Family Law Blog

IRS Targets Tax Discrepancies in Alimony Payments

Friday, May 30, 2014

Those alimony payments that you have been receiving from an ex-spouse are soon likely to come under the microscope. According to the Internal Revenue Service, it intends to sharpen its focus on alimony deductibles and alimony claimed as income on tax returns.

The Treasury Inspector General for Tax Administration, which happens to be an Internal Revenue Service watchdog, recently conducted an analysis of nearly 570,000 tax returns for 2010. The Inspector General has released a report which seems to indicate that there is a very large gap between the deductions that are being claimed by alimony payers, and the corresponding income that is being claimed on their ex-spouses’ tax returns.

Overall, the Treasury Inspector General for Tax Administration claims that over a five-year period, the volume of revenues that the agency has lost because of such discrepancies could be in the area of $1.7 billion. About 47% of tax returns that were analyzed indicated the presence of discrepancies between deductible alimony as well as alimony claimed as income.

The analysis also found that many people who claimed alimony as tax deductibles failed to provide the correct tax identification number for the receiver of the alimony. The Internal Revenue Service intends to target this area, and it has announced that it is adjusting the current audit filters that it has in place to identify high-risk returns, and is also in the process of developing other measures to address this gap in alimony taxes. The agency also has plans to make sure that penalties are levied whenever a taxpayer does not provide an accurate tax ID for a person collecting the alimony.

Most persons going through a divorce don't bother to consider the tax consequences of the divorce. However, it is important to consult with your tax consultant to understand how alimony and other aspects of your divorce will affect your tax returns.