Posted by: Cory Stigile | February 22, 2017

Lump Sum “Alimony” Payments to an Ex-Spouse Determined Not to be Alimony for Purposes of IRC Section 71 by CORY STIGILE

In IRS Private Letter Ruling 201706006, the IRS ruled that a Taxpayer’s lump sum payments of “alimony” ordered pursuant to a court judgment effectuating the Taxpayer’s and the ex-spouse’s agreement did not constitute alimony because they did not meet the requirements set forth in IRC Section 71(b).

I.R.C. section 71(a) provides that gross income includes amounts received as alimony or separate maintenance payments.  Under Section 71(b)(1) “alimony or separate maintenance payment” means “any payment in cash if — (A) such payment is received by (or on behalf of) a spouse under a divorce or  separation instrument, (B) the divorce or separation instrument does not designate such payment as a payment  which is not includible in gross income under section 71 and not allowable as a deduction under section 215, (C) in the case of an individual legally separated from his spouse under a decree of divorce or of separate maintenance, the payee spouse and the payor spouse  are not members of the same household at the time such payment is made, and (D) there is no liability to make such payment for any period after the death of the payee spouse and there is no liability to make any payment (in cash or property) as a substitute for such payment after the death of the payee spouse.”

In evaluating the requirements in I.R.C. section 71(a), the ruling noted that the mere labeling of the payments as “alimony” did not the federal tax consequences of the payment. The PLR acknowledged that first, third and fourth requirements were met, but took issue with the second requirement that the payment not be designated as income to the recipient or not deductible by the paying spouse.  The court judgment contained an express designation that the lump sum payments were not includible in the Ex-spouse’s income.  Even though code sections 71 and 215 were not referenced in the court order, the instrument provided clear, explicit, and express direction that the payments would not be income to the recipient spouse such that the second requirement was not met[1].  Moreover, it did not help that the parties agreed that a separate annual alimony payment was taxable to the payee spouse and deductible by the Taxpayer.

While the PLR is provides limited guidance on a specific fact pattern, it provides a helpful reminder of how the Service or the courts will look at the impact of the underlying documents when evaluating the tax consequences for payments under the Internal Revenue Code.  Clients (or the IRS) may assert that form driven facts like the issuance of a 1099, or the labeling of a payment as “alimony,” impact the tax characterization of a payment, but courts can look to underlying state law, the relevant pleadings, any settlement agreements or decrees, or the underlying substance of the payments to determine the correct tax characterization. 

CORY STIGILE – For more information please contact Cory Stigile –  Mr. Stigile is a principal at Hochman, Salkin, Rettig, Toscher & Perez, P.C., a CPA licensed in California, the past-President of the Los Angeles Chapter of CalCPA and a Certified Specialist in Taxation Law by The State Bar of California, Board of Legal Specialization. Mr. Stigile specializes in tax controversies as well as tax, business, and international tax. His representation includes Federal and state civil and criminal tax controversy matters and tax litigation, including sensitive tax-related examinations and investigations for individuals, business enterprises, partnerships, limited liability companies, and corporations. His practice also includes complex civil tax examinations. Additional information is available at



[1] See Baker v. Commissioner, T.C. Memo. 2000-164.


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