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Divorce Mediation Blog

Lost in Translation: Reading Tea Leaves on 2019 Alimony Deduction

Wednesday, November 21, 2018

Translation can be a tricky thing.


Just ask this restaurant owner in China, above. (https://lingualinx.com/blog/the-funniest-examples-of-translation-gone-wrong/).

Or, yourself, as you try to assemble your kid’s imported toy next month using instructions that seem reverse engineered from Chinese to Japanese to English; and while reading your next off-shore spam email.

Q4 2018 is a time of searching for clues from the U.S. Treasury about how it will apply 2019’s alimony prohibition for those still struggling to strike alimony deals this year in hope of retaining future deductibility. We’d hope that the challenge would not be compounded by language whose meaning has been lost in translation, but…

While lawyers, judges, mediators and arbitrators struggle to glean government’s intentions through statutes and regulations, the public relies on IRS instructional publications for their primary understanding of tax law.

A colleague recently shared the following draft language for Publication 504 “Divorced or Separated Persons”, the IRS’s public instructions about matters including alimony. Read it as a layperson might:

    Line 11 Alimony Received Enter amounts received as alimony or separate maintenance. You must let the person who made the payments know your social security number. If you don’t, you may have to pay a penalty. For more details, see Pub. 504.

That’s my underlining. It is self-referential and circular, but hey, it’s only a draft.

More substantively, the language continues:

    TAX TIP: Alimony received will no longer be included in your income if you entered into a divorce or separation agreement on or before December 31, 2018, and the agreement is changed after December 31, 2018, to expressly provide that alimony received is not included in your income.

That is their italics, presumably to draw us to its importance. The color-coding is mine, to help illustrate the following. What does this communicate to the reader?

  • The impatient reader, or one who recalls her English teacher defining an independent clause as phasing that has a subject and a verb, and produces a complete thought, may focus on

    “Alimony received will no longer be included in your income if you entered into a divorce or separation agreement on or before December 31, 2018…”

    From which taxpayer might rightfully conclude that her lawyer was crazy in trying to craft an alimony deal in 2018 since taxable alimony has been retroactively repealed. What was the rush about, anyway?

    She might also conclude, let’s wait to talk turkey until after new year, since this clause also implies that 2019 agreements will produce deductible alimony. Huh?
  • The more patient taxpayer will also read “…and the agreement is changed after December 31, 2018, to expressly provide that alimony received is not included in your income.” After suffering through two dependent clauses that rely on the passive tense and a sort of double negative (“no longer” and “not”), one may well wonder “what’s the big deal?” After all, if my 2018 alimony deal does not produce reportable income to me, then who cares if a change to my agreement simply confirms that result?

Careful and repeated readings of this one sentence, by one who understands tax law, will ultimately yield an accurate statement of law. But given its intended audience, might not the drafters have simply said:

    “If you and your spouse signed a divorce or separation agreement before December 31, 2018, that required taxable alimony, the alimony that you receive in 2019 or later will be included in your income. However, if you and your spouse or former spouse amend that agreement in 2019 or later, and your amended agreement expresses that future alimony will not be taxable, then the alimony that you receive in 2019 or later will not be included in your income.”

Is draft publication 504 a symptom of poor drafting or something more insidious, like deliberate obfuscation of taxpayer’s rights and obligations?

On a more nuanced level, does the fact that draft publication 504 makes reference to “divorce and separation agreements” only, and not to court orders or judgments, imply that 2018 alimony agreements will be deemed qualified deductible support in 2019 without the need for a judge’s endorsement, as much precedent suggests?

I hope so. The absence of reference to court orders is soothing, and perhaps indicates that my previously expressed worries are misplaced.

But then, what happens if the parties take a merging agreement for alimony, signed in 2018, to a court in 2019, and the judge does not approve the deal for incorporation into an order or judgment?

Of course, this is only a draft, and as a public “instruction” only, it is not law. See, https://www.forbes.com/sites/robertwood/2015/11/11/amazingly-irs-says-you-cant-rely-on-irs-instructions/#21b2923d341a.

So, I think I’ll still wait for the temporary regulations before I let down my guard entirely.

Thanks to David H. Goodman, CPA, of Gosule, Butkus & Jesson, LLP for the draft language. Stay tuned for David’s piece about alimony trusts in the next LDRC newsletter.



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