Question

Under a divorce agreement executed in the current year, an ex-wife receives from her former husband cash of $25,000 per year for eight years. The agreement does not explicitly state that the payments are excludable from gross income. Does the ex-wife have gross income? If so, how much?

a. Yes, $200,000
b. Yes, $25,000
c. No, the payments are not considered gross income
d. No, the payments are considered a gift

Answer 1

The ex-wife has a gross income of $25,000 per year, based on the divorce agreement's cash payments, which are typically considered taxable by the IRS.

Step-by-step explanation:

Regarding the divorce agreement question, the ex-wife does have gross income because the Internal Revenue Service (IRS) generally considers such divorce-related payments as taxable income to the recipient if they do not qualify as child support or do not meet certain other exceptions. The total income from the divorce payments over the eight years would not be counted all at once but annually. Therefore, the ex-wife would report $25,000 of gross income per year over the eight-year span, assuming there are no other applicable deductions or exemptions specified in the law or the agreement.