Taxpayer Discovers, Despite Attorney's Advice, Entire Amount of Child Support in Agreement is Deemed Paid Before Alimony

A number of hurdles must be cleared to obtain a deduction for alimony for federal tax purposes.  In the case of Becker v. Commissioner, TC Summary Opinion 2015-2, the taxpayer ran afoul of the “pay child support first” provision found at IRC §71(c)(3).

Under that provision, if a taxpayer is required to pay both child support and payments that otherwise qualify as alimony under the divorce or separation instrument and the payments are less than specified, the payments are first applied against the child support portion and only any amount in excess of the required child support payments may be deducted as alimony.

The taxpayers was advised by his attorney that he should deduct amounts he paid for child related payments from the amounts he was paying his former spouse for child support.  The he reduced those payments and so paid less than the amount specified in the divorce instrument.

On his original return the taxpayer deducted both the amounts he paid for child support and those he paid for alimony.  At trial he agreed he should not have a deduction for the amounts he paid that he determined was the balance of child support due after deducting the expenses his attorney advised him to deduct.  But the remaining amounts should be deductible as alimony.

Regardless of the propriety of that advise on the state law level, the Tax Court noted that the IRC specified a result.  His divorce decree provided he would pay $8,205 for alimony and $8,307 for child support in 2011.  His payments for 2011 amounted to $9,688.  Thus, his deduction for alimony was $9,688 less the child support amount of $8,307, or $1,381.

Advisers must remember that federal tax on alimony quite often diverges from state law, and state law rules may be irrelevant in the end regarding the federal tax treatment of payments.