Deductions & credits

Opus 17 · ‎May 6, 2022

@DG47 wrote:

I mentioned to my lawyer all the feedback that I had gotten and his response was that it is not alimony, it is a property distribution. So how does that change things? if at all? the money is coming from my retirement amount?

In the absence of a clear consensus, I would like you to consult an enrolled agent, that is an accountant who is admitted to practice before the IRS.

I agree it is a property settlement, and I agree that under the regulations, the income is taxable to your spouse and not you. (This of course, assumes that your divorce order is written to confirm to whatever your state law requires for a divorce to count as a qualified domestic relations order.)

The fact that DFAS will not issue separate 1099s does not make the income fully taxable to you. If the paperwork determined the taxability of income, then a contractor who never got a 1099-NEC would not be required to pay tax, and this is obviously not the case.

A qualified domestic relations order must say certain things, and it must not say certain things.

It must:

list the name and the last known mailing address (if any) of the participant and the name and mailing address of each alternate payee covered by the order
specify the amount or percentage of the participant’s benefits to be paid by the plan to each such alternate payee, or the manner in which such amount or percentage is to be determined,
specify the number of payments or period to which such order applies, and
specify each plan to which such order applies.

It must not:

require a plan to provide any type or form of benefit, or any option, not otherwise provided under the plan,
require the plan to provide increased benefits (determined on the basis of actuarial value), or
require the payment of benefits to an alternate payee which are required to be paid to another alternate payee under another order previously determined to be a qualified domestic relations order.

https://www.law.cornell.edu/uscode/text/26/414

If your divorce order meets these requirements, it is a QDRO, and the payments to your ex are not taxable to you, even if DFAS won't issue a separate 1099-R. The only way I can think of to handle this on your tax return is to report less than the full amount of the 1099-R, and then have a letter ready for when the IRS sends you a deficiency notice. You would include an explanation, a copy of the divorce order (the cover page, signature page, and pages describing the retirement account) and your ex's last known address (and her SSN, if you know it.)

You don't issue a 1099-R and you probably don't issue a 1099-MISC, although that would be a matter for your accountant to advise you on.

If your divorce order does not meet the requirements, you may have to petition the court to have it modified. Your accountant can help your attorney make sure the language is correct. Until your order is modified, I don't know what you can do.