Tax Issue With Alimony Paid Minus Child Support Received

[Chaz_NY]

What is the name of your state (only U.S. law)? New York State
I have been paying temporary alimony to an ex-spouse for the last 4.5 years. We were divorced in 2005, but a final financial settlement is still being negotiated.

I pay my ex-wife $X per week in alimony. She pays me $Y per week in child support as I am the exclusive custodial parent. The amount of alimony paid is greater than the amount of child support received. The judge ordered me to send to my ex-wife the net amount (e.g. X - Y, or alimony owed to her minus the child support she owes to me). I think he did this because he did not trust that she would pay child support to me. I have been claiming the entire alimony amount on my taxes. The IRS has examined my tax return and hers and found that there is a big discrepancy between what I claimed as alimony paid and what she received each year. She claimed 0 alimony received and paid no taxes on what I sent her. More importantly the IRS is only allowing my deduction based on the net alimony I sent to her, based on me showing the IRS 52 weekly checks for the net amount. I could be stuck with paying taxes on the difference, plus penalties & interest. I am in the process of taking this case to the US Tax Court to see if they will let me deduct the full amount of alimony that I was ordered to pay. What are my chances of prevailing???

My ex-wife's attorney says that they will amend their tax returns only AFTER the divorce final financial settlement. They are clearly in the wrong here. They are claiming that my ex-wife's tax preparer (a national chain) mis-led her by telling her that since the divorce financials are not settled, the money I sent her is not alimony. My ex-wive's attorney is telling my attorney that they plan to sue this firm too for misleading the poor woman - boo hoo. Meanwhile I am getting the shaft.What is the name of your state (only U.S. law)?

[LdiJ]

Originally Posted by Chaz_NY

What is the name of your state (only U.S. law)? New York State
I have been paying temporary alimony to an ex-spouse for the last 4.5 years. We were divorced in 2005, but a final financial settlement is still being negotiated.

I pay my ex-wife $X per week in alimony. She pays me $Y per week in child support as I am the exclusive custodial parent. The amount of alimony paid is greater than the amount of child support received. The judge ordered me to send to my ex-wife the net amount (e.g. X - Y, or alimony owed to her minus the child support she owes to me). I think he did this because he did not trust that she would pay child support to me. I have been claiming the entire alimony amount on my taxes. The IRS has examined my tax return and hers and found that there is a big discrepancy between what I claimed as alimony paid and what she received each year. She claimed 0 alimony received and paid no taxes on what I sent her. More importantly the IRS is only allowing my deduction based on the net alimony I sent to her, based on me showing the IRS 52 weekly checks for the net amount. I could be stuck with paying taxes on the difference, plus penalties & interest. I am in the process of taking this case to the US Tax Court to see if they will let me deduct the full amount of alimony that I was ordered to pay. What are my chances of prevailing???

My ex-wife's attorney says that they will amend their tax returns only AFTER the divorce final financial settlement. They are clearly in the wrong here. They are claiming that my ex-wife's tax preparer (a national chain) mis-led her by telling her that since the divorce financials are not settled, the money I sent her is not alimony. My ex-wive's attorney is telling my attorney that they plan to sue this firm too for misleading the poor woman - boo hoo. Meanwhile I am getting the shaft.What is the name of your state (only U.S. law)?

Do you have any paperwork from the court that shows the total alimony you are to pay her, and the total child support that she is to pay you, and that its ordered that you net it out?

If so, its not going to matter whether or not she did her returns properly. You should prevail in Tax Court.

If you don't have that kind of paperwork, you could have a problem.

[Chaz_NY]

Yes I do have the paperwork - the divorce court's orders about temporary child support and alimony. There is also a separate order from the same judge telling me to pay her the net alimony amount. There is one potential snag though. Before my case got as far as it did with the US Tax Court (case is pending) I got some help from the IRS' Taxpayer Advocacy Office. The caseworker there told me that one issue with my paperwork is that it does not indicate when child support will end. I would hope that the Tax Court would recognize New York law which says that child support ends when the minor attains 21 years of age.

[LdiJ]

Originally Posted by Chaz_NY

Yes I do have the paperwork - the divorce court's orders about temporary child support and alimony. There is also a separate order from the same judge telling me to pay her the net alimony amount. There is one potential snag though. Before my case got as far as it did with the US Tax Court (case is pending) I got some help from the IRS' Taxpayer Advocacy Office. The caseworker there told me that one issue with my paperwork is that it does not indicate when child support will end. I would hope that the Tax Court would recognize New York law which says that child support ends when the minor attains 21 years of age.

Make sure that you take documentation of that law with you to court to present to the judge.

[Bali Hai]

Originally Posted by LdiJ

Make sure that you take documentation of that law with you to court to present to the judge.

Presiding judges in the US Tax Court would be EXPECTED to know the laws of each state as applied to alimony and child support law, wouldn't you think so???

Or is this another example where OP is expected to prove his case to another ignorant judge?? Good business for attorney's.

I'm surprised that OP's case even got that far. From what I read, OP gets the full alimony deduction that the state court judge ordered and put into writing. You would think this simple matter would have been handled in Fresno.

The child support he is receiving of course is not tax deductible.

[LdiJ]

Originally Posted by Bali Hai

Presiding judges in the US Tax Court would be EXPECTED to know the laws of each state as applied to alimony and child support law, wouldn't you think so???

Or is this another example where OP is expected to prove his case to another ignorant judge?? Good business for attorney's.

I'm surprised that OP's case even got that far. From what I read, OP gets the full alimony deduction that the state court judge ordered and put into writing. You would think this simple matter would have been handled in Fresno.

The child support he is receiving of course is not tax deductible.

A tax court judge would have no reason to know anything at all about laws regarding child support. Child support has nothing to do with tax whatsoever. This is an unusual situation.

[Chaz_NY]

Thanks LdiJ and Bali Hai for the replies. My tax accountant also agrees that this is a bizarre case. Something I am finding out the hard way is that the IRS is one unbelievably messed up bureaucracy. They do not even follow their own due process with respect to the review, appeals procedures, and the notice of deficiency. They once sent me a notice by mail saying that I had to respond to their letter by a date that was a week before the date on their own letterhead. I sent them a reply telling them that unfortunately I do not own a time machine. As a result of my reply I got an apology letter from them saying that they did not follow their own process. Despite their apologies, they are not apologizing for forcing me to go to the US Tax Court for resolution on this stupid case.

[LdiJ]

Originally Posted by Chaz_NY

Thanks LdiJ and Bali Hai for the replies. My tax accountant also agrees that this is a bizarre case. Something I am finding out the hard way is that the IRS is one unbelievably messed up bureaucracy. They do not even follow their own due process with respect to the review, appeals procedures, and the notice of deficiency. They once sent me a notice by mail saying that I had to respond to their letter by a date that was a week before the date on their own letterhead. I sent them a reply telling them that unfortunately I do not own a time machine. As a result of my reply I got an apology letter from them saying that they did not follow their own process. Despite their apologies, they are not apologizing for forcing me to go to the US Tax Court for resolution on this stupid case.

Its unfortunate, but sometimes the IRS takes a position and refuses to back down, despite logic.

However, you should prevail in Tax Court. You should point out to the judge that child support is not taxable income, and that by denying you the right to deduct the entire amount of the ordered alimony, they are effectively turning the child support that is due to you, into taxable income.

[Chaz_NY]

As I mentioned in my original posting, the final financial settlement is not complete. The only remaining issue in my case in New York State's infamous enhanced earnings award for an educational degree earned 24 years ago. Valuation of the enhanced earning power is a completely ficticious exercise. Given my ex-wife's recent behavior with respect to alimony declarations on taxes (or lack thereof) do you think I might get any leeway from the judge if I take them to trial over her share of the degree. She thinks she should get 50% of the enhanced earning value until I turn 65, even though I paid my way through graduate school (engineering degree) and did 50/50 of the work at home and taking care of one child. I think she should get 10% and have offered such. They are making noise about taking me to trial for more. The 10% offer that I am making would cover her cost to take me to trial. I heard about an important case called the 'Higgins Appeal' in New York State that came down in the last 1 or 2 years. In it the appeals court says that a spouse cannot share in the value of an educational degree unless they made more than ordinary contributions or sacrifices to help the degreed spouse obtain the sheepskin.

[Bali Hai]

Originally Posted by LdiJ

A tax court judge would have no reason to know anything at all about laws regarding child support. Child support has nothing to do with tax whatsoever. This is an unusual situation.

IRS rules say that child support is NOT tax deductible, nor taxable and therefore, as a paid federal employee I expect a US Tax Court Judge to KNOW this.

Let me know if my expectations are too high regarding this.

[LdiJ]

Originally Posted by Bali Hai

IRS rules say that child support is NOT tax deductible, nor taxable and therefore, as a paid federal employee I expect a US Tax Court Judge to KNOW this.

Let me know if my expectations are too high regarding this.

Of course a tax court judge knows that...but again, a tax court judge would have no reason to know the child supports laws for any given state.

[Bali Hai]

Originally Posted by LdiJ

Of course a tax court judge knows that...but again, a tax court judge would have no reason to know the child supports laws for any given state.

If that's the case, WHY are IRS employees questioning WHEN NYS "child support" obligations END???

Below is from OP's post:

I got some help from the IRS' Taxpayer Advocacy Office. The caseworker there told me that one issue with my paperwork is that it does not indicate when child support will end.

OP may be confused and the IRS is actually questioning why there is no end date in the order regarding alimony. Even then, NYS statutes are clear that alimony ends upon death of the recipient or payor or the remarriage of the recipient. This statute does NOT have to be put into the order and therefore, the tax court judge needs to be aware of NYS laws.

[LdiJ]

Originally Posted by Bali Hai

If that's the case, WHY are IRS employees questioning WHEN NYS "child support" obligations END???

Below is from OP's post:

I got some help from the IRS' Taxpayer Advocacy Office. The caseworker there told me that one issue with my paperwork is that it does not indicate when child support will end.

OP may be confused and the IRS is actually questioning why there is no end date in the order regarding alimony. Even then, NYS statutes are clear that alimony ends upon death of the recipient or payor or the remarriage of the recipient. This statute does NOT have to be put into the order and therefore, the tax court judge needs to be aware of NYS laws.

Yes, and it would be the responsibility of the OP to bring that law to the judge's attention as well.

[Bali Hai]

Originally Posted by LdiJ

Yes, and it would be the responsibility of the OP to bring that law to the judge's attention as well.

It's the judge's responsibility as well as IRS Compliance Services in Fresno to perform the job they are paid to do and KNOW the law or research until they do for a specific case before making errors.

Again, let me know if my expectations are too high for public officials getting paid to do a job.

[LdiJ]

Originally Posted by Bali Hai

It's the judge's responsibility as well as IRS Compliance Services in Fresno to perform the job they are paid to do and KNOW the law or research until they do for a specific case before making errors.

Again, let me know if my expectations are too high for public officials getting paid to do a job.

Your expectations are too high. Its the responsibility of the parties before the judge to argue statutes and case law...and for the judge to make their decision based on those arguments.

IRS compliance agents are required to research the tax code before THEY make decisions. If something outside of the tax code effects a decision they may be making, it the responsibility of the taxpayer to bring that to their attention.