Gerald Barlow - Page 6

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               The Federal tax consequences to both the paying spouse and             
          receiving spouse of a payment made incident to divorce depend               
          upon the characterization of such payment.  Property settlements,           
          or equitable divisions of marital property, are generally neither           
          deductible from the income of the paying spouse nor includable in           
          the income of the receiving spouse.  Sec. 1041.  On the other               
          hand, payments made or received as alimony are generally                    
          deductible by the paying spouse under section 215(a) and                    
          includable in gross income by the receiving spouse under sections           
          61(a)(8) and 71.                                                            
               Section 215(b) provides that the paying spouse may deduct a            
          payment as alimony if the payment is “includible in the gross               
          income of the recipient under section 71”.  Section 71(b)(1)                
          defines an alimony payment as any cash payment meeting each of              
          the following four criteria:                                                
                    (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 this section and not                  
               allowable as a deduction under section 215,                            
                    (C)  in the case of an individual legally                         
               separated from his 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 any such                       
               payment for any period after the death of the payee                    

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