Structuring Alimony Payments for Tax

Lets imagine

1) A greater than normal financial year finds you
4) Formers spouse(s) is in a lower tax bracket
2) Alimony payments are being made to a previous spouse(s)
3) Former Spouse(s) agrees to allows payments of alimony to be made early

§ 71 allows a for AGI deduction for alimony payments under certain circumstances:

1)  The payments are made under a “alimony or separate maintenance payment”.
2) Agreement must not state the payments "are not alimony"
3) Can't live together
4) Payments must cease at death or spouse remarriage


Let's put this into perspective. A client approaches you during a great year and wants to reduce his current year income and wants to pre-pay alimony to take a greater then normal deduction. 

Can the client do this?

The Short answer is Nope. 

The why?

§ 71 the first requirements is the payments be made under a “alimony or separate maintenance payment”. The IRS has taken a stance that these payments "must" be under the arrangement of the agreement. Thus, the agreement would be for the betterment of the spouse receiving payments and would be setup to not allow for one spouse to take advantage of the other. Payments are regularly paid and are due on dates. 

Courts have often disallowed payments that are made in a tax year that the agreement did not specify.  

In short, prepaying payments to reduce current year income is not allowed under the IRC.