In 2000, a court order outlined future payments by Daniel Webb of Reno, Nev., to his ex-wife, Jeanette Webb, but explicitly stated that he had no legal duty to make them. It required him to provide his ex-wife an annual statement of payments and required her to include them as taxable alimony on her tax return. In 2002, Webb paid and deducted from his income $24,000, which the IRS disallowed.
The IRS conceded the payments satisfied the requirements of section 71 but said they could not be considered alimony because Webb had no legally enforceable duty to make them. The court disagreed, noting the tax code contains no such requirement. One did exist formerly, but the Deficit Reduction Act of 1984 removed it. Furthermore, Temp. Reg. § 1.71-1T, issued as a result of the 1984 act, specifically states that no legal obligation is necessary for payments to qualify as alimony.
Daniel Wayne Webb v. Commissioner, TC Summary Opinion 2007-91.
Prepared by Charles J. Reichert , CPA, professor of accounting, University of Wisconsin, Superior.