Frank and Lilly are negotiating a divorce settlement. Frank has offered to pay Lilly $12,000 each year for 10 years, but payments cease upon Lilly's death. What are the tax implications of this proposition assuming it is finalized in 2018?
I.Lilly must recognize Gross Income when the money is received.
II.Frank has a deduction for Adjusted Gross Income in the year of payment.

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question

Frank and Lilly are negotiating a divorce settlement. Frank has offered to pay Lilly $12,000 each year for 10 years, but payments cease upon Lilly's death. What are the tax implications of this proposition assuming it is finalized in 2018?
I.Lilly must recognize Gross Income when the money is received.
II.Frank has a deduction for Adjusted Gross Income in the year of payment.
​
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Quizplus · Accepted Answer

Under the tax laws applicable in 2018, alimony payments are taxable to the recipient (Lilly) and deductible by the payer (Frank).

Frank and Lilly Are Negotiating a Divorce Settlement