Alimony not Deductible Unless it Meets all Requirements Under the Law

Posted on November 16, 2016

On his tax return for 2011, Michael Muniz deducted $45,000 as alimony paid to his ex-wife.  The IRS subsequently audited Muniz’ tax return and disallowed the deduction, finding that the payment did not qualify as deductible alimony.

Muniz filed suit against the IRS in the United States Tax Court and lost there.  He subsequently filed an Appeal in the United States Court of Appeals for the 11th Circuit.  According to the Internal Revenue Code §215(a), a taxpayer can deduct an amount equal to the alimony or separate maintenance payments paid during such individual’s tax year provided that the payment does not terminate upon the death of the taxpayer’s ex-wife.

Unfortunately, Muniz’ divorce decree did not expressly state whether his obligation to make the lump-sum payment to his ex-wife in the amount of $45,000 terminated upon her death, even though it had already been made.  As a result, the court had to look at Florida state law to determine whether the payment was deductible as alimony.

Under Florida state law, the Court found that Muniz’ payment to his ex-wife did not meet the definition of alimony under federal law and, therefore, was not deductible on his tax return for 2011.

If you are about to get divorced, please make sure that you hire a qualified attorney to handle the tax issues in your case.  If you do not, the IRS may disallow deductions related to your divorce to which you may otherwise be entitled.  If the IRS is questioning a deduction that you have taken on your tax return as it relates to your divorce, contact us, we can help.

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