IRS rules on taxability of “alimony” payments

by Roger McEowen, Leonard Dolezal Professor in Agricultural Law, and Director of the ISU Center for Agricultural Law and Taxation, (515) 294-4076, mceowen@iastate.edu

Recently, an ex-wife requested an IRS ruling on whether the payments she was receiving from her ex-husband were alimony. The divorce decree called the payments “alimony,” but the ex-wife didn’t want them to be alimony because alimony payments would be taxable income to her (and would be deductible by her ex-husband). Under the Internal Revenue Code, to be “alimony” for federal tax purposes the payments must meet the following requirements:

• be received by, or on behalf of, a spouse under a divorce or separation instrument;
• the divorce or separation instrument must not designate such payment as a payment which is not includible in gross income under I.R.C. §71 and not allowable as a deduction under I.R.C. §215;
• in the case of an individual legally separated from his spouse under a decree of divorce or of separate maintenance, the payee and payor must not be  members of the same household at the time such payment is made; and
• there is no liability to make such payment for any period after the death of the payee and no liability to make any payment as a substitute for such payments after the death of the payee.

In this case, the divorce agreement stated that the amounts paid were to qualify as “alimony” for federal income tax purposes, but the divorce agreement did not specify that the payments were to terminate upon the wife’s death.  In that event, IRS said that state law controlled the issue. But, state law did not specify that “alimony” payments were to terminate upon the payee’s death. Thus, the payments did not qualify as “alimony” for tax purposes, despite the express provision in the divorce decree. So, the lack of a provision in the divorce decree specifying that the “alimony” payments were to end upon her death saved her from having to report and pay income taxes on the payments, and prevented the husband from being able to deduct them. Priv. Ltr. Rul. 200720007 (Feb. 12, 2007).

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