For the last 10 years, Ricky, 40, and Lucy, 35, were married, and you prepared their joint tax returns for those years. Last year they divorced, and both remained as your tax client. Under the dissolution decree, Ricky has to pay Lucy $4,000 per month alimony, which he does for the current year. You as an EA have completed Ricky’s tax return for the current year, and you deducted the required alimony payments to Lucy on his Form 1040. Lucy comes to you to prepare her tax return and refuses to report her alimony received as income. She states, “I am not going to pay tax on the $48,000 from Ricky.” She views the payments as “a gift for putting up with him for all those years of marriage.” Lucy will not budge on reporting this alimony as income.

Under Circular 230, could you sign the paid preparer’s declaration on this return? Cite a specific Circular 230 section to support your answer.