In Martino v. Commissioner, CA 11, Case No. 24-11438, March 3, 2025, the Eleventh Circuit Court of Appeals upheld the Tax Court’s decision to deny Joseph Martino’s claimed alimony deductions for the 2017 and 2018 tax years. The court found that payments made by Martino to his ex-wife, Cindy Roberts, did not meet the requirements for deductible alimony under Section 71 of the Internal Revenue Code.

Facts of the Case

Divorce Settlement: Prior to their divorce, Martino and Roberts reached a settlement agreement regarding their marital property, which stated it was intended to be a non-taxable equitable division of property. Martino was to gain sole possession of the marital residence in exchange for a $2.2 million payment to Roberts. Additionally, Martino was obligated to pay Roberts $3,000 per month as "taxable periodic alimony". The divorce decree incorporated the settlement agreement.
Consent Orders: A consent order modified Martino’s obligations, increasing the payment for the marital residence to $3.5 million, to be paid in installments, and reiterated that these payments would be "tax-free" to Roberts.
Payment Issues and Court Orders: After Martino failed to make an installment payment, the court issued further consent and contempt orders to enforce the payment schedule, including directing Martino to provide Roberts a deed to foreclose on the marital residence. Martino eventually filed for bankruptcy, and while the marital residence was sold, the proceeds did not go to Roberts, and Martino’s $3 million obligation to Roberts was deemed nondischargeable.
Revised Payment Schedule: The Georgia court imposed a revised payment schedule that included monthly payments to satisfy the debt. Income-deduction orders directed Martino’s insurers to withhold $25,000 monthly from disability insurance distributions, to be paid to Roberts, designated "for the previously owed arrearage due to [Ms. Roberts] in the amount of THREE MILLION DOLLARS ($3,000,000) plus interest".
Application of Payments: Martino’s payments were to be applied first to other outstanding debts, including past-due alimony, child support, and uninsured medical expenses. By the end of 2016, these debts were discharged, and subsequent payments were to be applied to the $3 million marital-residence debt.
Tax Returns and IRS Deficiency Notice: Martino claimed a $300,000 alimony deduction for both 2017 and 2018. The IRS disallowed the alimony deduction and issued a notice of deficiency.

Taxpayer’s Arguments

Martino argued that he was entitled to $300,000 alimony deductions for each of 2017 and 2018. He focused on the income-deduction orders, contending that those orders contained no “statement that the payments [we]re not alimony or that the payments w[ould] not be treated as income to Dr. Martino’s ex-wife".

Court’s Analysis

The court framed the primary issue on appeal as whether Martino’s $300,000 payments in 2017 and 2018 qualified as deductible alimony. Referencing Webb v. Comm’r, 872 F.2d 380, 381 (11th Cir. 1989), and Tax Ct. R. 142, the court noted that the taxpayer bears the burden of proving the IRS’s deficiency determination is incorrect. The court also cited INDOPCO, Inc. v. Comm’r, 503 U.S. 79, 84 (1992) and Long v. Comm’r, 772 F.3d 670, 678 (11th Cir. 2014), stating that income-tax deductions are a matter of legislative grace, requiring taxpayers to comply with specific requirements, and the taxpayer must clearly establish entitlement to the deduction.

The court cited 26 U.S.C. § 71(b)(1)(B) and explained that for divorce or separation instruments executed before 2019, the Internal Revenue Code distinguishes between alimony payments and property division transfers. Alimony payments are deductible by the payor but taxable to the payee, per 26 U.S.C. §§ 215(a), 61(a)(8), 71(a), while property transfers incident to divorce are generally neither taxable nor deductible under 26 U.S.C. § 1041(a)(2). Under § 71(b)(1), a cash payment constitutes deductible alimony only if it meets four requirements. One such requirement, as provided in section 71(b)(1)(B), is that the divorce or separation instrument does not designate such payment as non-includible in gross income under section 71 and not allowable as a deduction under section 215.

Referencing Estate of Goldman v. Comm’r, 112 T.C. 317, 323 (1999), aff’d sub nom. Schutter v. Comm’r, 242 F.3d 390 (10th Cir. 2000), the court stated that a payment is treated as nonalimony if the governing divorce or separation instrument designates it as such. Citing Richardson v. Comm’r, 125 F.3d 551, 556 (7th Cir. 1997), the court explained that the designation must be a clear, explicit, and express direction within the divorce instrument that the relevant payment does not constitute alimony. The court clarified, citing Goldman, 112 T.C. at 323, that the document need not mimic the statutory language or specifically refer to sections 71 and 215, but the substance of such a designation must be reflected in the instrument.

Court’s Findings

The court found that the divorce instruments contained multiple designations stating the payments were not alimony. The original settlement agreement, incorporated into the divorce decree, specified the payments were a non-taxable equitable division of marital property. Later court orders also confirmed the payments would be tax-free to Roberts. The court noted that the payments first discharged other debts before being applied to the $3 million marital residence settlement.

The court rejected Martino’s argument that the income-deduction orders did not contain a statement that the payments were not alimony, stating that the orders were targeted at Martino’s obligation regarding the marital residence and that the term "divorce or separation instrument" includes both the divorce decree and written instruments incident to such decree. Referencing 26 U.S.C. § 71(b)(2)(A), the court stated that its analysis must begin with the settlement agreement, as incorporated by the divorce decree, which clearly stated that Martino’s debt for the marital residence was not alimony. The court concluded that the subsequent court orders reaffirmed that obligation, and the nonalimony designation remained unchanged, meaning that Martino’s payments do not count as deductible alimony under § 71(b)(1)(B).

The Eleventh Circuit ultimately affirmed the Tax Court’s judgment, finding that Martino’s payments to Roberts did not meet the statutory requirements for deductible alimony.

Prepared with assistance from NotebookLM