In Uncategorized on 05/09/2023 at 15:55

Whatever the character of the debt from which it arose, interest not explicitly exempt is taxable. Judge Gale teaches this lesson to Susan D. Rodgers,, T. C. Memo. 2023-56, filed 5/9/23. Susan D.’s loved-once got a wee behind-hand with the child support. Support payments prior to the year at issue came to Susan D. via the State of AL, which extracted same from loved-once; being exempt per Section 71(c) Susan D. never got a 1099.

But for year at issue, The Heart of Dixie gave her one with the payment at issue, at no extra charge. Originally, the Mobile County Circuit Court entered judgment against loved-once for $18K, all of which was called child support arrearages. But apparently on reargument, the MCCC entered the judgment as $16K, of which $5K was arrears and $11K interest.

Taishoff says loved-once, who paid up, wanted to insert a poison pill. If all was characterized as child-support arrears, no tax on Susan D. I wonder if Susan D. was pro se in MCCC as she is in USTC. If she was represented, her trusty attorney missed something.

Judge Gale tells us what. “A taxpayer’s gross income generally encompasses all income from whatever source derived, specifically including interest. § 61(a)(4). For divorced or separated taxpayers, alimony or separate maintenance payments were generally also includible in the recipient’s gross income during the year at issue (and were deductible from the payer’s gross nincome). §§ 71(a), 215(a). This general rule is inapplicable, however, for payments in an amount fixed by the terms of a divorce or separation instrument that were made or treated as made to support the payer’s children. § 71(c). Consequently, such child support payments were not includible in the gross income of the recipient (and were not deductible by the payer). See Temp. Treas. Reg. §1.71-1T(c), Q&A-15. Interest paid on a child support arrearage is, however, includible in the recipient’s gross income under section 61(a)(4).” T. C. Memo. 2023-56, at p. 4. (Footnote omitted, but it says TCJA put paid to this stuff, but this case is pre-JCTA).

Interest is payment for loss of use of money; it doesn’t matter where the money came from.


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