Should ex-spouses communicate on alimony tax issues post- divorce

Once a marriage has ended, many spouses in New York hope to have far fewer reasons to communicate with their former partner. In fact, those without children may envision a future in which no communication is necessary. When it comes to tax matters related to alimony payments, however, it may be a good idea to remain in touch after a divorce, especially in the weeks prior to filing both tax returns.

This is due to the fact that many formerly married couples will remain linked within their tax documents. Spouses who pay alimony can claim those payments as a tax deduction, but are required to provide the IRS with a Tax Identification Number (TIN) for the party who receives those payments. This link gives the IRS the ability to track whether the amount claimed by the paying spouse matches that claimed as income by the recipient. When those two numbers do not match, the result could be the unwelcome attention of an IRS agent.

The Treasury Inspector General for Tax Administration (TIGTA) recently completed an audit of tax returns for the year 2010. The result was the discovery that the IRS has not caught a great many returns that appear to contain discrepancies, errors or acts of fraud. The basis of these questionable returns are instances in which the alimony deduction amount does not match the amount claimed as income by the recipient. It is estimated that the IRS could lose approximately $1.7 billion in revenue over a period of five years, in addition to $1.6 million in lost penalties.

For those in New York who are paying or receiving alimony, it may be a good idea to try to reach out to one’s former spouse as tax time approaches. While sharing the full details of one’s return is not necessary, former spouses should check that the alimony being claimed as a deduction matches the amount claimed as income. Doing so could save a great deal of time, money and stress if and when one’s return is chosen for an audit by the IRS.

Source: The Washington Free Beacon, “IRS Approved $2.3 Billion in Fraudulent Alimony Deductions“, Elizabeth Harrington, May 22, 2014