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Barry v. Comm’r, T.C. Memo. 2017-237, 2017 WL 5899406 (2017)


(a) Facts: When the parties were divorced, the husband agreed to pay the wife $2,400 per month in alimony.  Twenty-four years later, the husband filed an action against the wife in federal court for breach of contract, arguing that he had overpaid alimony and that the wife was required to return the overpayment.  The action was dismissed quickly as time-barred.


On his 2013 tax return, the husband took a deduction of $34,250 for legal fees paid in the dismissed action.  The IRS disallowed the deduction, and the husband petitioned for relief in the Tax Court.


(b) Issue: Was the husband entitled to claim the challenged deduction?


(c) Answer to Issue: No.


(d) Summary of Rationale: The husband argued that if he had prevailed in the dismissed action, the overpayments he recovered would have been taxable income.  The husband, therefore, argued that his legal fees were expenses incurred “for the production or collection of income” under I.R.C. § 121(1).


The U.S. Supreme Court has held that attorney’s fees in a divorce case are generally not deductible expenses because they arise from the taxpayer’s marital relationship and not from any profit-seeking activity.  United States v. Gilmore, 372 U.S. 39 (1963).  Stated differently, taxpayers do not engage in divorce litigation to seek profit.


The husband argued that Gilmore was based only upon what is now § 212(2), allowing a deduction “for the management, conservation, or maintenance of property held for the production of income.”  Barry, 2017 WL 5899406, at *2 n.4.  The court disagreed, and Gilmore applies under § 212(1) as well.  A divorce case is not a device “for the production or collection of income.”


The husband argued that case law under former I.R.C. § 71 allows alimony recipients to deduct legal fees under § 121(1) as an expense incurred to produce income.  See, e.g.Wild v. Comm’r, 42 T.C. 706 (1964).  But those cases relied in part upon a specific IRS regulation permitting such a deduction.  Treas. Reg. § 1.262-1(b)(7).  The same regulation refuses to create a broader exception.  “Generally, attorney’s fees and other costs paid in connection with a divorce, separation, or decree for support are not deductible by either the husband or the wife.” Id.  The court held that the rule stated in the Regulation applied and that the husband was not entitled to take the challenged deduction.

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By Carolyn Woodruff, JD, CPA, CVA, North Carolina Family Law Specialist

Often questions arise when domestic violence involves an assault in North Carolina. I write for the Rhino Times and have for several years. My column is Ask Carolyn. Here is a question and answer on the domestic violence topic in August 2019. Whether it is Greensboro, Asheboro, or any other North Carolina area, these issues of domestic violence are serious and affect all of us. A reader wrote:

Dear Carolyn,

My husband has a DVPO order on me based on scratches he self-inflicted. He was given possession of our house.
We have a criminal case coming up regarding this. If he is found guilty, will his DVPO order be lifted and will I be able to move back into the house?

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Logue v. Comm’r, T.C. Memo. 2017‑234, 2017 WL 5713945 (2017)


(a) Facts: The parties entered into a premarital agreement.  The agreement provided, among other things, that the wife would receive, upon divorce, a lump sum of $100,000, plus $10,000 for each year the parties were married.


The parties married but divorced after four years.  A separation agreement required the husband to pay the wife $140,000, exactly the amount that the above provision would require for a four-year marriage.  The agreement further provided:


The parties each acknowledge that this agreement, and each provision of it, is expressly made binding upon the heirs, assigns, executors, administrators, representatives and successors in the interest of each party.


2017 WL 5713945, at *4.


A modified separation agreement then reduced the payment from $140,000 to $117,970.97 on the ground that the husband had already paid $22,029.03 in expenses for the wife.  The husband’s total liability, including the expenses, remained at exactly $140,000.  The modified agreement was incorporated into a Texas divorce decree.


The husband paid the wife the $117,970.97.  On his next tax return, he took an alimony deduction of $170,000.  Of this amount, $32,000 was for alimony paid to a prior spouse, and $140,000 was for the payments made to the wife.


The IRS disallowed the deduction above the $32,000 paid to the former spouse, and the husband petitioned for relief in the Tax Court.

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Davidson v. Comm’r, T.C. Memo. 2018-38, 2018 WL 1611811 (2018)


(a) Facts: The parties were divorced by an Arkansas court, and the divorce decree divided the parties’ debt.  Within a few days after the decree was entered the judge sent the parties a letter, which stated:


When I made my ruling from the bench last Thursday, I failed to mention the following issues that should be included in the Decree of Divorce:


  1. The division of debt ordered from the bench shall be considered as support for Mrs. Davidson [Kelley] and shall not be dischargeable in bankruptcy[.]


2018 WL 1611811, at *1.  The court then entered a modified decree, which stated:


  1. ALIMONY: In light of the foregoing division of the debts, and real and personal property, and having reviewed all the primary and secondary factors of alimony the Court recited, the Court finds that it is not appropriate to award the Plaintiff [Kelley] alimony in this case. Further, given this Court’s division of the marital property and debt between the parties and because Mr. Davidson’s future income is too speculative to set any kind of time frame on when his income would have to improve for it to inure to the benefit of the Plaintiff [Kelley], the issue of alimony will not be held open to allow Plaintiff [Kelley] to reopen this case and file a petition for alimony in the future.


  1. BANKRUPTCY: The division of the debt ordered from the bench shall be considered as support for Mrs. Davidson [Kelley] and therefore shall not be dischargeable in bankruptcy.


Id. at *4.

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Leslie v. Comm’r, 725 F. App’x 597 (9th Cir. 2018) (unpublished)

(a) Facts: A husband and wife signed a separation agreement to settle a California divorce case.  In a section entitled “Spousal Support,” the agreement awarded the wife $7,000 per month, stating expressly that it would end upon either party’s death.

The agreement further awarded the wife 10% of an attorney’s fee that the husband might receive in the future for representing the plaintiff in a class-action suit against Enron.  The agreement provided:

Ms. Leslie’s ten percent (10%) interest in the Enron fee is a spousal support award from a contingent liability, the amount of which could not be definitely set at the time of this agreement, since Mr. Georgiou cannot be certain of the amount of fees that he will receive from the Enron litigation. This ten percent (10%) distribution to Ms. Leslie is taxable to Ms. Leslie and deductible to Mr. Georgiou as spousal support.

Leslie v. Comm’r, T.C. Memo. 2016‑171, 2016 WL 4921026, at *5 (2016) (emphasis added) (case discussed in the 2017 version of this outline).

The husband ultimately received an attorney’s fee of $55 million, and he paid the wife her share in installments as the fee came in.  The final installment was due in 2009, and the husband paid that installment into a joint bank account in both parties’ names.  The wife “credibly testified that she had no control over [the account].  She was not given any checks to sign from the account, and her impression of the payment was that it wasn’t yet legally hers.”  Id. at *7.

On most of the relevant tax returns, which were filed late, the wife reported the attorney’s fee payments as alimony.  On her 2009 tax return, however, the wife did not treat that installment as alimony.

The IRS assessed various deficiencies, some not related to domestic relations, and the wife sought relief in the Tax Court.  The Tax Court held that the wife’s share of the Enron fee was taxable as alimony but that the 2009 payment was not taxable until the wife actually had control over the money.  The wife appealed to the Ninth Circuit, obviously raising only the first question (since she prevailed on the second question).

(b) Issues: Was the wife’s share of the Enron fee taxable as alimony?

(c) Answer to Issue: Yes.

(d) Summary of Rationale: Once again, the key point was whether the payments terminated upon the wife’s death.  The agreement was silent, but the Tax Court held yes:

Under California law, “[e]xcept as otherwise agreed by the parties in writing, the obligation of a party under an order for the support of the other party terminates upon the death of either party or the remarriage of the other party.” Cal. Fam. Code sec. 4337 (West 2013). “A written agreement to waive section 4337 ‘must be specific and express.’” Johanson v. Commissioner, 541 F.3d 973, 977 (9th Cir. 2008) (quoting In re Marriage of Thornton, 115 Cal. Rptr. 2d 380, 383 (Ct. App. 2002)), aff’g T.C. Memo. 2006‑105. The parties here have not produced any such agreement. The mere failure to include language terminating support upon death is not enough to constitute a waiver. Id. By operation of California law, then, payments from the Enron settlement would have terminated upon Leslie’s death.

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Hexum v. Comm’r, 721 F. App’x 512 (7th Cir. 2018) (unpublished)

(a) Facts: The parties were divorced in Illinois.  The wife remained in the former marital home, and the husband was ordered to pay the mortgage.  Upon an eventual sale of the home, the parties were to split the net proceeds.

The home was sold as planned, and the husband paid the wife her one-half of the sale proceeds.  He took an alimony deduction for the amount paid.  The IRS disallowed the deduction, and the husband petitioned for relief in the Tax Court.  The Tax Court held for the IRS, and the husband appealed to the Seventh Circuit.

(b) Issue: Was the husband entitled to an alimony deduction?

(c) Answer to Issue: No.

(d) Summary of Rationale: The payment to the wife met the first three requirements in § 71(b)(1).  It was made under a divorce instrument, and the instrument did not say that the payment was not includible in gross income, and the parties were not members of the same household.

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There are lots of fun activities for families to enjoy in and around Greensboro and Western NC this summer, and it’s especially important for divorced moms to get out there and make some wonderful new memories with their children. Divorce is hard on everyone, but middle schoolers are particularly sensitive. To help ease the pain and strengthen your family bonds, try these ideas on for size.

Greensboro Science Center – If you’re worried your kids’ brains are turning to mush from video games, hop over to the Greensboro Science Center to get them off the sofa and thinking about the way nature works. The zoo and aquarium are packed creatures both cute and creepy, and your middle schoolers will be learning in spite of themselves. And since nobody outgrows their fascination with dinosaurs, be sure to check out the Prehistoric Petting Zoo exhibit.

Old Salem Museums and Gardens – Winston-Salem is home to one of the country’s premiere living history museums, and it’s tailor-made to spark middle schoolers’ imaginations. Pop in and out of buildings at Old Salem to learn about how early settlers made medicine, taught school, and built furniture. Be sure to go on a Saturday to try your hand at old-fashioned baking techniques at the Winkler Bakery, where you’ll help make delicious Moravian cookies and bread. Continue reading →

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Divorce is difficult for families, so it’s especially important for dads and teens to enjoy time together to rebuild their bonds. One of the best ways to do this is by taking advantage of some local activities in North Carolina this summer. Whether you’re looking for a way to spice up your weekend visitations or want a mid-week escape from the ordinary, these five activities are sure to please even the pickiest teens.

Wet ’N Wild Emerald Pointe – Gone are the days when your kids were too little to go on all the rides, so let them cool off on any one of 36 slides at Wet ’N Wild, Greensboro’s own water park. Dare each other to try the 76-foot Daredevil Drop, or challenge your kids to speed to the bottom of the Riptide Racer. If you’re not interested in thrills, there’s a lazy river and plenty of lounge chairs when you need a breather.

The Winston-Salem Dash – Is there anything quite like watching the boys of summer play ball on a balmy evening? BB&T Park in downtown Winston is clean, comfortable, and plenty of fun for teens. Sports fans will love watching tomorrow’s stars show their stuff, but even kids who aren’t that into baseball will enjoy the entertainment between innings. For teens, get tickets for Fireworks Fridays or Live Music Saturdays.

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Divorced moms in Greensboro, North Carolina, know that most teens seem to have no problem spending their days inside on their phone, chatting with their friends and watching videos or streaming shows. But it’s summertime, and the great outdoors is calling. How can you entice them to put the phone on “Do Not Disturb” and join you for some fun? Here are some activities to do with your teenager in and around Greensboro.

Go to Elsewhere – If you haven’t been to Elsewhere, now’s definitely the time to go. This three-story museum housed in a former thrift store can only be described as quirky, and it’s certainly full of SnapChat photos for your teen to send to their friends. Elsewhere is also an artistic collaborative space, with events open to the public. It’s open from Friday through Sunday and admission is $5 per person.

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During and after a divorce, divorced fathers need to be vigilant in helping their children deal with the stress, insecurity, and bewilderment they are likely to feel. This is especially true for middle schoolers who are still susceptible to feeling a wide range of emotions about the divorce, simply because they may not truly understand all the circumstances. Divorced fathers who take the time to engage in a variety of quality activities with their middle schoolers will certainly make a tremendous positive impact and improve the chances of maintaining a healthy, positive relationship.

The State of North Carolina is a treasure trove of fun activities for all ages, and middle schoolers and their divorced fathers will find many things to do right in Greensboro and the surrounding areas of Guilford County.  In the summer in and around the Triad, there’s plenty of things to do both inside and outside. North Carolina is full of amazing parks and lakes, and many of them offer a multitude of activities that divorced fathers and their middle school children can enjoy. Some of the more popular parks in Guilford County include Gibson Park, Northeast Park, Southwest Park, Hagan-Stone Park…and many others.

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