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Alimony Payments Made Pursuant to Oral Agreements Are Not Deductible

Posted on September 6, 2012

Taxes

The U.S. Tax Court has ruled that alimony payments, when made pursuant to an oral agreement, are not deductible. In a recent case, a separating husband and wife made an oral agreement that the husband would provide a certain amount of support for his wife and child. Importantly, the agreement did not differentiate between payments of spousal support and child support. The divorcing couple apparently had an understanding between them about what amount constituted spousal support as opposed to child support, but that division was not committed to a writing until the end of 2008, in the final divorce judgment.

The husband married another woman at the end of 2008, and they hired a tax professional to prepare their 2008 return. In it, they claimed a deduction of $19,200 under Internal Revenue Code ("IRC") § 71(b), a section pertaining to alimony. The Commissioner of Internal Revenue permitted $1,400 to be deducted as alimony but disallowed the remaining $17,800. The Tax Court ruled in favor of the Commissioner of Internal Revenue, concluding that $17,800 was not deductible because alimony payments are only deductible when the dissolution or separation agreement is in writing.