George Resnik paid funds on behalf of his ex-spouse that initially met all of the requirements for deductible alimony and were labeled as support in his divorce decree. George’s payments met all of the basic “big four” requirements found in IRC §71(b)(1):
- Were made under a divorce or separation agreement;
- The agreement did not designate that the payments would not be includable in his former spouse’s income;
- George and his former spouse were not members of the same household and
- George was under no obligation to make any payment following the death of his former spouse
But in the case of Resnik v. Commissioner, TC Summary Opinion 2015-11, George’s agreement ran into a separate problem.
Even if a series of payments otherwise qualifies as tax alimony, it will not treated as such if the payment is “disguised child support” under the test found at IRC §71(c)(2).
That provision provides that any amount will be reduced based on the happening of a contingency related to a child of the payor, the amount will not be deductible as alimony by the payor, nor includable as income by the recipient. That is true regardless of whether the event is likely or certain to occur.
In this case the payments were 75% of the mortgage payments on the former marital home of George and his former spouse until the mortgage was paid off or until their oldest son, Luke, no longer permanently resided in the home.
The case illustrates the importance of looking at the actual language of decree in question, rather than merely accepting labels applied to payments by the taxpayers or their family law counsel. Federal tax law alimony is a type of payment that has only a passing relationship to what might be called alimony, support or maintenance under state family law.