Our Federal income tax laws often build upon the presumption that seemingly adverse parties are actually adverse. Our tax laws do not always account for instances where the parties are actively working in concert to reduce the IRS’s cut. Transfers and payments made in relation to divorce are an example. With our tax laws, it…Continue readingDivorce Payments & Tax Basis in Business
If a couple files a joint return and pays tax on the income they earn, but after they divorce it turns out that one of the spouses has to repay monies received in error, can the other spouse recoup their portion of the prior tax paid on the income? The claim of right doctrine may…Continue readingRecouping Tax on Marital Wages Repaid to Employer After Divorce
Innocent spouse relief can allow a taxpayer to avoid joint liability for taxes that arose during the marriage. There is an exception for the would-be innocent spouse if they had actual knowledge of the item that resulted in the tax. The U.S. Tax Court addressed this limitation in McDonald v. Commissioner, T.C. Summary Opinion 2016-79,…Continue readingTax Court Expands Innocent Spouse Relief for Divorced Taxpayers
For taxpayers who pay alimony to an ex-spouse, the tax deduction for the alimony payment is usually quite large. It can significantly reduce their tax. But can a lump sum payment made in cash qualify for tax-deductible alimony? The court addressed this in Muñiz v. Commissioner, No. 15-14478 (11th Cir. 2016). Facts & Procedural History Muñiz…Continue readingCan Lump Sum Cash Payment Qualify as Alimony?
Divorce can present tax savings opportunities. Many of the tax savings strategies involve transferring property and income therefrom to the spouse who is in the low- or no-tax tax bracket. The recent Belot v. Commissioner, T.C. Memo. 2016-113, case addresses the tax free transfer of property following a divorce. Facts & Procedural History Mr. and Ms.…Continue readingDelayed Sale to Former Spouse Not Taxable
Innocent spouse tax relief can provide a remedy for spouses who are liable for taxes reported on a jointly filed income tax return. It is an equitable remedy. But is it available if the tax is due to an obvious error on the tax returns that the spouses both signed? The court addressed this in Denton…Continue readingInnocent Spouse Relief Granted Despite Knowledge of Error on Return
If a taxpayer pays the couple’s income taxes and is then granted innocent spouse relief for the liability, is the innocent spouse entitled to a refund of the amount paid? The 9th Circuit Court of Appeals addressed this in Orlock v. Commissioner. Facts & Procedural History The IRS granted the wife innocent spouse relief. Prior to…Continue readingRefunds After Innocent Spouse Relief Granted
If payments qualify as alimony pursuant to federal tax law, the payments may be tax deductible by the payor spouse and included in gross income to the payee spouse. The opposite is true if the amounts are not alimony for federal tax law. Whether an expense counts as alimony is frequently the subject of disputes…Continue readingTax Disputes Involving Alimony Payments
Innocent spouse relief can provide a much needed remedy for divorced or separated taxpayers who filed a joint income tax return. This relief is commonly granted where the income that gave rise to the tax liability was earned by one spouse. The recent Mapp v. Commissioner, T.C. Summary Opinion 2008-76, case provides an opportunity to consider…Continue readingInnocent Spouse Relief for Ex-Spouse’s Income
If a divorce decree says that a payment to an ex-spouse, does that mean that it is alimony the ex-spouse has to report as income for Federal income tax purposes? And if not, can the ex-spouse who receives the payment request a ruling from the IRS to say that the payment was not taxable to…Continue readingCan One Spouse Cause IRS to void Other’s Alimony Deduction?
Can one spouse prevent the other spouse from obtaining innocent spouse relief by filing bankruptcy? The court addressed this question in Kovitch v. Commissioner, 128 T.C. 9 (2007). The Facts & Procedural History The Kovitch’s were divorced. The IRS then issued a notice of deficiency to both spouses for their joint tax liability. Only the wife…Continue readingBankruptcy Filing Does Not Prevent Innocent Spouse Relief
What if an ex-spouse who is jointly liable for the tax waits until after the other ex-spouse’s bankruptcy discharge and argues that the taxes were not discharged in bankruptcy as the tax return was invalid? The court addressed this in Kuhl v. United States, No.?05-6570-BK (2nd. Cir. 2006). Facts & Procedural History Ms. Kuhl owed the IRS…Continue readingEx-Spouse’s Defense for Tax Discharged in Bankruptcy
Various states have enacted laws to stop recent attempts by gay and lesbian groups to achieve full marital equality. While these laws address marital rights, they do not address rights when it comes to fair treatment for Federal income tax purposes. The Dispute: Filing Status What would a challenge to fair treatment for Federal income…Continue readingTaxes & Gay and Lesbian Marital Rights