Support payments under a pre-2019 postnuptial agreement remain taxable alimony despite the TCJA repeal

Plain-English summary

Before 2019, alimony was taxable to the spouse who received it and deductible by
the spouse who paid it. The 2017 Tax Cuts and Jobs Act ended that treatment, but
only for divorce or separation instruments signed after December 31, 2018 (or
older ones later modified to opt in). Here, the two spouses signed a postnuptial
agreement before that cutoff. The paying spouse got advice that the payments were
no longer deductible and cut them, creating a dispute over the correct tax
treatment. The receiving spouse asked the IRS to confirm the payments are still
alimony under old Section 71. The IRS agreed on all three points: the payments
made before the divorce, any back payments of amounts that had been withheld, and
payments made after the agreement is folded into the divorce judgment (but kept as
a separate surviving contract) are all alimony, taxable to the receiving spouse in
the year received. Because the agreement predates the cutoff and is not being
modified, the TCJA repeal does not change the answer. The IRS noted it has no
jurisdiction over state income taxes and relied on the taxpayer's description of
state law.

Ruling snapshot

• Question: Do support payments under a pre-2019 postnuptial agreement still count as taxable alimony after the TCJA repealed Section 71?
• Outcome: Approved (all three rulings granted: payments are alimony includible in the recipient's gross income)
• Key authorities: IRC § 71 (pre-repeal), § 215; TCJA § 11051; Hoover v. Commissioner, 102 F.3d 842 (6th Cir. 1996); Siegel v. Commissioner, T.C. Memo. 2019-11

Full text (IRS public release)

Internal Revenue Service                          Department of the Treasury
                                                  Washington, DC 20224

Number: 202426011                                 Third Party Communication: None
Release Date: 6/28/2024                           Date of Communication: Not Applicable
Index Number: 71.00-00                             Person To Contact:
                                                    --------------, ID No. --------
[Taxpayer name and address redacted]              Telephone Number:
                                                    --------------
                                                  Refer Reply To:
                                                    CC:ITA:B02
                                                  PLR-119887-23
                                                  Date:
                                                  March 25, 2024


                          TY: --------------


Legend:

Taxpayer     = --------------
Spouse       = --------------
Jurisdiction = --------------
State        = --------------
Date 1       = --------------
Date 2       = --------------
Date 3       = --------------
Date 4       = --------------
Year 1       = --------------
Year 2       = --------------
Year 3       = --------------
Year 4       = --------------
A            = --------------
B            = --------------

Dear --------------:

This is in response to your request for a private letter ruling which was received by the
Service on Date 4. You requested rulings on the proper treatment of payments received
before and after a legal divorce made pursuant to a postnuptial agreement executed
prior to December 31, 2018, under section 71(b) of the Internal Revenue Code. This
letter ruling is being issued electronically, as permissible under section 7.02(5) of Rev. Proc.
2023-1, 2023-1 I.R.B. 1, 35.

                                        FACTS

Taxpayer represents the following:

Taxpayer and Spouse executed a Postnuptial Agreement (the "Agreement") on Date 1
(prior to December 31, 2018) that contemplates each spouse's respective rights and
obligations upon divorce. The Agreement contemplates a support payment to Taxpayer
that (1) does not designate the payment as not includible in Taxpayer's income, (2)
contemplates payments beginning solely after the marital separation, and (3) provides
that there is no liability to make such payments after the death of Taxpayer (the payee
spouse).

Taxpayer and Spouse have been living separate and apart from one another without
cohabitation beginning Date 2. Taxpayer represents that Taxpayer and Spouse are
considered separated under State law.

Upon separating and pursuant to the Agreement, Taxpayer received cash payments
until Year 1. In Year 1, Spouse received tax advice that payments pursuant to the
Agreement were no longer deductible, pursuant to the Tax Cuts and Jobs Act of 2017,
P.L. 115-97, and Spouse unilaterally lowered the monthly payments to Taxpayer.

Due to the uncertainty over the proper tax treatment of the payments, the parties
reached a temporary resolution for Spouse to make a minimum monthly payment of $B
to Taxpayer, as a placeholder amount, with an eventual equalizing payment to be made
upon resolution as to the proper treatment of Spouse's payments pursuant to the
Agreement. Spouse made cash payments to Taxpayer totaling $A in both Year 2 and
Year 3.

On Date 3, Spouse filed a complaint for Absolute Divorce in the Circuit Court for
Jurisdiction. State law provides that court with authority to incorporate and merge—or
not merge—an agreement into a divorce decree. Taxpayer represents that upon
resolution of the divorce proceedings, the Agreement will be unmodified and
"incorporated but not merged" in its current form into the Judgment of Absolute Divorce.
According to State law, this means that the Agreement survives as a separate and
independent contractual arrangement between the parties.

Taxpayer is seeking back payment of the amounts withheld by Spouse, and otherwise
payable pursuant to the Agreement.

LAW AND ANALYSIS

The Tax Cuts and Jobs Act of 2017, P.L. 115-97, repealed section 71 (Alimony and
Separate Maintenance Payments).

Section 11051(c) of the Tax Cuts and Jobs Act provides,

       (c) EFFECTIVE DATE.—The amendments made by this section shall apply to –
       (1) any divorce or separation instrument (as defined by section 71(b)(2) of the
       Internal Revenue Code of 1986 as in effect before the enactment of this Act)
       executed after December 31, 2018, and
       (2) any divorce of separation instrument (as so defined) executed on or before
       such date and modified after such date if the modification expressly provides that
       the amendments made by this section shall apply to such modification.

Prior to the effective date of the repeal of section 71, section 71(a) provided that gross
income includes amounts received as alimony or separate maintenance payments.

Section 71(b)(1) defined the term "alimony or separate maintenance payment" as any
payment in cash if—(A) such payment is received by (or on behalf of) a spouse under a
divorce or separation instrument, (B) the divorce or separation instrument does not
designate such payment as a payment which is not includible in gross income under
section 71 and not allowable as a deduction under section 215, (C) in the case of an
individual legally separated from their spouse under a decree of divorce or of separate
maintenance, the payee spouse and the payor spouse are not members of the same
household at the time such payment is made, and (D) there is no liability to make such
payment for any period after the death of the payee spouse and there is no liability to
make any payment (in cash or property) as a substitute for such payment after the
death of the payee spouse.

If a payment satisfies all of the factors set forth in section 71(b) then it is alimony, but if it
fails to satisfy any one of the above factors, it is not alimony. See Rood v.
Commissioner, T.C. Memo. 2012-122. If the divorce decree or other relevant document
does not expressly state that the payment obligation terminates upon the death of the
payee spouse, the payment will qualify as alimony provided that the termination of the
obligation would occur by operation of state law. Hoover v. Commissioner, 102 F.3d
842, 845-46 (6 th Cir. 1996). See also Notice 87-9, 1987-1 C.B. 421 (divorce or
separation instrument executed after December 31, 1984, need not expressly state that
the payor spouse's liability ends upon payee spouse's death if termination would occur
by operation of state law). The mere fact that the documents may characterize a
payment as alimony has no effect on the consequences of that payment for federal tax
purposes. Hoover, 102 F.3d at 844.

Section 71(c) provided that section 71(a) shall not apply to that part of any payment
which the terms of the divorce or separation instrument fix (in terms of an amount of
money or a part of the payment) as a sum which is payable for the support of children of
the payor spouse.

In the instant case, the payments by Spouse to Taxpayer under the Agreement meet
the definition of alimony described in section 71(b)(1). That is, the payments are
received by Taxpayer pursuant to a divorce or separation agreement and the
Agreement does not designate the payments as not includible in gross income under
section 71 and as not allowable as a deduction under section 215. Taxpayer has
represented that Taxpayer and the Spouse are separated under State law. The
Agreement provides that payments to Taxpayer terminate upon Taxpayer's death.
Accordingly, these amounts constitute alimony and are includible as gross income to
Taxpayer under section 71.

Moreover, to the extent Taxpayer receives back payments of the amounts unilaterally
withheld by Spouse, , the case of Siegel v. Commissioner, T.C. Memo. 2019-11 is
relevant. The Tax Court held in Siegel that a payment of spousal support arrearages
qualified as alimony under section 71(b). In doing so, the Court affirmed earlier Court
precedent in holding that when the underlying spousal support obligation initially or
otherwise qualified as alimony for Federal tax purposes, then that character is retained
with respect to any related, subsequent payments of spousal support arrearages. Id., at
*8. Therefore any back payments of amounts previously withheld by Spouse constitute
alimony payments, and are includible in Taxpayer's gross income in the year received.

Taxpayer has represented that the Agreement will be unmodified and "incorporated but
not merged" in its current form into the Judgment of Absolute Divorce. Further,
Taxpayer has represented that according to State law, this means that the Agreement
survives as a separate and independent contractual arrangement between the parties.
That means that upon the Judgment of Absolute Divorce, Taxpayer will receive
payments that meet the definition of alimony under section 71, under an agreement of
divorce or separation that was executed prior to December 31, 2018. Therefore the
payments made after the divorce of Taxpayer and Spouse will continue to qualify as
alimony payments for purposes of section 71, notwithstanding the repeal of section 71
of the Internal Revenue Code by the Tax Cuts and Jobs Act.

RULINGS:

   1. The payments received by Taxpayer pursuant to the Agreement, and prior to the
      Judgment of Absolute Divorce, constitute alimony received by Taxpayer under
      section 71, and are includible in Taxpayer's gross income.
   2. Taxpayer's receipt of any amounts payable pursuant to the Agreement but
      otherwise withheld (i.e., back payments), constitute alimony to Taxpayer under
      section 71, and are includible in Taxpayer's gross income in the year received.
   3. The payments received by Taxpayer pursuant to the Agreement, and after the
      Agreement is incorporated but not merged into a Judgment of Absolute Divorce,
      constitute alimony under section 71, and are includible in Taxpayer's gross in the
      year received.

Except as expressly provided herein, no opinion is expressed or implied concerning the
tax consequences of any aspect of any transaction or item discussed or referenced in
this letter. No opinion is expressed as to the federal tax treatment of the transaction
under any other provisions of the Internal Revenue Code and the Treasury Regulations
that may be applicable or under any other general principles of federal income taxation.
This letter ruling is only applicable to matters under our jurisdiction. See
Rev. Proc. 2023-1, 2023-1 I.R.B. 1, Sections 2.01 and 3.04. We do not have jurisdiction
over state income taxes. Therefore this ruling is not controlling for state income tax
purposes. No opinion is expressed as to the tax treatment of any conditions existing at
the time of, or effects resulting from, the transaction that are not specifically covered by
the above ruling. Our rulings are based on Taxpayer's representations concerning
State law.

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code
provides that it may not be used or cited as precedent.

A copy of this letter must be attached to any income tax return to which it is relevant.
Alternatively, taxpayers filing their returns electronically may satisfy this requirement by
attaching a statement to their return that provides the date and control number of the
letter ruling.

The rulings contained in this letter are based upon information and representations
submitted by the taxpayer and accompanied by a penalty of perjury statement executed
by an appropriate party. While this office has not verified any of the material submitted
in support of the request for rulings, it is subject to verification on examination.

In accordance with the power of attorney, a copy of this letter ruling is being sent
electronically to Taxpayer's authorized representative. A copy is also being sent to the
appropriate operating division.


                                       Sincerely,

                                       Ian D. Heminsley
                                       Assistant to the Branch Chief, Branch 2
                                       Office of the Associate Chief Counsel
                                       (Income Tax & Accounting)

Enclosure (1)


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