Practice Limited to Taxation


Posted on 07/15/2010



By Robert S. Steinberg, Attorney, CPA, CVA  

July 15, 2010


In “Notes from Underground,” Fyodor Dostoevsky, perhaps the greatest novelist, certainly one of the greatest, launched a frontal assault on enlightened rationalism and the idea of progress.  Intellectuals seek perfection through reason, reducing the world to nice, neat formulas.  From Notes from Underground:

Perhaps the only goal on earth to which mankind is striving lies in the incessant process of attaining, or, in other words, in life itself, and not particularly in the goal which of course must always be two times two makes four, that is a formula and after all, two times makes four is no longer life, gentlemen, but is the beginning of death.

According to Dostoevsky trying to understand our feelings is not the same as feeling them, the former akin to dying while the latter is life unfolding.   The human mind he says may be more irrational than rational and we deceive ourselves to think otherwise.  Reason flows from our desires and is thus self serving and manipulative.  Think of Dustin Hoffman’s character in the movie “Hero.” 

Dostoevsky is not alone in postulating that we deceive ourselves. Christopher Chabris and Daniel Simons in their book “The Invisible Gorilla” demonstrate that our attention to what is going on is often an illusion. We have a “striking mental blindness” to what is going on around us although we believe we take in reality completely.  In their video example viewers are asked to watch a video in which two teams of players are tossing and bouncing a basketball to each other.  Viewers are asked to count the number of bounce and toss passes.  In the middle of the film a woman wearing a full body gorilla suit walks slowly to the middle of the screen, pounds her chest and walks out of the frame.  Half of the counters viewing the film did not notice the gorilla woman because they were completely focused on counting passes.

The moral:  We overrate our mental abilities and the prowess of our sensual intake systems (i.e., eyes, ears, touch) and our ability to correctly remember events.




Spouses going through a divorce often have a severe perception disability disorder (Not defined in the DSM IV).  I have found that, among other misconceptions, they do not understand what the divorce court’s role is vis a vis federal income taxes.  This is so even though income taxes play a major role in determining what each spouse gets and keeps following a divorce. Here is a quick snapshot.






Order spouses to file jointly as this is election granted by federal law, namely the Internal Revenue Code or IRC (generally accepted as proper rule although not judicially settled).

  1. Consider cost of unreasonable refusal in dividing assets.
  2. Enforce a marital settlement agreement requiring joint filing.

Make spousal support taxable alimony as it either is or isn’t depending on the definition contained in Section 71 of the IRC.

Make spousal support non-taxable by ordering that it is to be nontaxable and nondeductible as permitted by the IRC.

Allow dependency exemption for child over age 19 to one spouse because dependency exemption under IRC goes to spouse providing more than ½ of support, if child otherwise qualifies.

Determine the amount of child support and spousal support and equitable distribution which may influence which spouse provides over ½ of the child’s support.

Allow the dependency exemption to be claimed by noncustodial parent where custodial parent of child under 19 does not sign waiver on Form 8332.

Hold recalcitrant spouse financially responsible for lost tax benefit.

Order that one spouse only shall be liable to IRS for income taxes on a joint return as the IRC provides for liability to be joint and several.

Order as between the spouses which one is financial responsible for taxes and hold that party financially responsible to other spouse for damages.

Order that one spouse is an innocent spouse for purposes of the exception to joint and several liability provided in the IRC.

Make findings of fact which, although not binding IRS, may be helpful if spouse seeks to escape joint liability.

Order that transfer of stock options shall be nontaxable to the transferor spouse because complex tax issue is determined by IRC, IRS rulings and case law.  Some transfers are tax free and some are taxable.

Order who shall bear the financial cost of transfer and or exercise and enforce order if not complied with.

Award an interest in a spouse’s qualified pension by signing a regular domestic relations order.

Must sign a specialized order called a QDRO (Qualified Domestic Relations Order) as defined in the IRC.

Enjoin IRS from collecting tax from spouse when state court has ordered that other spouse is to pay the tax liability as federal courts have jurisdiction over federal tax disputes (U.S. Tax Court, District Courts, Court of Claims or Bankruptcy Courts).

Hold non compliant tax in contempt and determine financial damages.

 The above snapshot applies only to federal income taxes, not state taxes, is generic and not geared to the law of any particular state.   Divorcing spouses should consult with qualified family law attorneys and consult a tax lawyer where appropriate.  Divorce lawyers can find references to state cases on tax matters in Frumkes on Divorce Taxation by Melvyn B. Frumkes (8th ed., James Publishing, Inc., 2009).



Philosopher George Santayana said, “Those who cannot remember the past are condemned to repeat it.”  Yet, when we remember incorrectly we are forgetting just as well.  The tax law is complicated, far too complicated in fact.  As it is, we tend to see things as we want and not as they really are and remember things differently than we thought we saw them.  Therefore, we are best to closely examine the assumptions inherent in our conclusions.  Especially with regard to tax matters, we may discover that reason and reality have taken a wrong turn along the way and that we are living in a “House of Sand and Fog.”



© 2010 By Robert S. Steinberg.  All rights reserved.

 The above article was originally published in Steinberg Talks Tax™, Vol. 4, No. 5. 


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