never seen it before but it seems like a lucky
break for the one 'n' a bummer for t'other!!=:)

"Jack" - John H. Fisher - (e-mail address removed)
Philadelphia, Pa - Atlantic City, NJ - West Wildwood, NJ
My Newsgroups & Boards at: http://members.aol.com/TaxService/index.html

Where Ignorance is bliss, 'tis folly to be wise!=:)
 
A

Al Bundy

(e-mail address removed) (GenFinSvcs) wrote in
This is a new one on me. I have a client with a divorce
decree that specifically states that he is not to deduct his
alimony payments and the wife is not to report the payments.
Has anybody seen this before? I havn't done any research
yet, however, do you think this would bypas the normally
handling of alimony?
From a fed standpoint, how can a local judge override the
IRS's rules as to what is reportable income. She is not
reporting reportable income.

This guy didn't get suckered into no child support payments
in leiu of this "non reportable" alimony did he?

Here's the kicker if that happened. Some states include
child support AND alimony in household income to determine
rebates, credits, etc. She does not want to claim this as
income for state programs. And, since it is not child
support she's not going to list it as child support income
on the state. Dirtbag....
 
E

Ed Zollars, CPA

GenFinSvcs said:
Has anybody seen this before? I havn't done any research
yet, however, do you think this would bypas the normally
handling of alimony?
See IRC Section 71(b)(1)(B).
 
H

Harlan Lunsford

John said:
(e-mail address removed) (GenFinSvcs) writes:
As long as neither of them is reporting it, there wouldn't be a
problem. I've never seen it before but it seems like a lucky
break for the one 'n' a bummer for t'other!!=:)
While it is true that IRS will never know ordinarily, if the
payments are really alimony, then they are supposed to be
reported accordingly. Should the divorced payor be in the
35% bracket, while the former spouse is still in the 10%
bracket, the U S Treasury gets cheated.

Cheer$,
Harlan Lunsford
 
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E

Ed Zollars, CPA

Harlan said:
While it is true that IRS will never know ordinarily, if the
payments are really alimony, then they are supposed to be
reported accordingly. Should the divorced payor be in the
35% bracket, while the former spouse is still in the 10%
bracket, the U S Treasury gets cheated.
Section 71 allows you to plan at the outset which way it
will be taxed, presuming the payments would *otherwise* be
taxable alimony (you can't convert child support into
deductible alimony just by saying it is, but you can take
what would be taxable alimony and convert it to something
not taxable/deductible with a stroke of a pen).

What normally tips the IRS off if there is an issue is the
inconsistent reporting on the two returns. Remember that
the payor spouse has to give the social security number for
the recipient. And even if the one spouse is in the 10%
bracket, that's still 10% they get to keep if they leave it
off the return <grin>.

Most often what happens is that one party gets upset after
the divorce and *then* either leaves off the income or tries
to deduct the payment. There are enough Tax Court cases on
these matters each year to tell me that the IRS actually
*does* do some real matching and work here.

But if you have the case you mention and the parties are
agreeable at the outset, you can use the U.S. Treasury as a
tool to subsidize the transfers between the
spouses--generally by *maximizing* the amounts considered
alimony. And, of course, that's the reason why Congress
allowed you only to take something that would be alimony and
say it isn't--not vice versa <grin>.
 
S

Stuart Bronstein

Dick Adams said:
GenFinSvcs wrote:
I have seen a divorce degree where all support was referred
to as unallocated maintenance taxable to the recipient and
deductible to the non-custodial spouse who also got all of
the children as dependents PLUS health insurance and life
insurance payments were included in the unallocated
maintenance.
Alimony is deductible, child support is not. So the hybrid
generally referred to as family support was created to give
the parties more flexibility in allocating income.

Stu
 
H

Harlan Lunsford

Ed Zollars, CPA wrote:

(snippedsnipsnipped
But if you have the case you mention and the parties are
agreeable at the outset, you can use the U.S. Treasury as a
tool to subsidize the transfers between the
spouses--generally by *maximizing* the amounts considered
alimony. And, of course, that's the reason why Congress
allowed you only to take something that would be alimony and
say it isn't--not vice versa <grin>.
As long as it's in writing, viz in the divorce and agreement.

Cheer$,
HL
 
W

William P Brown

Drew said:
Never seen it but it is allowed. See 71(b)(1):

The term "alimony or separate maintenance payment" means any
payment in cash if--

(A) such payment is received by (or on behalf of) a spouse
under a divorce or separation instrument,

(B) the divorce or separation instrument does not designate
such payment as a payment which is not includible in gross
income under this section and not allowable as a deduction
under section 215,

--- end quoted text

Right there in 71(b)(1)(B).
A+ for Drew.
Addition to test question for Bill. :)

Regards,
Bill
~~~~
Associate Professor of Accounting
College of Business & Economics
Longwood University
http://www.longwood.edu/staff/wpbrown
 
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D

Drew Edmundson

Ed Zollars said:
Harlan Lunsford wrote:
Section 71 allows you to plan at the outset which way it
will be taxed, presuming the payments would *otherwise* be
taxable alimony (you can't convert child support into
deductible alimony just by saying it is, but you can take
what would be taxable alimony and convert it to something
not taxable/deductible with a stroke of a pen).
snip

I strongly urge all my divorcing clients to include in their
divorce decrees the statement that the payment of the ex's
mortgage is not taxable alimony, the payment of the ex's
health insurance is not taxable alimony, etc. Of course
assuming that is what they want. Why not be sure it isn't
alimony if that is what the parties want. It may not look
like taxable alimony but by adding the line that it isn't
taxable alimony they guarantee the result they want.

Drew Edmundson, CPA (NC)
 
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