Where Congress's attack on alimony tax exclusion came from: Both sides' explanations insufficient, not reality-based. Here's what we know:

The House-passed GOP tax bill shifts the tax burden on alimony from alimony payors to recipients. I.e., about 97% of the time, from divorced women to divorced men, who we all assume are in higher tax brackets than their exes. Currently, alimony is considered part of the recipient's taxable income, and not the payor's. The change would affect alimomy from post-2017 court orders or agreements, including modifications of earlier orders.(There's one feature of the bill that's completely good, and apparently not controversial: Including alimony payments pursuant to a written marital agreement, with no court order, in the definition of alimony.)

 It's important to sometimes pause from a search for subtle "incentives" and subliminal effects, and remind ourselves what the most basic and obvious effect of a policy change is: In this case, taxing men instead of women on tens of thousands, sometimes over $100,000, of annual income. Alimony is all or most of many divorced women's incomes, and can already take a very large fraction of some men's incomes. Virginia's guidelines call for at least 28% of a breadwinner's gross income as alimony to a non-working spouse, and that's before child support, and before any deductions from his paycheck for taxes, social security, etc. 

Lawyers, journalists and even the National Organization for Women have attacked the proposal, not for being anti-male, but for changing the law's current incentive for men to agree to pay alimony, and thus reducing the amount of alimony women would get. The change probably would have that effect, but that whole argument probably only occurred to them because this is a Republican proposal and it fits the narrative of a GOP "War on Women". Ordinarily, women's groups would be all for something that shifts divorce women's tax burdens wholesale onto their exes.

Blogger Stuart Levine, and many columnists quoting him, including Kevin Drum at the usually more thorough Mother Jones, have really only speculated about why anyone would want to do such a thing. Liberal writers and the supposably* conservative proponents of the change seem to share the mutually convenient illusion that this is an attack on divorce, on behalf of Christian morality. But that simply has nothing to do with how divorce, alimony or taxes actually work. The GOP Ways & Means Committee Summary says only this on behalf of the change:

  • The provision would eliminate what is effectively a “divorce subsidy” under current law, in that a divorced couple can often achieve a better tax result for payments between them than a married couple can.
  • ... spousal support as a consequence of a divorce or separation should have the same tax treatment as the provision of spousal support within the context of a married couple, as well as the provision of child support.
  • ... the provision would increase revenues by $8.3 billion over 2018-27.

Frankly, living as close to Republican Washington as I do, it sounds like a young staffer who doesn't know anyone who pays alimony, who hasn't been invovled in a divorce, and just recently got off the parental  tax returns and started filing form 1040-EZ, was thrown mysterious, possibly garbled instructions for changing something about alimony taxation, and was given 15 minutes to come up with some Republican-sounding arguments for it. But actually, the proposal was part of an early-2014 "Tax Reform Act" introduced by former Ways & Means chair Rep. Dave Camp, now retired,  and the arguments above are repeated verbatim from the Committee Summary of that bill. 

The "subsidy" argument, to the extent that it's either launched or received as an attempt to discourage divorce, partakes of the long-standing and totally wrongheaded assumption that "a couple" decides to get divorced, and may be incentivized, rewarded or punished for doing so. This dates back to the early days of no-fault divorce reform, when reformers picked the most compelling poster-children, decent people who both wanted to divorce but who were caged in "Holy Deadlock" by laws that denied them a divorce even when they both wanted one. Some conservatives and moralists, being apparently unfamiliar with divorce, and gullible about letting their opponents pick the battlefield and define its terms, compliantly responded that these couples were hastily giving up on their marriage and should be incentivized, restricted, counseled, and/or made to wait to see if it's what "they" really wanted. And whenever any change to loosen or tighten divorce laws is proposed, the same old arguments are dusted off, even though divorce decisions have long been unilateral and the proposed changes hardly ever would affect the "poster children" whom the arguments describe. 

Individuals decide to divorce, pay taxes after divorce, and might or might not respond to incentives. Couples don't and can't.

The Committee's equality-based argument is even more surreal. Spousal support after separation or divorce is very different from what the Committee refers to as "spousal support within the context of a married couple", which it says should receive the same tax treatment. Uh, a married couple that isn't separated lives together as a family and an economic unit, and doesn't pay support checks to each other. And they can't get "the same tax treatment", because a married couple files taxes jointly or as the very disadvantageous "married filing separately", while divorced people file as single, or jointly with their new spouses. Again, this sounds like college debaters grasping for arguments about parts of adult life that they know nor care nothing about. 

 Here's what might have led to this: Veteran Congressman Lloyd Doggett D-TX last year was pushing a plan to require 1099s for alimony payments, citing a Treasury study showing about $2.3 billion a year in alimony excluded from payors' income but never reported by recipients. He wanted to use the revenue it gleaned to help states improve their foster care systems."He has been discussing the issue with Ways and Means Chairman Kevin Brady," Congressional Quarterly Roll Call reported. Perhaps the drafters set out to do what Doggett proposed, then realized that it would be simpler, cheaper, and revenue-positive to eliminate the tax code's recognition of alimony entirely, and seized on the 2014 proposal and arguments. It's probably the pet project of one Ways & Means member or staffer who's been there since Camp was Chair.

But where are the deeper, more extensive arguments that ordinarily would lead to something like this? To find out I traced backwards from the only article I found in favor of the change, "A Human Capital Theory of Alimony and Tax", by feminist law professor  Tessa Davis in the  George Mason Law Review. The only part of it I've thoroughly read is its abstract, every word of which is totally wrong, except for the stuff about "Family Law Theory", the entire posited existence of which is not only wrong, but should not be conceiveable in a rational world where people care about the real-life effects of anything. Even to utter its name, silently to oneself,  throws down a gauntlet and crosses a Rubicon into a world where mere Families and Laws will henceforth be trivial playthings in the tiny hands of academic Theories and their adepts and familiars.

And yet I cannot help but admire Davis for having the monumental audacity to claim to speak for "a scholarly consensus" in favor of some kind of fundamental change. She cites only two previous proposals for tax law to disregard alimony: Rep. Camp's 2014 bill, and Donald H. Berman, "The Alimony Deduction: Time to Slaughter the Sacred Cow," 4 Am. J. of Tax Pol’y 49 (1985). Berman called the exclusion "inequitable, complex and arbitrary", and above all, unnecessary now that marginal tax rates had declined from a healthy, vigorous 91% to a negligible 50%. More of the history of dissent from the current regime can be learned from another, very solid, article Davis cites, Deborah Geier, "Simplifying and Rationalizing the Federal Income Tax Law Applicable to Transfers in Divorce," 55 TAX LAWYER 363 (2001).  It recounts that in the mid-1980s, Senate Finance Committee staffers proposed totally eliminating the alimony exclusion. They tried to rally women's groups to their side. The ultimate results they got, and possibly what they were aiming for all along, were incremental restrictions that may have helped increase revenue and predictability.  (Id., pp. 404-406.)  The article advocates letting couples choose who'll pay the taxes on any forms of support or property transfers, with a default rule that the recipient has to pay them. It cites a very similar proposal, Laurie L. Malman, "Unfinished Reform: The Tax Consequences of Divorce," 61 N.Y.U. L. REV. 363, 367 (1986).

 Davis's own argument is that alimony in a divorce is mostly viewed as compensation for "human capital," or return on investment or compensation for loss, none of which are taxed, and that any distinction between it and property transfers is artificial. (See pp. 50-55 of her article, downloadable from the abstract web page.) (Malman made similar arguments for her free-choice proposal.)

But the problem is, normal alimony, the kind that qualifies for the tax exclusion, almost always comes directly from someone's income -- where, unlike property, it get taxed if the Code doesn't exclude it -- and goes to provide income for someone else. The IRS has established clear, easily-followed boundaries between regular alimony and non-qualifying lump-sums that are more like property division. And in real alimony negotiations and trials, alimony is almost totally based on income -- needs and ability to pay. Yes, decisions are sometimes influenced by arguments about spouses' contributions to the marriage, but when statutes,  judges and litigants look at women having sacrificed their own careers for the sake of a husband's career or to raise children, their point is that the women have a legitimate reason for needing supplemental income, and that it may take time for them to wholly or partly "rehabilitate" their earning potential.

Once again, this time on the left, the theorists are looking at the subtler reasons for alimony and missing what it obviously IS and what it's almost always FOR in real life.

 

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* "Supposably" is a real word. It's from Seinfeld.


A mentor in the dark, dangerous art of drafting, a model for lawyers' and law's service to clients and lawmakers

Richmond lawyer and professor Rodney Johnson, who died last Wednesday, was one of my most important teachers, although only through his formbooks and continuing-education course. He and William & Mary Prof. John E. Donaldson gave me an outstanding model for how the content and practice of law should intersect with real people’s lives, and how lawyers should interact with legislatures. They were my first instructors in drafting, a dark and mysterious art that I care about deeply. All of their teachings affect my techniques in family law and mediation just as much as in drafting wills, trusts, powers of attorney, etc.

I still use Prof. Johnson’s forms for my wills, etc., though I have painstakingly translated them into plainer English and have made them even more modular, and even easier to customize efficiently while avoiding common revision mistakes and unintended consequences – i.e., building on his inspiration to make them even more “Johnsonian”. Documents should have the legal effect that people intend, across time, but should also be worded so that non-lawyers understand them: two goals that can be mutually exclusive, and require great effort and imagination to combine. They must be built to withstand every possible unexpected sequence of events, continuing to carry out the client's wishes even though most clients don't want to think about the possibilities. To minimize the need to go to court, or even to lawyers, to figure out what they mean. And to discourage and survive the tampering of clients who know a little bit about the law and terminology, most of it wrong, and think they know everything.

I came into law school already believing in the ideal of the Common Law as explained by Bruno Leoni in Freedom and the Law: that the law, at its best, reflects the rules of life, adapted to local conditions, which most people find fair and workable when they actually have to apply them to resolve real disputes. And that therefore, common law, forged and evolving in jury trials and judges' decisions, is better than legislation, which can be made up in a vacuum and based on ideologies and grand systems that look impressive on paper but are irrelevant to real life. What I learned from Johnson, Donaldson, and other teachers did not change that, but gave me a solid idea of how to achieve those objectives in the legal system as it actually is. Legislation about wills, trusts etc. should work so as to provide "default" rules, and rules of interpretation, to carry out what most people would want, intend and mean if they thought about it and had a chance to spell it out expressly. But also make it easy for people with different wishes to put those into effect. Legislation can be an efficient way to tweak the common-law rules, and older statutes, to make the laws and personal documents do what most people directly affected by them most often want them to do. This can and should make litigation and adjudication less necessary. It should also make it less necessary for people to hire lawyers and make or update their wills, contracts, trusts, powers of attorney, etc. Lawyers should work with legislators, as Professors Johnson and Donaldson did, by telling them what kinds of laws make things easier, fairer and more peaceful for clients and families, and what laws have had, or might have, unintended consequences; not lobbying for any particular faction based on gender, age, class, or some other special interest, but to increase everyone's welfare by lubricating the system and reducing conflict and court involvement in people's lives. That's the kinds of laws and lobbying that we heard about in law school, and it is what I and others try to to when informing legislators about the pros and cons of family-law legislation, as well.

J. Rodney Johnson, lawyer, expert in wills and trusts, dies at 75

By ELLEN ROBERTSON Richmond Times-Dispatch


IRS will recognize all gay marriages that were legal where performed

"All legally married same-sex couples will be recognized for federal tax purposes, regardless of whether the state where they live recognizes the marriage, the Treasury Department and the Internal Revenue Service said Thursday. ...

"The Treasury said that the ruling applies to “all federal tax provisions where marriage is a factor, including filing status, claiming personal and dependency exemptions, taking the standard deduction, employee benefits, contributing to an I.R.A., and claiming the earned income tax credit or child tax credit.”

"The ruling applies to all legal marriages made in the United States or foreign countries. But it does not extend to civil unions, registered domestic partnerships or other legal relationships, the Treasury said. Same-sex spouses will be able to file as married couples for the 2013 tax year, the Treasury said, and will also be able to file amended returns for certain prior tax years, meaning that many couples might be eligible for refunds.

From "I.R.S. to Recognize All Gay Marriages, Regardless of State" By , NY Times 8/29/13

Such couples will NOT have the option of filing as single. Like other married couples, they will have to file jointly, or as "married filing separately" starting with tax year 2013.

The ruling does NOT affect social security benefit eligibility.


IRS proposes broader "innocent spouse" relief

"More Innocent Spouses Qualify for Relief Under New IRS Guidelines" - irs.gov

Notice proposing a new revenue procedure, posted today on IRS.gov, revises the threshold requirements for requesting equitable relief and revises the factors used by the IRS in evaluating these requests. The factors have been revised to ensure that requests for innocent spouse relief are granted under section 6015(f) when the facts and circumstances warrant and that, when appropriate, requests are granted in the initial stage of the administrative process. The new guidelines are available immediately and will remain available until the finalized revenue procedure is published. The IRS will immediately begin using these new guidelines when evaluating equitable relief requests.

"The IRS is significantly changing the way we determine innocent spouse relief," said IRS Commissioner Doug Shulman. "These improvements should dramatically enhance our process to make it fairer for victimized taxpayers facing difficult situations.”

This is the second major change made to the innocent spouse program. In July, the IRS extended help to more innocent spouses by eliminating the two-year time limit that previously applied to requests seeking equitable relief.

The IRS invites public comment on the proposed revenue procedure. 

 

The notice says, in part:

 This proposed revenue procedure expands how the IRS will take into account abuse and financial control by the nonrequesting spouse in determining whether equitable relief is warranted. Review of the innocent spouse program demonstrated that when a requesting spouse has been abused by the nonrequesting spouse, the requesting spouse may not have been able to challenge the treatment of any items on the joint return, question the payment of the taxes reported as due on the joint return, or challenge the nonrequesting spouse’s assurance regarding the payment of the taxes. Review of the program also highlighted that lack of financial control may have a similar impact on the requesting spouse’s ability to satisfy joint tax liabilities. As a result, this proposed revenue procedure provides that abuse or lack of financial control may mitigate other factors that might otherwise weigh against granting equitable relief under section 6015(f). The proposed revenue procedure also provides for certain streamlined case determinations; new guidance on the potential impact of economic hardship; and the weight to be accorded to certain factual circumstances in determining equitable relief.

 

 


New UK gov't vows sweeping reforms including family policy, civil liberties, gay rights

The new Government has issued its “Coalition Document”, its platform for legislation and governing, including a section on Families and Children with “pledges” for reforms to family law and indeed to broad swaths of culture and society that affect children and families. It includes highly worthy but diffuse efforts such as “end child poverty” and “tackle the commercialisation and sexualisation of childhood”, but also some interesting specifics, including:

-  “Relationship support” will get stable, long-term funding and couples will be encouraged to use it.
- “Encourage shared parenting from the earliest stages of pregnancy” – including flexible parental leave.
-  Conduct a comprehensive review of family law in order to (1) increase the use of mediation and (2) improve access [a.k.a. visitation] for parents and grandparents
-  Free day care
-  Reduce the couple penalty in the tax credit system
- “Crack down on irresponsible advertising and marketing, especially to children”

It specifically does not point to further loosening the no-fault divorce laws, but the coming “comprehensive review of family law” could certainly end up including that. Too often, here in the US, pro-family reform packages that start out like this one have ended up adding quickie unilateral divorce to the mix, and then stripping out all the other family-supportive stuff (especially if that stuff requires government funding or trained, dedicated personnel).

Other parts of the document promise to:

- End the detention of children for immigration purposes

- “Push for unequivocal support for gay rights and for UK civil partnerships to be
recognised internationally”

- Stop deporting asylum seekers who face prison, torture or death for being gay or transgender

- Change the law so that historical convictions for consensual gay sex with over-
16s will will not show up on criminal records checks

- Reverse the substantial erosion of civil liberties and roll back state intrusion, protect trial by jury, restore rights to non-violent protest, review libel laws to protect freedom of speech, stop plans for national ID cards, registries and databases; investigate the creation of a British Bill of Rights.


Last-minute tax law change on who gets child exemptions, and how

Legislation enacted Dec. 21, 2005 in response to the hurricanes made a last-minute change in the definitions of "custodial parent" and "noncustodial parent" for purposes of exemptions, child tax credits, child care credits, head-of-household filing status, and other child-related benefits and provisions, BNA's Family Law Reporter reports.

Another change: noncustodial parents claiming exemptions will once again have to attach to their returns a Form 8332 or other statement signed by the other parent.

Family Law Reporter says that the details of all this are included in the new Form 8332.