Is it alimony as defined in I.R.C. s. 71?

• Author: Frumkes, Melvyn B.
• Position: Part 2

Common errors as to whether a stream of payments are taxable / deductible

Part II

This is a continuation of the column which appeared in last month's Florida Bar Journal dealing with some common errors as to whether a stream of payments are taxable/deductible under the Internal Revenue Code. Last month the following common errors were discussed: lack of distinctions as to whether the payments are for support or for property, if for support whether the payments must be taxable/deductible, whether voluntary payments can be taxable/deductible and whether payments under an invalid agreement or order are taxable/deductible.

* If it is temporary alimony, it must be taxable to the payee.

Answer: Wrong.

When, in dicta, the court in Rihl v. Rihl, 727 So. 2d 272 (Fla. 3d DCA 1999), wrote "temporary alimony is taxable to the wife and deductible to the husband," it was misleading. Temporary alimony need not be taxable/deductible.

There are exceptions to that which is required in an order for temporary support, i.e., a "decree (not described in subparagraph (A)) requiring a spouse to make payments for the support of maintenance of the other spouse,"(1) to qualify as taxable/deductible.

Under an order for temporary support it is all right for the payee spouse and the payor spouse to be members of the same household at the time such payment is made. The requirements that the parties must maintain separate households applies "in the case of an individual legally separated from his spouse under a decree of divorce or of separate maintenance."(2) The separate household requirement is only in the event of a change in the status of marriage.

Another exception is that the re-computation rule (also referred to as the "recapture" or "front loading" rule) does not apply. There need be no fear of recapture of alimony paid pursuant to an order for temporary support. Payments under an order for temporary support are excluded from the recomputation rule.(3)

The other requirements of I.R.C. [sections] 71 to make a stream of payments taxable/deductible are necessary. Thus, if the payments are cash, to or on behalf of spouse or former spouse, paid pursuant to a divorce or separation instrument that ceases upon death of the payee, not fixed as child support, and not designated as nontaxable/nondeductible, it will be taxable/deductible. Thus, to make a stream of payments under an order for temporary support not taxable/deductible all that need be done is to designate the payment as not taxable/not deductible in the order for temporary support.

* If the award includes both alimony and child support (unallocated), it cannot be taxable/deductible because child support we know is not deductible.

Answer: Wrong.

It is true that if a stream of payments is "fixed" as child support, it is not taxable/deductible.(4) However, an award of family support, e.g., an amount of support unallocated (undesignated) as to alimony and child support, does not "fix" any amount as child support.

Internal Revenue Service's Priv. Ltr. Rul. 8710089 (December 11, 1986), released March 6, 1987, discusses a temporary order which required that "until further order of the court, husband was required to pay to wife, as child support and alimony."(5)

I.R.C. [sections] 71(c)(2) states that if any amount specified in the instrument will be reduced 1) on the happening of a contingency specified in the instrument relating to a child (such as attaining a specified age, marrying, dying, leaving school, or a similar contingency), or 2) at a time which can clearly be associated with such a contingency, an amount equal to the amount of such reduction will be treated as an amount fixed as payable for the support of children of the payor spouse, and thus not taxable/deductible as...