ALIMONY IS TAX DEDUCTIBLE BY THE PAYER AND IS CONSIDERED TAXABLE INCOME TO THE RECIPIENT. Paying spousal support (aka alimony) is one of the best tax deals around for the payer. According to Section 71 of the Internal Revenue Code (“IRC”) (26 U.S.C ¶71), ex-spouses who pay alimony are able to deduct those payments – dollar for dollar – from their adjusted gross income.
The US Tax Court, in the recent case of Johnson v. Commissioner, T.C. Memo 2014-67 (April 14, 2014) http://www.ustaxcourt.gov/InOpHistoric/johnsonmemo.buch.TCM.WPD.pdf, has cleared up some misunderstandings regarding the IRS’s Child Contingency Rule. The Child Contingency Rule refers to the IRS’s ability to go back in time and re-coop the tax benefits previously awarded a payer of alimony.