Alimony details must be in writing. A taxpayer who pays alimony to an ex-spouse under a written divorce or separation agreement can generally deduct the agreed-upon alimony on his or her tax return. In one case, a taxpayer made an oral agreement to pay his ex-wife substantially more than he was required to pay per the written agreement, out of a desire “to do the right thing.” However, when he deducted the higher amount on his tax return, the IRS and the U.S. Tax Court denied the portion that exceeded the written agreement, stating that an oral modification didn’t qualify as alimony. (TC Memo 2017-79)
In another case, the Tax Court ruled that a husband’s payment to his soon-to-be ex-wife of half of a bonus wasn’t deductible as alimony. Although the couple had entered into an agreement to split the bonus, it wasn’t part of a “divorce or separation instrument,” the court ruled, but merely provided for a division of community property. The court also found that the payment predated the support order and wasn’t a written agreement. (TC Memo 2017-101)
U.S. Supreme Court rules on pension plans maintained by church-affiliated employers. The Supreme Court has held that pension plans maintained by “principal purpose” organizations, such as a church-affiliated hospital, are “church plans” that are exempt from ERISA’s Title I requirements. ERISA defines a church plan as “a plan established and maintained for its employees…by a church.” Under ERISA, church plans are exempt from ERISA’s Title I requirements that apply to private employers offering pension plans. (Advocate Health Care Network v. Stapleton, 6/5/17)
A new way to make an estate tax portability election. In new guidance, the IRS has provided a permanently available simplified method for estates to obtain an extension of time to make the estate tax portability election. With this election, a surviving spouse can apply a deceased spouse’s unused exclusion amount to his or her own. The simplified method is available only to an estate that isn’t required to file an estate tax return based on the value of the gross estate and is effective June 9, 2017. Contact your tax advisor for more information. (Revenue Procedure 2017-34)
Certain IRS user fees to be paid electronically. The IRS announced that, beginning June 15, 2017, the Pay.gov electronic payment website will be available for taxpayers to make the required user fee payments when requesting certain IRS rulings. After August 15, Pay.gov will become the only permissible payment method for those fees. Online fees can now be paid with Private Letter Rulings, Closing Agreements and rulings using Form 1128 (to request a change in tax year), Form 2553 (to elect to be an S corporation), Form 3115 (to request a change in accounting method) or Form 8716 (to request a tax year other than the one required). According to the IRS, the user fees range from $200 to $28,300, depending on the type of ruling being sought.
Two court cases: Tax deductions require proof. Taxpayers may get tax breaks for expenses such as charitable contributions and business vehicle costs, if they can prove them. The IRS and the U.S. Tax Court denied one taxpayer deductions for charitable contributions above amounts allowed, when he didn’t show proper substantiation. The purported donations included a used car, but he didn’t list the fair market value, as required by IRS Form 8283 for deductions over $500. Though he claimed to have business expenses, he was also denied deductions for travel and car expenses when he showed no business-related purpose for them. (TC Memo 2017-93)
In another case, the IRS denied a married couple car and truck expense deductions for vehicles the wife used in her health care billing business. The Tax Court agreed. The taxpayers didn’t properly prove their claims, and offered unpersuasive testimony and non-contemporaneous spreadsheets that contradicted their tax return. They didn’t show the time spent or activities performed at destinations and there were inconsistencies about trips, including inflated claims of driving over 1,600 miles in a single day. (TC Memo 2017-99)