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Contingent alimony and income tax deductions in California

Some Californians who expect to pay alimony in their cases make agreements in which the amount of alimony to be paid is contingent on the activities of the other spouse. A recent case demonstrates how such contingent agreements may affect the ability of the person making payments to deduct them and the requirement for the recipient to report them as income.

In the case, a man defended himself against the IRS after claiming a deduction for alimony payments made under a contingent agreement. His agreement indicated he would pay his ex-wife $3,800 monthly in alimony as long as she continued home-schooling their child. Eight months later, she moved to increase her alimony amount. When her request was denied, she returned to work and the child then went to public school. The agreement had stated that her monthly alimony amount would be reduced to $1,900 if she no longer home schooled the child.

The man claimed a deduction of $39,900 on his tax return. The IRS believed he should have only been able to deduct $9,700, but the tax court disagreed. They found that the man was allowed to claim $38,000. He had apparently made a simple math error of $1,900, which he was dinged for. In disagreeing with the IRS, the tax court found that the alimony he paid was not contingent on the child's activity but rather on the spouse's and thus was not considered to be child support.

When spousal support payments are deducted by one spouse, the amount deducted should match the amount claimed as income by the other spouse. If they do not, both spouses may end up being investigated by the IRS. It is important that people understand what amounts can be deducted and must be reported. Child support and property settlement payments are not deductible as alimony.

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