Tax Court Disallows Dave LaPoint’s Alimony Deductions

Dave LaPoint, a former Yankees pitcher, married Laura Jean Clear in 1990. The two entered into a post-nuptial agreement in 1991 in which LaPoint agreed to deposit $50,000 per year into a bank account for Clear as long as he was playing major league baseball. The agreement contained the following clause: “Binding on Heirs. This post-nuptial agreement shall inure to the benefit of, and be binding upon, the parties hereto, their heirs, executors, legal representatives, and assigns.” In 2002, Clear filed for divorce and the divorce was finalized in 2005.

On his 2002 and 2004 income tax returns, LaPoint reported proceeds of $249,749 and $385,964, respectively, as gross income from the MLB. He then deducted the same amounts as alimony paid for those years. A CPA and member of the Tax Court bar prepared the returns and advised LaPoint that the payments were deductible. The IRS disallowed the deductions, claiming that the payments to Clear were not alimony.

Four requirements exist for a payment to be alimony: (1) the payment must be stated in a divorce or separation agreement, (2) there must not be an agreement that the payment is not alimony, (3) the couple must live apart, and (4) there must not be any liability to make the payment for any period after the death of the payee and there must not be any liability to make any payments as a substitute for the payment after the death of the payee spouse.

The Tax Court found that the language in the post-nuptial agreement assigned LaPoint’s interest in his MLB proceeds to Clear and that Clear’s right to receive the proceeds would survive her death because the agreement “inures to the benefit” of Clear’s “heirs, executors, legal representatives and assigns.” LaPoint was forced to pay a penalty on $158,615 in unreported interest in income, but the court did not uphold the 20% accuracy penalty on the alimony disallowance because LaPoint had relied on a CPA/tax attorney.

See Peter J. Reilly, IRS Strikes Out Retired Pitcher Dave LaPoint – Alimony Not For the Dead, Forbes, Apr. 14, 2012.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.