TAX MEMO Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

TAX MEMO Case Solution

TO: File

FROM: XYZ

RE: Ben and Jen(Tax Year XX)

Facts

Ben and Jennifer are both divorced individuals since two years and they are our tax clients. Two years ago, the decree had stated that Ben had to make monthly payments of about $ 400 as alimony to Jen and he would also be paying $ 600 per month to Jen as child support. Ben had paid a total of $ 6000 to Jen for half year in year 1 and he did not pay for the remaining half year as he was unemployed for half of the year. In order to compensate for this and stop Jen to file any claim against him, he had transferred the home theatre equipment which had a FMW of about $ 6000 and a basis of $ 9000.

Issue & Conclusion 1

What constitutes for the acceptable Alimony under Section 452 of Internal Revenue Service and are the requirements met in the case of Ben and Jen for $ 2400 alimony?

The requirements for acceptable alimony under section 452 of IRS are listed in the analysis below and the amount of $ 2400 paid by Ben to Jen meets the requirements of alimony.

Analysis 1

Any payment which is made to a former spouse or a spouse under the separation or a divorce instrument, it is considered as Alimony. Apart from this, any sort of voluntary payments which are made are not considered as alimony. For the payer, this alimony is deductible and the recipient of this alimony needs to consider this alimony as income. However, there are also certain set of requirements which are compulsory for a payment to be considered as alimony. The requirements which must be met for payment to be considered as alimony are as follows:

All the payments must be required by a separation or a divorce instrument.
All the payment made must be in the form of cash, money orders as well as checks.
The spouses must not be of the same household if they had been separated under decree.
The payment made as alimony must also not be treated or considered as child support.
Finally, the recipient and the payer spouse must not agree to or file joint return with one another.

If the payment meets these requirements as stated by section 452, then the payment would be considered as alimony. In the case of Ben and Jen, all the above requirements have been met for the $ 6000 paid by Ben to Jen. Out of this $ 6000, $ 2400 is alimony which is deductible for Ben and it should be treated as income by Jen........................

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