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Soccer

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| Tax Research Project I | October 30, 2013 | | Molly Curry | ACCT-310-01 |

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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 included in taxable income and alimony payments are. The mandate from the court would increase the child support and decrease her alimony. The question remains whether this court mandate increasing child support is considered a contingency.

Following case law and Treasury Regulations, the change in child support would not decrease the amount of alimony to be recorded because the court ordered increase in child support is not a contingency related to a child, therefore having no effect on the amount of alimony. Maria must recognize the full amount of each alimony payment as part of taxable income. The $1,800 of alimony payments should be included in Maria’s taxable income and is not deductable; however it is deductable for her former husband.

Discussion:
Internal Revenue Code Sec. 71 (a) states that gross income includes amounts received as alimony. This code states that “alimony” means any payment in cash if such payment is received by (or on behalf of) a spouse under a divorce or separation instrument in sec. 71(b) (1). According to Sec. 71 (c)(2), certain reductions related to contingencies involving a child will be

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