Academic journal article Journal of Accountancy

Pension Is Alimony

Academic journal article Journal of Accountancy

Pension Is Alimony

Article excerpt

The Tax Court recently ruled that a taxpayer's payments to an ex-spouse under the Uniform Services Former Spouse Protection Act (USFSPA) representing her share of his military retirement pay were deductible alimony payments. The court determined the payments satisfied the requirements of IRC [section] 71 even though they were listed as a division of marital property in the divorce agreement.

Under section 71, cash payments made under a divorce or separation agreement are considered deductible alimony if they are made to an ex-spouse not living in the same household with the payor and are not designated as child support. In addition, the payor must not be liable to make payments after the death of the payee spouse (a continuing payment liability) or payments in their place (substitute payment liability).

Neil Proctor, an active member of the U.S. Navy, and Liza Holdman were divorced in 1993. The divorce decree required Proctor at retirement to pay Holdman 25% of his naval retirement pay under the USFSPA. When Proctor retired from the Navy in 2000, he did not make any payments to Holdman; however, he was compelled under a 2001 court order to do so. In 2002, Proctor paid Holdman $3,387, which he deducted as alimony on his 2002 federal tax return. The IRS disallowed the deduction, and Proctor petitioned the Tax Court for relief.

The IRS argued the payments did not qualify as alimony because they were a property settlement. The Tax Court disagreed. …

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