792 / What is alimony? What types of payments between former spouses do not qualify as alimony payments?
A payment received by (or on behalf of) a recipient spouse pursuant to a divorce or separation instrument executed after 1984 is an alimony or separate maintenance payment if: (1) the payment is made in cash; (2) the divorce or separation instrument does not designate the payment as not includable or deductible as alimony;1 (3) there is no liability to make the payments after the death of the recipient,2 where the Tax Court held that "substitute" payments – i.e., post-death payments that would begin as a result of the death of the taxpayer's ex-wife, and would substitute for a continuation of the payments that terminated on her death, and that otherwise qualified as alimony – were not deductible alimony payments); and (4) if the individuals are legally separated under a decree of divorce or separate maintenance, the spouses are not members of the same household at the time the payment is made.3
A divorce or separation instrument includes any decree of divorce or separate maintenance or a written instrument incident to such, a written separation agreement, or other decree requiring spousal support or maintenance payments.4 The failure of the divorce or separation instrument to provide for termination of payments at the death of the recipient will not disqualify payments from alimony treatment.5 However, if both the divorce or separation instrument and state law fail to unambiguously provide for the termination of payments upon death, such payments may be disqualified from receiving alimony treatment.6
It has been held that an attorney's letter detailing a settlement agreement constituted a separation instrument for purposes of determining whether payments made thereunder were alimony.7 However, a list of expenses by the former wife, negotiation letters between attorneys, notations on the husband's check to his former wife indicating support, and the fact that the husband actually provided support did not constitute a written separation agreement for purposes of IRC Sections 71(b)(2) and 215.8 A husband's payments to his wife during the couple's separation under a later invalidated separation agreement and subsequent payments made pursuant to a circuit court's orders were held to be alimony or separate maintenance payments.9
The Tax Court held that a contract for deed is a third-party debt instrument; consequently, the taxpayer could not deduct the value of the contract for deed transferred to his former spouse as alimony because it did not constitute a cash payment.10
In deciding whether the transfer of ownership of an annuity contract itself constituted alimony, the Service determined that, because IRC Section 71 and the treasury regulations make it clear that in order to constitute alimony a payment must be in cash, the transfer of ownership of the annuity contract to the taxpayer in this instance did not constitute alimony includable in the taxpayer's gross income.11
For the types of payments that can constitute alimony payments for tax years prior to 2019, see Mozley v. Commissioner,12 (military retirement payments); Zinsmeister v. Commissioner,13 (payments on first mortgage, real estate taxes, and miscellaneous expenses); Marten v. Commissioner,14 (life insurance premiums paid on former wife's life insurance policy insuring the couple's paraplegic child); but also see Berry v. Commissioner15 (former wife's attorney's fees not deductible). Alimony can include rental payments paid to a former spouse, see Israel v. Commissioner.16 However, lump sum payments made by a husband to his former spouse under a consent judgment were not deductible under IRC Section 215(a) except to the extent the lump sum constituted past due alimony.17
1. See Richardson v. Commissioner, 125 F.3d 551 (7th Cir. 1997), aff'g T.C. Memo 1995-554; see also Let. Rul. 200141036.
2. See, e.g., Okerson v. Commissioner, 123 TC 258 (2004).
3. IRC § 71(b), prior to repeal by Pub. Law No. 115-97 (the 2017 Tax Act).
4. IRC § 71(b)(2), prior to repeal by Pub. Law No. 115-97 (the 2017 Tax Act).
5. See IRC § 71(b)(1)(D), prior to repeal by Pub. Law No. 115-97 (the 2017 Tax Act); TRA '86 Conf. Rept. at page 849.
6. Hoover v. Commissioner, 102 F. 3d 842, 97-1 USTC ¶ 50,111 (6th Cir. 1996); Ribera v. Commissioner, TC Memo 1997-38. See Mukherjee v. Commissioner, TC Memo 2004-98; Lovejoy v. Comm, 293 F.3d 1208 (10th Cir. 2002), aff'g, Miller v. Commissioner, TC Memo 1999-273; Thomas D. Berry v. Comm, 36 Fed. Appx. 400, 2002 U.S. App. LEXIS 10785 (10th Cir. 2002), aff'g, TC Memo 2000-373; Fithian v. United States, 45 Fed. Appx. 700, 2002-2 USTC ¶ 50,629 (9th Cir. 2002). But see Kean v. Commissioner, 407 F. 3d 186, 2005-1 USTC ¶ 50,397 (3rd Cir. 2005), aff'g, TC Memo 2003-163; Michael K. Berry v. Commissioner, TC Memo 2005-91.
7. Azenaro v. Commissioner, TC Memo 1989-224.
8. Ewell v. Commissioner, TC Memo 1996-253.
9. Richardson v. Commissioner, 125 F.3d 551 (7th Cir. 1997), aff'g, TC Memo 1995-554.
10. Lofstrom v. Commissioner, 125 TC 271 (2005).
11. Let. Rul. 200536014.
12. TC Memo 2001-125.
13. TC Memo 2000-364, aff'd per curiam, 21 Fed. Appx. 529 (8th Cir. 2001).
14. TC Memo 1999-340, on motion for reconsideration, holding reaffirmed in TC Memo 2000-185; aff'd per curiam, Commissioner v. Lane, 2002 U.S. App. LEXIS 8367 (9th Cir. 2002).
15. 36 Fed. Appx. 400, 2002 U.S. App. LEXIS 10785 (10th Cir. 2002), aff'g, TC Memo 2000-373.
16. TC Memo 1995-500. See Temp. Treas. Reg. § 1.71-1T(b), A-6.
17. Barrett v. U.S., 74 F. 3d 661, 96-1 USTC ¶ 50,084 (5th Cir. 1996).