[CPASF1]

I though I had alimony down, but i don’t know why i am thrown off by this
Bill and Hillary were divorced in Year 1. The divorce decree provides that Hillary pay alimony of $10,000 per year, to be reduced by 20% on their child’s 18th birthday. During year 5, Hillary paid $7,000 directly to Bill and $3,000 to UCLA for tuition for their child, who had turned 18 during year 4. What amount of these payments should be reported as income in Bill’s year 5 income tax return?

Can someone please explain why this is $8,000 and not $7000? The way I saw it was that on their child’s 18th birthday, alimony would be reduced by $2000, which means that alimony was $8,000 and child support was $2000. but since the child is now 18, and H only paid B 7,000, wouldn’t that mean she was short $1000 and therefore B would only claim $7000 as alimony. isn’t what H is giving her child up to her after age 18 and doesn’t involve B anymore?
thanks!

[Finally_a_CPA]

That's a tricky one. I think I would have used the same logic as you did at first.

Don't quote me on this but I'm assuming here is the logic for that answer: Since the child turned 18 in year 4, H had no obligation to pay any child support in year 5. Her only obligation was to pay 8K in alimony. She paid a total of 10k in year 5 so I'm assuming the additonal 2k would be considered a gift and therefore not taxable. I know that the tuition was paid for the child directly to an institution so you would think the 3k should be considered a gift to the child. So basically the more I type, the more I confuse myself. Maybe since H was obligated to pay alimony, the tuition paid is allocated to alimony first and any excess considered a gift. This could be because if H had not paid for tuition, B would have paid from him pocket so in essence it is as if Bill DID receive the additional 1k.

May I ask what the explanation for that answer was on your review course?

[CPASF1]

Hi @GSD512, yah i think your right, this might be more of a conceptual type question

here's the explanation
Hillary made a total of $10,000 in payments during year 5, including the $7,000 paid directly to Bill and the $3,000 paid for their child’s tuition. Alimony would have been reduced by 20%, from $10,000 to $8,000, in year 4, when the child turned 18. As a result, $8,000 of the payments made by Hillary would be considered alimony and would be taxable to Bill. The remainder would be considered child support.

[Missy]

Because tuition payments to a college are treated as if H gave Bill the money and he paid the tuition himself. (See payments to a third party under “General Rules”)

https://www.irs.gov/publications/p17/ch18.html

Licensed Massachusetts Non Reporting CPA since 2012
Finance/Admin/HR Manager

[Finally_a_CPA]

CPASF1: I think even after reading that explanation, I'm still a bit confused. Maybe it's just the wording. I get the 8k of alimony but I just don't see why the additional 2K would still be considered child support. I mean if the child turned 18 the prior year, why would any money still be considered child support? I would think it should be a gift not CS.

[CPASF1]

thanks mla11692!,
GSD512, i think this this problem's answer might be coming from this IRS code,
based on this code, mla11692's statement about this being considered H giving B the money directly would be correct, but it's still a weird question

“Payments to a third party. Cash payments, checks, or money orders to a third party on behalf of your spouse under the terms of your divorce or separation instrument can be alimony, if they otherwise qualify. These include payments for your spouse's medical expenses, housing costs (rent, utilities, etc.), taxes, tuition, etc. The payments are treated as received by your spouse and then paid to the third party.”

[Author]

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