Case: Ben Divorce By Adriana Gonzales
TO: File
FROM: Adriana Gonzales
RE: Ben Divorce (tax year 2016)
FACTS:
• According to a divorce decree, set two years ago, Ben’s ex-wife will receive monthly payments of $1,100. The monthly payments consist of $600 for child support and $500 for alimony.
• For 3 months of the year, Ben was unemployed and only payed his ex-wife, Jen, a total of $9,900; he allocated $5,400 for 9 months of child support and $4,500 was for 9 months of alimony.
• To make up for the 3 months of unpaid alimony and child support payments (totaling $3,300), Ben transferred home theatre equipment to Jen in exchange for her to promise that she would not file any claim against him for the 3 months of payments he missed; the home theatre equipment has a basis of $6,000 and an FMW of $3,300.
• For the 3 months that Ben was unemployed, he received $3,000 of unemployment benefits. For the remaining 9 months, he earned a salary of $72,000.
ISSUES, CONCLUSIONS, AND ANALYSIS:
Issue 1:
• Does the entire amount that Ben payed and allocated towards paying for alimony ($4,500), during the 9 months that he was employed, actually qualify as alimony payment for deduction purposes?
Conclusion 1:
• No, only $2,700 of the $4,500 he allocated for alimony qualifies as alimony payments; The rest of the money is actually considered child support payment and is not deductible.
Analysis 1:
In …show more content…
71(c)(1) of the IRC indicates that Ben is not permitted to deduct the child support payments that he completed for tax purposes, but Code Sec. 215 (a) allows him to deduct his alimony payments (as long as the deduction is equal to the amount of alimony that was paid during Ben’s tax year). Also, according to the U.S. Tax Court Memorandum decision, FARAHANI, SAM, 2014 RIA TC Memo ¶2014-111, even if Ben is behind on his spouse support payments, he can still claim deductions as long as he does not exceed the amount of alimony actually paid. In this case, that amount was determined to be
FROM: Adriana Gonzales
RE: Ben Divorce (tax year 2016)
FACTS:
• According to a divorce decree, set two years ago, Ben’s ex-wife will receive monthly payments of $1,100. The monthly payments consist of $600 for child support and $500 for alimony.
• For 3 months of the year, Ben was unemployed and only payed his ex-wife, Jen, a total of $9,900; he allocated $5,400 for 9 months of child support and $4,500 was for 9 months of alimony.
• To make up for the 3 months of unpaid alimony and child support payments (totaling $3,300), Ben transferred home theatre equipment to Jen in exchange for her to promise that she would not file any claim against him for the 3 months of payments he missed; the home theatre equipment has a basis of $6,000 and an FMW of $3,300.
• For the 3 months that Ben was unemployed, he received $3,000 of unemployment benefits. For the remaining 9 months, he earned a salary of $72,000.
ISSUES, CONCLUSIONS, AND ANALYSIS:
Issue 1:
• Does the entire amount that Ben payed and allocated towards paying for alimony ($4,500), during the 9 months that he was employed, actually qualify as alimony payment for deduction purposes?
Conclusion 1:
• No, only $2,700 of the $4,500 he allocated for alimony qualifies as alimony payments; The rest of the money is actually considered child support payment and is not deductible.
Analysis 1:
In …show more content…
71(c)(1) of the IRC indicates that Ben is not permitted to deduct the child support payments that he completed for tax purposes, but Code Sec. 215 (a) allows him to deduct his alimony payments (as long as the deduction is equal to the amount of alimony that was paid during Ben’s tax year). Also, according to the U.S. Tax Court Memorandum decision, FARAHANI, SAM, 2014 RIA TC Memo ¶2014-111, even if Ben is behind on his spouse support payments, he can still claim deductions as long as he does not exceed the amount of alimony actually paid. In this case, that amount was determined to be