Alimony Case

To: Client

From: STUDENT

Date: DATE

RE: Alimony Payments

I. FACTS

Client has been making alimony, or what he believes to be, payments to his ex wife since 1994. The divorce decree does not state if the client is still required to make payments should the ex wife die. Both the client and ex wife are California residents.

II. ISSUE

A. What is the tax impact of the silence on the categorization of his payments as “alimony?”

III. SHORT ANSWER

1. The law no longer requires the divorce decree to state that the payor does not have to make alimony or maintenance payments after a spouse’s death per Sec. 71(b)(1)(D).

IV. ANALYSIS

A. Framework of Authorities

1. Statutory Authority

Section 71 generally states that alimony received must be included in gross income.

Section 71(b)(1) also lists the requirements in order to qualify as an alimony or separate maintenance payment. In order to qualify as such a payment: the spouse (or payee) should receive payment under the divorce decree; the divorce decree does not designate the payment as excludible from gross income; if legally separated, the spouses cannot be members of the same household at the time of payment; and the payor has no liability to make a payment after the death of the payee.

2. Treasury Regulations

Looking at Temp. Treas. Reg. §1.71-1T, in the definition of an alimony payment, the divorce decree was required to state that there was no such liability to make payment after the death of the payee. It also states that if the divorce decree fails to state that there is no liability, none of the payments qualify as alimony. However, when we look at the current Code, Section 71 does not have this requirement. It also does not disqualify the alimony payments if the decree does not state the requirement.

Treas. Reg. §1.71-1 does not list the requirement of the divorce decree to state that there is no liability to make such payment after death of the payee....