DFAS Spouse protection = alimony?

[Possi]

My new client gets retirement from DFAS.

On the back of the detail statement, under the heading "Former spoise protection act deduction" is $211 per month. He pays tax on that.

I would think it is alimony EXCEPT that the payment isn't cash directly from his pocket to hers.

Have you seen this before?

[thomtax]

Look at page 9 of Publication 504. I believe that this addresses your concerns.

LT

[tpnl]

Yes Alimony

I have a client who is retired from general motors. Part of his retirement is directly sent to ex-spouse. I deduct it from his return as alimony because he is taxed on the amount paid to ex-spouse. File was audited. Got a letter from GM stating the amount and responded to IRS. They allowed the alimony deduction.

[Possi]

Nope

Look at page 9 of Publication 504. I believe that this addresses your concerns.

LT

This reference only concerns child support.

[Possi]

That is what I'm basing it on...

I have a client who is retired from general motors. Part of his retirement is directly sent to ex-spouse. I deduct it from his return as alimony because he is taxed on the amount paid to ex-spouse. File was audited. Got a letter from GM stating the amount and responded to IRS. They allowed the alimony deduction.

... the fact that he is being taxed on that income, and it is going straight to her.

My doubt comes in because it is the result of a relatively new law. I'm glad to hear that they allowed the deduction.

Thanks for the reply~

[thomtax]

This reference only concerns child support.

Your answer, as I said, is spelled out in publication 504. I printed it out on 02/27/10. However, after reading your post, I logged back into the IRS site to confirm. When I printed it out, there were 19 pages. Now when I go to the site, it has 28 pages and is in a larger print.

You need to look at pages 11, 12, 13, and 14, in the format it is currently showing, for info on alimony. Page 13 specifically addresses Payments to a third party.

LT

[FEDUKE404]

Qdro ?

I was discussing this issue with a client today.

Sounds as if client has a QDRO in place??

Check out this link ( http://www.irs.gov/pub/irs-pdf/p504.pdf ) and look at page 16 of the pub's pages.

FE

[Possi]

Payments to a third party...

Your answer, as I said, is spelled out in publication 504. I printed it out on 02/27/10. However, after reading your post, I logged back into the IRS site to confirm. When I printed it out, there were 19 pages. Now when I go to the site, it has 28 pages and is in a larger print.

You need to look at pages 11, 12, 13, and 14, in the format it is currently showing, for info on alimony. Page 13 specifically addresses Payments to a third party.

LT

... for example, a car payment in lieu of alimony.

In any event, 3rd party or not, it sounds like it really IS spousal support and a taxable event as alimony. Especially since it is otherwise taxable to him and it goes directly to her. In reading on, it makes it more clear that it is alimony.

Thank you for the link and for the study!

[Possi]

Not a QDRO

I was discussing this issue with a client today.

Sounds as if client has a QDRO in place??

Check out this link ( http://www.irs.gov/pub/irs-pdf/p504.pdf ) and look at page 16 of the pub's pages.

FE

... as far as I can see it is not a QDRO. I personally have a QDRO, and that will result in my OWN 1099R when I qualify for disbursments.

This is different in that it is a direct deduction from his military retirement, but the spouse is NOT receiving a 1099. The designation must be made on the tax return.

That is why it was so confusing for me. I had never seen that before.

The discussion and study tells me that it most certainly IS alimony.

[taxea]

Journal of Accountancy, January 2008
by Charles J. Reichert
Summary:
The article reports on a legal decision made by the United States Tax Court in 2007. The court found that pension payments made to an ex-wife, a portion of the former husband's pension received from the U.S. armed forces, constitute alimony and could be considered a tax deduction. The ruling was made under the Uniform Services Former Spouse Protection Act. The suit was brought by the Internal Revenue Service which contended that payments from a pension fund constituted a property settlement, not an alimony payment.
Excerpt from Article:
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 § 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. IRC § 71(b)(1)(B) does permit a divorce agreement to specify that certain payments are not alimony, the court stated. But the Proctor-Holdman agreement contained no such statement; thus, the payments would be deductible alimony if the other requirements of § 71(b)(1) were satisfied…