Child in another's house taxpayer's dependent

Article Abstract:

The decision of the court in the 'Stanford' case demonstrates the fact that it is the amount of support provided and not where a dependent lives that determines who is allowed to get a tax exemption. In the case, a taxpayer was found to have the right to claim an exemption for her daughter despite the fact that the child does not live with her and stays with another couple. While her daughter lived with the couple, the taxpayer who was working in another place provided a washer, an air conditioner and a camcorder. She also took care of utility bills and bought groceries and other items. This was all that was needed to convince the court that she spent half of the child support, which is required by Sec. 151 to allow exemptions. The taxpayer, however, lost in her bid to avail of a lower-rate exemption because she is not a household head, given the fact that her dependent daughter does not live with her.

Cases, Tax exemption, Tax exemptions

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Marital dissolution presents planning opportunities

Article Abstract:

The transfer of property resulting from the dissolution of a marriage may be classified for Federal income tax purposes as alimony, child support or property settlements. Each category of such divorce-related property divisions has tax consequences that the divorcing parties should consider. Property transfers that qualify as alimony payments under Section 71(a) can be tax-deductible for the payor. The receiver of the payment must declare the alimony as income. On the other hand, Section 71(a) specifies that child support has no tax effect if the amount of payment is fixed since the payor cannot treat it tax deductible while the payee cannot consider it gross income. Property transfer to a former spouse is considered tax-free since Section 1041 recognizes no loss or gain from such a transaction. Property settlements are often made as gifts and, therefore, are not part of the transferee's income.

Planning, Divorce, Divorce settlements, Alimony

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Conditional support was not alimony

Article Abstract:

The designation as child support of any regular payments made by taxpayers to former wives are nondeductible even in cases where specific conditions are stipulated that can terminate the payments. This was the decision for the case of Walstatter, TCM 1992-152. The ruling is based on Section 71(c) which characterizes payments carried out under a separation or divorce agreement as nondeductible, specifically when the payments are fixed as child support. Nondeductability applies to both the spouse making the payments and to the recipient of the payments. The taxpayer's argument that the nature of the payments would be altered by the termination of payments upon the death or remarriage of the former wife was rejected by the court. The specificity of the agreement does not permit the taxpayer-spouse to use the payments as deductions classified as alimony.

Laws, regulations and rules, Support (Domestic relations)

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