Tax court allows exclusion of payments received for community property interest in pension.
August 1992 Tax court allows exclusion of payments received for community property interest in pension. The Tax Court's ruling in the Hazel Balding vs Commissioner case provides valuable insight into the applicability of Internal Revenue Code Section 1041. The Tax Court denied Hazel's request that her husband's payments for military retirement pension be made to qualify as alimony based on Sec 1041's rules concerning tax-free transfers that arise from divorce settlements of property. Based on a broad interpretation of Sec 1041, the court asserted that the exclusion from tax-free transfers between spouses or former spouses applies to Hazel, whether her interest in her husband's pension is based on marital rightsor property rights. The Balding case thus provides significant insight for succeeding cases regarding the issue of property transfers between spouses and former spouses in any state.