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Lawrence D. Gorin
Lawrence D. Gorin, Tax Attorney
Category: Tax
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Experience:  30+ years of legal experience. Special emphasis in divorce & family tax matters.
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How does one deduct USFSPA payments made to a spouse as required

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How does one deduct USFSPA payments made to a spouse as required by a separation agreement? No divorece decree has been entered yet, as the Commonwealth of Virginia requires a 1 year separation.
Our separation agreement requires a percentage of my Navy retirement to be paid to spouse under USFSPA, and payments have been made via cashiers check.
I retired in 2006, separated in May 2012, and divorce decree will be final in June 2013. Until then, how to deduct the USFSPA payments? The separation agreement labels them as division of property, and not spousal support.

I have read Proctor v Commissioner, and understand that case, but does it apply to me? IRS won't give me an answer, and suggested I talk to a tax attorney. Please help! I'd like to deduct the USFSPA payments as alimony, but lack the firm answers.

XXXXX XXXXX

Randalltax :

From the IRS are these guidelines:

Randalltax :

Amounts paid under divorce or separate maintenance decrees or written separation agreements entered into between you and your spouse or former spouse will be considered alimony for federal tax purposes if:



  • You and your spouse or former spouse do not file a joint return with each other

  • You pay in cash (including checks or money orders)

  • The payment is received by (or on behalf of) your spouse or former spouse

  • The divorce or separate maintenance decree or written separation agreement does not say that the payment is not alimony

  • If legally separated under a decree of divorce or separate maintenance, you and your former spouse are not members of the same household when you make the payment

  • You have no liability to make the payment (in cash or property) after the death of your spouse or former spouse, and

  • Your payment is not treated as child support or a property settlement

Randalltax :

Regarding the military pay: The application form should state which awards the former spouse is seeking to enforce under the Act (i.e., alimony, child support, and/or division of retired pay as property). If the application does not contain this information, then only awards of retired pay, as property will be enforced under the Act.

Randalltax :

Everything points to NOT alimony, unless it is specifically alimony.

Randalltax :

If you are seeking a specific opinion as it relates to your case, we cannot provide that service on this site because legal and professional liability is involved. You would need to hire counsel directly, not through a general information service such as ours.

Randalltax :

Our information is general facts that apply in this situation.

NEED FURTHER INFORMATION....
The part of your separation agreement that labels the payments as division of property, and not spousal support.... exactly and specifically what does it say? How is it worded? Give me the exact text, word-for-word.

CLICK HERE for some further information.
Customer: replied 4 years ago.


"It is expressly understood that the payments described in this section of the Parties' Agreement are not spousal support, but are to be considered a property division under the terms of § 20-107.3 of the Code of Virginia, as amended, and that these payments shall not terminagte with the remarriage of the Wife. Wife shall receive her allocable share of Husband's retired pay until the death of either party."

ANSWER:
First, everying in your case points to the payment as being alimony for federal income tas purposes.

Second, as to Proctor v. Comm., 129 TC No. 12 (2007), YES, that case is directly applicable to the facts you are presenting.

Third, the provision of the parties' agreement that says that the payments "are not spousal support, but are to be considered a property division under the terms of § 20-107.3 of the Code of Virginia" is NOT controlling, In Proctor, the divorce decree referred to the payments as part of a division of the marital property. The IRS argued that this was sufficient to preclude the payments from being alimony for IRS purposes. The Tax Court rejected that arguement, explaining that "The classification of a payment as part of the division of marital property does not, however, preclude the payment from being alimony." In essence, "labels attached to payments mandated by a decree of divorce or marriage settlement agreement are not controlling." The Tax Court said that a divorce decree or agreement that simply says the the payments are property division and not spousal support does not constitute a “clear, explicit and express direction” that the payment not to be treated as alimony.

NOTE: "Spousal support" as defined under state law is not necessarily the same thing as "alimony" as defined under the federal IRS law. For IRS purposes, just about any payment made by one former spouse to the other former spouse WILL be alimony for federal income tax purposes UNLESS the payment is disqualified from being alimony for federal income tax.

As in Proctor, the language of your agreement does not, in my opinion, disqualify the payments from being alimony for federal income tax purposes.

"Alimony paid" is deducted from gross income on Line 31a of IRS Form 1040.

NOTE: This is merely an opinion (and a pretty good one, if I say so myself) but should not be considered by you as "tax advice." I am not your tax advisor.
Lawrence D. Gorin, Tax Attorney
Category: Tax
Satisfied Customers: 1544
Experience: 30+ years of legal experience. Special emphasis in divorce & family tax matters.
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