Law Offices of Jonathan Gladstone
Free Consultations 410-777-8228
Effective Representation for Complex Issues

The deductible nature of alimony

When a Maryland couple gets a divorce, there are several factors that govern the tax treatment of alimony. Under the Internal Revenue Code, the person making alimony payments can deduct them while the recipient has to include the payments in income. However, there are a few requirements that need to be met, and a 2017 U.S. Tax Court case illustrates this.

In the case, a California attorney was paid a sizable bonus in 2006 while still married. He filed for divorce shortly after the start of the following year. While the divorce was still pending, he gave approximately half of his bonus to his estranged wife, and the two signed an agreement stating that the bonus was community property and that he would report all of it on his tax return.

When the divorce was finalized a few months later, the court issued a temporary spousal support order which provided that the ex-husband was to pay his ex-wife a certain amount each month. The order did not contain any reference to the prior payment of the bonus.

He then remarried, and on a joint return filed for 2007 he claimed an alimony deduction that included the bonus. The IRS challenged it, and the case ended up in front of the Tax Court. The court held that since the bonus agreement was not made a part of a formal divorce order, it did not qualify as alimony for tax purposes. Attorneys who have experience with these types of matters will also inform their clients that the alimony agreement must also provide that the obligation ceases upon the death of the recipient in order for payments to be deductible.

No Comments

Leave a comment
Comment Information