Tax News Update    Email this document    Print this document  

August 6, 2020

Payments ex-husband made to ex-wife to divide marital property incident to divorce do not increase the basis in his LLC, Tax Court holds

The Tax Court has held (Steven R. Matzkin, et ux. v. Commissioner) that payments an ex-husband made to his ex-wife incident to divorce did not increase the basis in his dental practice LLC. Dividing their marital property 50-50 meant that the ex-wife would receive 50% of the ex-husband's interest in the LLC. Instead, they agreed that (1) in exchange for her interest in the LLC, he would pay her cash, which they referred to as "non-modifiable and non-taxable alimony"; (2) she would not be taxed on the cash; and (3) he would not claim a deduction for the payments. The court noted that the payments did not qualify as alimony and held that they did not increase the basis in the LLC.