Tax Court In Brief | Ibrahim v. Commissioner | Deduction Of Alimony Or Separation Maintenance Payments

Published date23 May 2022
Subject MatterLitigation, Mediation & Arbitration, Tax, Family and Matrimonial, Trials & Appeals & Compensation, Income Tax, Tax Authorities, Divorce
Law FirmFreeman Law
AuthorFreeman Law

Opinion

Summary: Dr. Jihad Y. Ibrahim ("Ibrahim") and his wife, Cheryl Edington ("Edington") separated in year 2016 and ultimately divorced in 2017. As part of the separation agreement that was approved by a state court during the divorce proceeding, Ibrahim agreed to pay Edington $50,000 to assist in her relocation and legal fees. The amount was payable in monthly installments, but the balance was to be paid in full at the time a final decree was entered. The marital agreements and the judgment each contained statements indicating that neither Ibrahim nor Edington would pay maintenance to the other. Ibrahim paid $1,200 to Cheryl in 2016 and $48,800 in 2017. On his 2017 Form 1040, and pursuant to 26 U.S.C. ' 215(a) (repealed), Ibrahim claimed a $50,000 deduction for "Alimony paid." Upon examination of that return, the IRS disallowed the claimed $50,000 alimony or separate maintenance deduction and assessed an accuracy-related penalty. Ibrahim challenged that determination.

Key Issue:

  • Whether the $50,000 paid, or portion thereof, was deductible by Ibrahim pursuant to section 215(a) of the Internal Revenue Code?
  • Whether the accuracy-related penalties were properly assessed against Ibrahim?

Primary Holdings:

  • The applicable marital agreements and court orders stated that neither Ibrahim nor Edington would pay maintenance to the other and thus, Ibrahim could not deduct the $50,000 for relocation and legal fees as alimony, as defined in the I.R.C. And, Ibrahim failed to demonstrate that the payments of $50,000 were made because of an "obligation to pay future statutory maintenance," as defined by state law.
  • The IRS showed it complied with the requirements of section 6751(b) for assessing accuracy-related penalties and that Ibrahim "did not act with reasonable cause or in good faith, by claiming a deduction for maintenance payments when the agreement amended agreement, and judgment clearly stated that neither party in the divorce was entitled to receive maintenance from each other."

Key Points of Law:

  • Repeal of 26 U.S.C. ' 62(a)(1), 71, and 215. Congress repealed sections 62(a)(10), 71, and 215 for all divorce or separation agreements executed or modified after December 31, 2018. See IRS Topic No. 452 Alimony and Separate Maintenance. The marital agreements in Ibrahim were not affected by Congress's repeal.
  • As a general rule, the IRS's determination of a taxpayer's liability in a notice of deficiency is presumed correct, and the taxpayer bears the burden...

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