alimony deduction

[ardi600]

Another odd situation for me. My client has an agreement to pay his ex two lump sum payments. He says the agreement was made in country where they were both born even though they are both us citizens. First, i am wondering if that agreement would hold up here in us. Also the ex wife will include the money on her return and ofcourse he wants to take a deduction on his return. Second, would the recapture kick in if his alimony agreement is to pay a lump sum for two or three years. Appreciate your inputs

[taxea]

does not qualify for deduction

Check the instructions for deduction of alimony my recollection is it has to be by court order and I am sure the intention includes by a US Court
The Tax Book pg 12-12
You might want to suggest that the client take it to court to see whether he can get the local court to order it.

[Gary2]

The recapture rules would likely kick in. The intent of the recapture rules is to prevent treating property settlements as alimony, since that could result in unfair tax avoidance. There are exceptions, primarily for temporary orders. Also, see the temporary regs 1.71-1T at Question 2 and Questions 19 through 24, under "Excess front-loading rules." Since Pub. 504 doesn't mention the minimum-term rule, it's possible that the IRS isn't applying that part of the temporary regs (or that the temporary regs at gpo.gov are out of date).

However, there is no requirement that a separation agreement be issued by a court (unlike the requirements for legal separation). The definition in Pub. 504 identifies three types: a divorce or separate maintenance decree, a written separation agreement, or any type of court decree or order requiring support payments for the other spouse. It's the middle one that doesn't require a court order. The regs at 1.71-1(b)(2)(i) identify the requirements for such an agreement, and explicitly says that it doesn't matter if the decree turns out to not be legally enforceable, as long as the other requirements are met. A number of examples in Pub 504 mention such agreements, while example 2 in 1.71-1(b)(6) uses the quaint term "antenuptial" (which today I think would more likely be called a prenuptial ).

Insert the usual disclaimer that the free sources for the IRC and IRS regs that I use aren't guaranteed to be correct or up to date.