Front-loading of alimony payments can result in the deductions being disallowed

Article Abstract:

Payors of alimony are relieved of paying tax on transferred income by tax law, making the structure of alimony critical in a divorce. Some flexibility is allowed in the timing of the amount of alimony payments, allowing the parties to reduce taxes by using differences in the parties' tax brackets. Two divorced individuals between whom alimony is paid may pay less tax than during their marriage due to the existence of lower rates for single taxpayers or heads of households. In order to maximize tax benefits, a front-loaded payment structure can be created for alimony payments during the planning stage. For an alimony settlement to adhere to the rules, payments must terminate with the death of either spouse and payments should be structured over the first three years that the agreement is in effect to avoid recapture under excessive front-loading rules.

Methods, Planning, Tax accounting, Divorce

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Delinquent alimony taxable to decedent's heirs

Article Abstract:

The Tax Court has ruled in favor of the IRS in the 'Kitch' case. The case involved the treatment of delinquent alimony paid to the decedent's estate after a recovery suit was filed by her estate's executor. The Tax Court ruled that the decedent's five sons were liable for the tax on the delinquent alimony, which was worth $360,000 and came principally in the form of property. Moreover, the court ruled that the five sons could not deduct a capitol loss on their father's estate, which had paid out the delinquent alimony. The Tax Court cited Section 682's clauses on the settlement of income in respect of a decedent (IRD) as support for its decision. It also referred to Section 691 and Section 71.

Cases, Laws, regulations and rules, Inheritance tax, United States. Internal Revenue Service, Tax courts

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