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Christopher Phelps
Christopher Phelps, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 2710
Experience:  CPA, CFP, PFS, Tax Practitioner 21 Years, Member AICPA/CSCPA Tax/Financial Planning Committee Member
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is it tax deductible

Customer Question

if i am currently paying alimoney and im also going to give my xspouse a lumb sum cash payment, is it the same as the alimony, that being tax deductible
Submitted: 11 years ago.
Category: Tax
Expert:  Christopher Phelps replied 11 years ago.

Classification of a payment as alimony or separate maintenance under IRC Sec.71(b) is independent of its classification by the parties or under applicable state law. Alimony or separate maintenance (hereafter, "alimony" and "separate maintenance" are referred to as "alimony") for federal tax purposes is defined under IRC Sec. 71(b).


A payment is alimony, includible in the payee spouse's gross income, when the payment is made in cash; the payment is received by (or on behalf of a spouse) under a divorce or written separation instrument; if the spouses are divorced or legally separated, they reside in separate households when payment is made; the payments to a third party on behalf of the payee spouse are evidenced by a timely executed writing; the payor spouse's liability to make the payment does not continue for any period after the payee spouse's death; the payor and payee (if married) do not file a joint return; and, the divorce or separation instrument does not designate non-alimony treatment.


Federal tax law does not require that payments be periodic in nature. The tax law also does not require that the amount of alimony to be paid be fixed. The amount to be paid can be uncertain both as to whether it will ever have to be paid and as to the amount to be paid, provided it is paid under a qualified divorce instrument. An agreement that contains no specific amount but simply obligates the payor spouse to give the payee spouse a sufficient amount to maintain his or her prior standard of living may satisfy IRC Sec. 71(b). Payments fixed as a percentage of income can qualify.


Section 71(b) makes no express distinction between transfers of cash meant to provide support to the payee spouse or to effect a division of marital assets. The purpose of any payment is irrelevant, so long as the payment or stream of payments meet the above statutory requirements of IRC Sec. 71.


Accordingly, if your payment satisfies the above criteria, then it will be considered alimony for tax purposes. The key will likely be whether the payment is mandated under your divorce decree and is specifically identified as a property settlement and not alimony (in which case it will not be considered alimony).


If your not sure how this payment is represented in the divorce decree I would recommend you seek out qualified tax counsel to review the document BEFORE you make the payment.


Because it is impossible for me to identify and consider ALL the relevant facts, this advice is not intended or written to be used for the purpose of avoiding penalties, and cannot be used for that purpose.

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