Hedge Fund Manager Argues for $51M Alimony Deduction

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By Erin McManus

May 13 — Whitebox hedge fund founder Andrew J. Redleaf is challenging the IRS's disallowance of $51 million in deductions for payments to Redleaf's ex-wife Elizabeth.

Redleaf filed a petition with the U.S. Tax Court May 4, arguing that the payments—$18 million in 2012 and $33 million in 2013—were deductible as alimony or separate maintenance. According to a 2008 marriage termination agreement, the payments were to come from Redleaf's future earnings from Whitebox Advisors LLC, based in Minneapolis, and Redleaf wasn't obligated to make them to Elizabeth's estate if she died before the payments were made.

Not Property Settlement

Neither a Minnesota court's divorce decree nor the marriage termination agreement designated any portion of the 2012 or 2013 payments as those that wouldn't be allowed a deduction under tax code Section 215, according to the petition.

The agreement expressly designated two 2008 cash payments totaling $20.8 million as property settlements, the petition said. The 2012 and 2013 payments weren't designated as nondeductible property settlements.

The IRS determined deficiencies of $6.3 million for 2012 and $13.5 million for 2013 for Redleaf and his new wife, Lynne, with whom he filed joint returns.

Dorsey & Whitney LLP represents Redleaf.

To contact the reporter on this story: Erin McManus in Washington at emcmanus@bna.com

To contact the editor responsible for this story: Brett Ferguson at bferguson@bna.com

For More Information

The petition is at http://src.bna.com/eZe.