Amounts paid to a spouse or former spouse under a divorce or separation agreement may be deductible as alimony or separate maintenance payments.
There are certain requirements to be met for such payments to be deductible and the Tax Court fleshes those out in the recent Ibrahim v. Commissioner; No. 10750-20S; T.C. Summ. Op. 2022-7.
Law Regarding Alimony or Separate Maintenance Deductions
I.R.C. 71(b)(1) defines alimony or separate maintenance payments as any monetary payment that satisfies the following four requirements:
A. the 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 the payment as a payment that is not includible in gross income under this section and not allowable as a deduction under section 215;
C. in the case of an individually legally separated from his spouse under a decree of divorce or of separate maintenance, the payee spouse and the payor spouse are not members of the same household when the payment is made; and
D. there is no liability to make the payment for any period after the death of the payee spouse, and there is no liability to make any payment (in cash or property) as a substitute for such payments after the death of the payee spouse.
Facts and Tax Court’s Findings
In this case the husband claimed a $50,000 alimony or separate maintenance deduction for 2017 which the IRS disallowed.
Taxpayers’ divorce decree stated that neither the husband nor wife would pay maintenance to each other. It therefore does not meet the the second requirement since neither party is required to pay alimony.
Finally, there was no express termination upon death in the agreement, and there was no finding by the state court that the spouse was eligible for maintenance under state law. Therefore, the fourth requirement was not met.
The Tax Court sustained in favor of the IRS.
Takeaway
Divorce decrees should be carefully reviewed before claiming an alimony deduction. The instrument should be clear that the payment is to or for a spouse or a former spouse made under a divorce or separation instrument, and that that such payments will terminate upon the death of the payee spouse.
Voluntary payments, not required by a divorce or separation instrument, are not deductible as alimony or separate maintenance.