Government Missing Out on Millions from Alimony Tax Errors

Have you lied about alimony on your taxes? If so, you are not alone; scores of Maryland residents and others throughout the nation may be bilking the government out of millions of dollars by failing to report their alimony allowances. Official reports say that the federal government is losing out on a significant amount of money because of this alimony reporting compliance gap. Further, the Internal Revenue Service does not have an effective system for identifying violators.

A recent agency audit showed that nearly half of the 2010 returns that included alimony deductions did not include the correct number. In many cases, an ex-spouse reported paying alimony — which is tax-deductible — even though the person who was supposed to have received the money never reported it. In other cases, alimony payers claimed that they had given thousands of dollars more than they actually had.

As a result, investigators determined that government agencies lost out on $351 million in taxes in 2010 alone because of the incorrect alimony numbers. That estimate could be on the low end, as investigators only had the funds and resources to audit a few alimony-related returns. The IRS has sent some reminder forms to those who were found with tax discrepancies, but it is unclear whether the government has recouped any of that outstanding money. The IRS does not always have the authority to contest an alimony deduction claim.

No matter whether you receive or pay spousal support, it is important to remain on the right side of the IRS when filing your alimony-related tax documents. Taxpayers can face serious penalties for failing to pay their taxes. Although the IRS is still refining its policies, it pays to be honest and transparent when filing taxes.

Source: The Washington Times, “Divorcees cheat IRS out of millions through alimony” Stephen Dinan, May. 15, 2014