The Tax Court has recently concluded that family support payments made by an individual to his legally-separated spouse were alimony not child support. As a result of this decision the taxpayer was entitled to deduct the entire amount of the payments made to his spouse.
A taxpayer may claim an above-the-line deduction for alimony or separate maintenance payments he/she makes during the tax year. (Code Sec. 215) An alimony or separate maintenance payment is one that meets the following requirements:
- payment must be made under a divorce or separation instrument
- instrument must not designate the payment as not includible in the recipient spouse’s gross income under Code Sec. 71 and not deductible by the payer spouse under Code Sec 215
- legally separated spouses under a decree of divorce or separate maintenance must not be members of the same household when payments are made and
- the payer’s obligation to make the payment must end at the death of the payee spouse.
The issue of the designation of support payments became the focus of the Court in this case. The IRS’s argument that family support payments were designated as nonalimony was rejected since the Court concluded that no amount of the family support payments qualified as child support under Code Sec. 71(c). The Court noted that the statutory directive that child support payments be fixed was generally taken literally. Child support cannot be inferred from intent surrounding circumstances or other subjective criteria.
ServicesSince the support orders in this case made an unallocated award of spousal and child support consequently no portion of the family support payments was fixed as a sum payable for the support of his children for the purposes of Code Sec 71(c)(1). Accordingly the taxpayer was allowed to deduct the entire amount of the payments on his tax return.
Lindemeyer is a CPA firm in the Louisville Ky area and can help you understand what this means for your situation. Please contact us Services to see how we can help.