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| Tax Research Project I | October 30, 2013 | | Molly Curry | ACCT-310-01 | | Facts: After Maria and Tatsuo are divorced, their two children continue to live with Maria. Pursuant to their divorce decree, Tatsuo pays Maria $1,000 per month in child support and $1,800 per month in alimony. The divorce decree specifies that in the event of a court ordered increase in child support, the alimony payment amount will decrease by the amount of the child support increase. That is, Tatsuo’s total monthly payment cannot exceed $2,800. Issues: How much of each payment is considered alimony? Does the change in child support have an effect on the amount of alimony received? Conclusion: Generally, child support is not…show more content…
Such events that are included are: the child’s attaining a specified age or income level, dying, marrying, leaving school, leaving the spouse’s household, or gaining employment. Whether such event is certain or likely to occur is not considered in determining the contingency. A similar case to Maria’s is presented in the court case, Heller v. Commissioner, T.C. Memo 1994-423 (1994). Heller (the petitioner) received certain payments from her former husband, some of which were designated as spousal support and the remaining were designated as child support. Heller received $1,700 per month as spousal support, none of which was reported on her tax return. The divorce instrument stated that future spousal support would be reduced by any court mandated increase in child support. The Court cited Sec. 71 (c) (2) of the Internal Revenue Code and said that the provision which allows spousal support to be decreased by future court mandated increases in child support is not considered a contingency related to a child. The Court then ruled that the payments received by the petitioner for spousal support should have been included in her tax return and constitutes taxable alimony. Maria’s situation is similar to the Heller case. The increase in child support from a court-order is not considered a contingency related to a child and does not decrease alimony. Therefore, as it was also noted in Treasury Regulations Sec. 1.71 – 1T
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