IRS sticking me!! help

[tnpuddleduck]

I live in TN. I have been paying court ordered alimony to my ex for 3 years. I was told by two attorneys and my accountant, that the alimony was federally deductible for me. I received an "audit" letter asking for my
documents pertaining to that deduction only in 2009. I sent them in and have now received a notice saying I
owe $8000 because it is NOT deductible. This is crap, what can I do?

 

[tranquility]

The law is not that complex on the matter and I don't know why the IRS or your experts would differ. What did your documents say *exactly* regarding the payments?

 

[LdiJ]

I live in TN. I have been paying court ordered alimony to my ex for 3 years. I was told by two attorneys and my accountant, that the alimony was federally deductible for me. I received an "audit" letter asking for my
documents pertaining to that deduction only in 2009. I sent them in and have now received a notice saying I
owe $8000 because it is NOT deductible. This is crap, what can I do?

Like Tranq said, the wording of your court order is critical to giving you any advice.

 

[tnpuddleduck]

The Husband agrees to pay to the Wife as alimony in solido the sum of one thousand eight hundred dollars a month for 53 consecutive months, beginning Jan 1, 2009 and final payment being due on May 1, 2013. Said
payments shall be due on the first day of each and every month and shall be paid directly to wife.

 

[tranquility]

Because you did not specify the amount was to be paid only if your spouse was alive, it could be construed the purported alimony is more of a property settlement than true alimony. I think the IRS may very well be correct. Who made the settlement? You or your attorney?

 

[LdiJ]

Because you did not specify the amount was to be paid only if your spouse was alive, it could be construed the purported alimony is more of a property settlement than true alimony. I think the IRS may very well be correct. Who made the settlement? You or your attorney?

I dunno Tranq...that is pretty specific and I have seen many alimony orders that specific pass muster. Of course, there may be something else within the divorce decree that would lead the IRS to believe that its a property settlement.

OP, is there anything else within the divorce decree that specifically shows that your ex is getting half of the marital assets directly, without the alimony payments? The proper amount of child support (if applicable) without the alimony payments etc? Did you provide them the entire divorce decree? Take your entire divorce decree to a tax professional and let them review it to see if there is anything that makes it look like you are structuring something else as alimony. If its clear that its alimony, you should appeal the examination results.

 

[tranquility]

I did say "may", but:

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

I don't see that limitation in the stated phrase. I only see 53 months. Are you saying the fact that it must be paid "directly" to the wife is a limitation assuming the wife must be alive?

 

[davew128]

I'm going to agree with Tranq. The divorce decree is poorly worded although I think the intent was clear. I of course am stunned, STUNNED, that divorce attorneys would screw up something like this.

 

[tranquility]

Which is why I asked who wrote it. If an attorney, it might be malpractice if he purported it to be alimony.

 

[tnpuddleduck]

Yes, all accounts were split down the middle, furniture split, autos split, and I bought her out of her equitiy in house.

 

[Zigner]

Yes, all accounts were split down the middle, furniture split, autos split, and I bought her out of her equitiy in house.

Who drafted the order?

 

[LdiJ]

I did say "may", but:

I don't see that limitation in the stated phrase. I only see 53 months. Are you saying the fact that it must be paid "directly" to the wife is a limitation assuming the wife must be alive?

No, I am saying that states laws normally define alimony as something that ends upon the death of the supported spouse, therefore, in every case I have seen, unless there was something in the decree to indicate that the alimony would continue to be owed to the supported spouse's estate in the event of their death, or something else to indicate that it was actually a property settlement, that particular clause did not actually have to be included in the decree.

 

[tranquility]

In TN, there seems to be four types of "alimony", a couple of which are not deductible. (There is a 2000 case from the TN Supreme Court making a big deal because a court gave BOTH a rehabilitative "alimony" and an alimony in futuro. It said the court cannot give both at one time, but could modify it after the rehabilitative need was reassed.) One attorney from TN (http://www.fisherdivorce.com/alimony-lawyer.html) wrote:

Alimony in futuro or periodic alimony (usually after a long-term marriage) is based upon one party’s ongoing need for financial support and the other party’s ability to pay alimony. This right to receive alimony continues until one of the parties dies or the party receiving the alimony remarries or the party receiving the alimony receives support from a live-in relationship. Alimony in futuro is normally tax deductible by the party paying. Alimony in futuro is normally taxable income to the party receiving payment. The amount may be subject to modification or change for material change in circumstances.
Rehabilitative alimony payable for a specific number of months or years may be used to help a spouse become rehabilitated, such as paying alimony for a specific period of time to help a spouse to return to school to increase his or her earning capacity. Your attorney can help make this tax deductible to the party paying by making this rehabilitative alimony end upon death of a party and following the technical rules that must be followed when these provisions are drafted. The amount may be subject to modification or change for material change in circumstances.

Houston (I mean, Nashville.), we have a problem.

 

[LdiJ]

In TN, there seems to be four types of "alimony", a couple of which are not deductible. (There is a 2000 case from the TN Supreme Court making a big deal because a court gave BOTH a rehabilitative "alimony" and an alimony in futuro. It said the court cannot give both at one time, but could modify it after the rehabilitative need was reassed.) One attorney from TN (http://www.fisherdivorce.com/alimony-lawyer.html) wrote:



Houston (I mean, Nashville.), we have a problem.

Ah...there we go...there is the problem...and an IRS agent who is actually reviewing state law in making determinations.