Unspecified Tax Purposes in Marital Settlements

For tax purposes, “alimony” payments meeting the definition in ' 71 of the Internal Revenue Code (IRC) are taxable to the recipient and deductible by the payor. When the definition of alimony in ' 71 was amended in 1984, it was said that the purpose of the amendment was to eliminate the dependence of the definition of taxable alimony on state law dealing with spousal support. Before then, alimony was taxable to the recipient when “received ' in discharge of ' a legal obligation which, because of the marital or family relationship, is imposed on ' the [payor] ' ” The statutory requirement of a “ legal obligation” was interpreted to mean the payor's obligation to support the payee, and that, in turn, required examination of state law and the specific provisions in the settlement agreement or divorce decree (“divorce instrument”) to determine the source of the obligation. Often, this inquiry required consideration of extrinsic evidence to identify the purpose of the payments in question. Under current law, ' 71(b) of the IRC sets out requirements that are said to be objective and independent of state law, obviating the “subjective” search for the support obligation under prior law.