September 7, 2019 - Douglas Myser

Alimony gap swells to new high. Discrepancies between the amount of alimony deducted by taxpayers and reported by its recipients increased by 38% in six years, to $3.2 billion for tax year 2016, the Treasury Inspector General for Tax Administration (TIGTA) reported. TIGTA performed the audit to follow up its 2014 report on the alimony tax gap (TIGTA Rept No. 2014-40-022), in which it found a $2.3 billion alimony tax gap for tax year 2010. Despite the earlier findings and recommendations, most of which the IRS accepted more than five years ago. TIGTA stated in its latest report that the IRS still lacked sufficient system wide processes to identify and address alimony discrepancies and "has yet to adequately address the substantial compliance gap" they represent. Alimony gap swells to new high.

For alimony payable under separation agreements or divorce decrees executed on or before Dec. 31, 2018, alimony is deductible by the payer and includible in income of the recipient. For agreements and decrees executed subsequently under the law known as the Tax Cuts and Jobs Act, alimony is neither deductible nor includible in income, except alimony paid under earlier agreements or decrees legally modified after Dec. 31, 2018, specifically to comply with TCJA repeal.

For tax year 2018, TIGTA analyzed 599,978 returns claiming alimony deductions totaling nearly $13 billion. The total amount of alimony reported as income on 284,083 returns yielded the $3.2 billion discrepancy. Some returns that should have reported income reported none or less than the corresponding deduction, or were not filed at all. Of the returns that did report alimony income, 175,820 reflected a difference between the income amount and the associated deduction, for a net total discrepancy of $1.6 billion. The unreported income resulted in an apparent understatement of tax liability totaling more than $248 million for the tax year. Taxpayers claiming an alimony deduction are required to provide the tax identification number of the recipient and for 54,500 of the deduction returns, reflecting $1.5 billion in deductions, TIGTA found no return filed for the corresponding Tax number.

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