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Tax Planning & Preparation, Litigation and Business Valuation, Personal and Fiduciary Income, Family Law
Deductible Alimony Must Cease on the Death of the Recipient
By David H. Goodman, May. 3rd, 2018

Yet another Tax Court case demonstrates the importance of understanding that to be deductible alimony the payments must cease on the death of the recipient. If the agreement is silent on this point, the IRS (and Tax Court) will look to state law.

In Derrick Davidson, et ux. v. Commissioner, TC Memo 2018-38, the taxpayer wasn't entitled to alimony deduction for year for which the taxpayer made payments pursuant to divorce decree to the ex-spouse. The payments represented half of the marital tax and joint credit card debt, and half of the marital property taxes: The agreement was silent as to whether the payments would cease on the death of the recipient spouse. (Who thinks about this when the payments are to be made close to the execution date of the agreement?)  Under Arkansas law, the Court found, debt allocations were generally considered property settlements that survived death of former spouse. The Tax Court also found that the taxpayer failed to show that allocation of marital debt was based on specific alimony factors, including financial needs and considerations of each party.