child support payments in arrears have been satisfied.' If all of the foregoing requirements
are
met,
then
payments will be treated as alimony or separate maintenance
which are deductible by the payor spouse and includable by the payee spouse as taxable income. Tbe parties can, however, designate that the payments are not to be taxable to the payee and are not deductible by the payor. A court may also make this designation in a decree or order.
The option to make the payments not alimony could be exercised by including in an agreement the words, "Such payments are not includable in gross income under I.R.C. Section 71 and not deductible under I.R.C. Section 215." Without these words, all payments otherwise qualified will be treated as alimony. The TRA alimony rules apply to all divorce or separation instruments executed after 1984. Instruments executed before 1985 and thereafter modified will be subject to the new alimony rules if such modification expressly provides that the instrument is to be subject to the 1984 Act. If a decree of divorce or separate maintenance executed after December 31, 1984, incorporates or adopts without change the terms of the alimony or separate maintenance poyments under a divorce or separation instrument executed before 1985, such decree will be treated as executed before 1985. DEPENDENCY EXEMPTIONS
As in the case of property settlements and alimony, the spouses can determine by agreement who will be allowed the dependency exemption for their children. Under the general rule, the parent with custody of the child for more than one-hall of the calendar year will be allowed the dependency exemption. This is true even though the noncustodial spouse provides most or all of the child's support.' The TRA provides that on a yearby-year basis the custodial parent can surrender the dependency exemption to the other parent by executing a written declaration to that ellect.' The form of the written declaration will be pre-
MEDICAL EXPENSES AND READOF-HOUSEHOLD STATUS
scribed by regulations from the Treasury Department. Rather than handling the matter on a year-by-year basis, however, the temporary regulations indicate that the parties can, and in most cases they probably should, decide the dependency exemption issue for all future years in the divorce or separation agree-
ment. If the exemption is released for more than one year, the original release must be attached to the noncustodial spouse's return and a copy of such release must be attached to his or her return for all succeeding taxable years for which he/she claims the dependency exemption.' These TRA amendments apply to taxable years beginning after December 31. 1984. Since dependency exemptions are determined on a calendar year basis, the new law will apply to support payments beginning January I, 1985, and to tax returns filed for years beginning in 1985. If a decree or agreement was executed prior to
1985 and provides that the noncustodial parent may claim the dependency exemption then such provision will continue to control provided the noncustodial parent provides at least $600 support to the child in such year claimed.
The TRA allows either parent to deduct the medical expenses paid by that parent for the child, regardless of which parent is entitled to the dependency exemption for the child.' The TRA redefines head-ofhousehold status to include any household which otherwise meets the definition for more than onehall instead of an entire taxable year. Therefore, a custodial parent will now be able to qualify as head of household in more situations. For example, the custodial parent can file as head of household in the following situations: (I) when spouses are still married at year-end but lived apart for the last six months of the year and (2) although the noncustodial parent is entitled to claim the dependency agreement under an agreemenL 10
PROPERTY TRANSFERS
Probably the driving force behind the persistent and ultimately successful ellorts by the tax bar to change the property division rules was the almost universal dissatisfaction with the results of applying Davis". In Davis, the transferor was required to recog-
nize as
ain the dillerence be-
Make Professional
LAND MANAGEMENT available to your absentee landowners. Call Ted Glaub today to set up a FREE PRESENTATION LAND MANAGEMENT DIVISION Smu 1886
• WILSON ARKANSAS
PO. Box 96 Wilson, Arkansas 72395 / (501) 655-B311
July 1985IArkansas Lawyer/l33