Wife must pay taxes on her share of husband's monthy military pension payments: Cannot claim it as non-taxable property transfer.

In Eatinger v. Commissioner (1990) TCM 1990-310, Husband and Wife married in 1955. Husband was on active duty in the Air Force from 1952 until 1972. In May 1977 California dissolution, the trial court awarded Wife 42.5% of Husband’s military pension payments. The court later modified the judgment to include pension arrearage payments. Husband, in his 1985 federal tax return deducted his payments to Wife for support, her share of the pension and arrearages. Wife, in her federal 1985 tax return did not report the pension or the arrearage payments she received for that year. The IRS filed a notice of deficiency for unpaid taxes on her unreported pension income.

A hearing ensued. Wife claimed that the pension payments constituted a transfer of property pursuant to a divorce, which is considered non-taxable income. You guessed it . . . the IRS won. The tax court agreed with the IRS and found that Wife’s share of Husband’s military retirement was taxable income to her. The court noted that the pension payments were taxable to the couple before the dissolution of marriage. The court rejected Wife’s argument that the judgment of dissolution has changed the characterization of the pension from income to property. Wife further claimed that she was entitled to credit for taxes withheld from her share of the pension, but the tax court held that because the court’s authority to divide the pension was limited to the net amount after income taxes, all income tax withheld was attributable to the service member-spouse.

Who Can Claim The Tax Dependency For the Kids Who Go Off To College?

The non-custodial parent in California has a duty to pay support to the custodial parent for a child up to the age of 18 or 19 if the child is attending High School and living with the custodial parent. After that (unless the child is handicapped), neither parent has any legal responsibility for support or education to their children unless they legally agree otherwise, because the children are considered emancipated. Who gets to claim the children when they go off to college? Lets take the typical case in divorce. The children are full-time college students, but live with Mother during vacations and holidays. The question revolves around who provides over one-half (½) of the child’s support, not who originally had custody. Analysis: The IRC Rule 152(e)(1) that the custodial parent will be treated as having provided over one-half (½) of the child’s support is inapplicable because once the children are emancipated, neither parent has custody of the children. Therefore, the IRC applies IRC 152(a), i.e. the taxpayer who provides more than one-half (½) of the dependent’s support is entitled to claim the dependency exemption on the tax return.