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IRS says line 21: http://apps.irs.gov/app/vita/content/15/15_02_010.jsp?level=basic

We have run into several of these payments. They are mostly payments to vacate the premises. Usually they are correctly reported in Box 3. In the case that they are in Box 7, a Sched C-EZ is added with an offset of the total amount to Line 21.

Update! Spoke to client yesterday, and he says that all the money he receives goes to paying certain expenses for the kids, mostly private school tuition. He keeps track of the expenses and keeps nothing for himself. I still think that the IRS would construe the money he receives as alimony. I'm still scratching my head over why the atty would set this up. But then atty's and taxes is not a good mix - as we all know.

A quick google search turns up abundant results.

Not sure I have this straight: Your client is receiving child support, but is not the custodial parent? That doesn't make sense unless it is disguised alimony. But if he is the recipient,then he doesn't pay taxes on child support, and ex cannot deduct the payments. I agree with Cathy's points, but she is reading that your client is paying the child support I think. I usually have clients paying child support who want me to treat it as alimony. Your situation is a new one on me.

Tom, Was the payment listed as non-employee comp on the 1099? Years ago, my late husband and I had a house "offered" to us by a banker who was going to use the short-sale as a way to make money for himself also. Did you see the "short sell" document? Is the selling price too good to be true? If it is, we all know about such things. Is it possible that $18,800 was slipped under the table and split with your client and the banker? A payment ($9,400) under $10,000 can be questionable. Before you ask, no, we didn't buy the home because of the "scheme" that really sickened us more than anything. And, just maybe your client's situation is legit, however, don't know if it's the lingering smell of our deal or the smell of your's client's deal....but I definitely smell something fishy! Take care, Paranoid Cathy

Sure sounds like a part of the sale transaction to me. Clearly not SE income, but I think you are correct on §1001( b )

Sounds to me like you could make a case for adjustment to basis, therefore part of the property sale back to the bank. After all, there would have been NO payment aside from the imminent foreclosure action.