Audit finds discrepancies in alimony reporting

Photo by The New York Public Library on Unsplash

An audit performed by the Treasury Inspector General for Tax Administration (TIGTA) has found that the discrepancy for alimony reporting has increased by 38 percent over the past six years. While there was a $2.3 billion alimony tax gap in 2010, that number jumped to $3.2 billion in 2016. Even more troubling, TIGTA also found that the IRS currently has no way to identify the discrepancies in alimony, causing the gap or to adequately address them. 

The alimony in question focuses on payments ordered prior to December 31, 2018. Divorces finalized before this time allow those paying alimony to deduct the expense from their annual tax returns. Likewise, those collecting alimony are expected to report it as income. The audit showed that tax returns that should have reported the alimony as income either did not include it, or reported less than what was actually received. 

“It is important that everyone follows the tax laws after a divorce,” says Jeanette Soltys of Atlanta Divorce Law Group. “Failing to do so could result in much more serious consequences than simply having to pay more taxes.” 

However, problems with discrepancy may involve more than just issues with reporting. When taxpayers claim an alimony deduction, they must provide their tax identification number. Often, these are invalid and the IRS has no way of tracking those illegitimate numbers. 

Some expect these numbers to fall, as alimony discrepancies only pertain to divorces finalized prior to 2019 and over time, alimony agreements change and are terminated. There are still though, many cases involving alimony that can be deducted or reported, and that number is expected to remain stable for quite some time. 

What is even more interesting to some is that the IRS does not seem to be investigating many cases that show discrepancies. In 2010 the agency investigated 13,594 tax returns that showed discrepancies. That number has only fallen since that time. 

Additionally, TIGTA recommended that the IRS increase the number of soft warnings it sends to those with discrepancies. These are simply notices that an error may have occurred on an individual’s tax return. The IRS has not taken this action, either, which could lead to even more discrepancies in the future.