Recent Developments


Voluntary Alimony Held Deductible:

Most tax folks thought you had to have a legally enforceable obligation to pay alimony to claim a tax deduction. The court ordered payments be made and that they be included in the ex-wife's income. But, the order specified that the payments were not a legally actionable duty of the ex-husband. The key issue was whether this provision making the payments not legally enforceable nixed the payor's tax deduction. You can claim a deduction for alimony payments that meet the Code Section 215 requirements that payments: must end on the death of the payee, be made under a divorce or separation agreement, not be specified as being not taxable or non-deductible, are made to a legally separated spouse who is not part of the same household as the payor, etc. The IRS argued that since the payments were not made under a legally enforceable duty they could not be deducted as alimony. In Webb, TC Summary Opinion 2007-91 (not a binding precedent for other taxpayers) the court held that Code Section 71 did not require that the payments be made under a legally enforceable agreement.


FLPs and Discounts: Using an FLP to discount assets for estate tax purposes is akin to navigating between Charybdis and Scylla, not an easy task. In Erickson, T.C. Memo. 2007-207, the court frowned upon some of the usual negative facts: the taxpayer was diagnosed with Alzheimer's and was in her late 80s, FLP documents were signed under a power of attorney, insufficient liquid assets were left, assets were not transferred to the FLP on formation, transfers only occurred 2 days before death, post death FLP funds were used to meet expenses of the estate, etc. Judge Laro concluded that the aggregate of the facts demonstrated an implied agreement existed among the parties that the decedent retained the right to enjoy the FLP assets. Therefore, estate inclusion resulted.

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