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I showed the IRS examiner the court documents where it clearly indicated what the payments were and the amount. I said my ex had already paid the federal tax on the money. They said he didn't pay tax on it beccause he claimed it as alimony! I showed her in the court papers where it specifically said that I was denied alimony and child support.

One thing you need to keep in mind is that tax law and family relations law don't necessarily define things the same way. Tax law looks to how property transfers are structured rather than simply relying on what the settlement calls them. More than one ex who didn't have good tax advice in the settlement negotiations (not saying that's you) has been burned by this. It could be that the way these payments were structured makes them alimony under tax law. I don't have enough information to offer an opinion, and this isn't an area I know a lot about anyway.

None of this has held any water with the IRS, even after my CPA and my divorce attorney got involved. They have advised me to pay the tax because it will be a costly long shot to appeal, which I will probably lose. Back taxes and interest are $2,500.

One option you have is "small claims" Tax Court. You can do it yourself, the fees are small, if any, and you might get a sympathetic judge if you're not totally off base. Details of how to go about it will be in the official notices you get if you don't reach agreement on the audit.

Before taking that route, I would have another talk with your CPA--or an expert in the tax aspects of divorce--about whether these payments did constitute alimony as defined by tax law.

Phil Marti
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