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The tax implications of alimony payments: a new report

It's been quite awhile since we've discussed alimony in this blog.

Last summer, we noted some of the tax questions that could arise in the context of same-sex marriage. As we discussed in our July 5 post last year, these issues include tax deductions for ex-spouses who pay alimony.

In today's post, we will update you on recent indications by the IRS that the agency will be scrutinizing tax compliance more closely on both sides of the alimony transaction.

The IRS will not only be looking at whether tax deductions for alimony were properly taken. It will also be looking at whether the recipient of alimony payments properly claimed those payments as income.

Last month, the Treasury Inspector General for Tax Administration (TIGTA) reported that there is a large gap between the tax deductions claimed by payers of alimony and the income that recipients of alimony claim on their returns.

The gap is large. In 2010, the year TIGTA analyzed, it was more than $2.3 billion.

Taxpayers who claim deductions for alimony are required to provide an accurate tax ID number for the person to whom alimony was paid. TIGTA found, however, that many taxpayers who claim the deduction do not do so.

The IRS apparently does not intend to start automatically rejecting e-filed returns that lack a correct ID for the alimony recipient. But TIGTA's report is likely to make the IRS more aware of potential alimony issues during the audit process.

There are also implications from the TIGTA report for taxpayers who pay or receive alimony. When working out divorce settlements, it is important to distinguish clearly between child support or a property settlement, on the one hand, and alimony on the other.

Source: The Wall Street Joural, "The IRS Cracks Down on Alimony," Laura Saunders, May 23, 2014

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