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So I'm hearing and reading conflicting statements. If anyone has done this or knows someone who has with or without issues, please let me know. Our separation agreement is in the 3rd draft. We both agree to specifically state that any PSS/alimony will NOT be a deduction by husband (paying) therefore will NOT count as income for me.
Is this ok?
Thanks!

What does your lawyer say??

Lawyer says its ok, but a CPA I asked said we would need to worry about possibly being audited and fined. Sooooo, not sure..

I'd check with your lawyer. That's "skirting" around the IRS, and you probably don't want them coming after you. If the agreement states it is for alimony, then the government will want it's taxes on that. However, according to the IRS website, if it says something like "payment is not alimony" then the IRS can't touch it. That would have different legal ramifications for the separation agreement though.

I suppose since the IRS is not in the business of reading divorce cases, if he doesn't claim the alimony deduction, they aren't going to try and match the income somewhere. They don't ask how much money I spent on video games for my kids cause I don't claim a deduction for that, KWIM? Definitely run it by your lawyer, I'd be surprised if a judge would allow it, but I don't know. There's the "law" part (judge) and then the "tax" part (IRS). Just because a civil judge says something, doesn't mean the IRS will agree.

Your best bet is to run it past an actual tax attorney just to be sure that all the i's are dotted and t's crossed.

The actual regulation is here: Section 71(b) of the Tax Code.