Alimony is a legal device that can help balance the finances of divorcing spouses here in Georgia, particularly when there is a large discrepancy in their earning levels. However, as we covered in a recent post, when alimony is ordered, each spouse must follow all rules concerning the reporting of these payments.
Now that tax day has come and gone for this year, news has surfaced of a recent audit finding by the IRS claims that thousands of divorced people are falsely reporting their alimony payments on their taxes, resulting in the loss of hundreds of millions of dollars by the government. Although alimony is deductible for the paying spouse, it must still be reported as income by the receiving spouse. In most of the cases, the paying spouse took a deduction, but it would not be reported by the receiving spouse or was reported incorrectly. Numbers from 2010 indicate that just under 50 percent of returns claiming deductions related to alimony were incorrect.
Other discrepancies include a paying spouse claiming to have paid more than they actually did - on average, $5,000 per claim - or failing to indicate who the payments were made to. In more questionable cases, filers simply provided false tax information regarding the recipient spouse. In all, investigators estimated that the government lost over $350 million in 2010 because of erroneous alimony deduction reporting. The IRS does have the power to assess penalties for failing to provide or incorrectly listing tax information.
For this reason, it is important for those going through divorce and dealing with issues of alimony to fully understand the obligations associated with the payments. Avoiding errors when filing taxes - whether acting as the payer or recipient - is only one of the important considerations, and seeking competent counsel may help avoid any unanticipated problems or unwanted outcomes.
Source: The Washington Times, "Divorcees cheat IRS out of millions through alimony," Stephen Dinan, May 15, 2014