Will Alimony Deduction Result in IRS Audit?

Alimony is a payment to or for a spouse or former spouse under a divorce or separation instrument.

Alimony is Taxable or Deductible

Individuals who pay alimony can deduct the amount paid from income on their tax return to reduce the amount of tax they must pay. Conversely, individuals who receive alimony must claim the amount received as income on their tax return.  It should be noted that there are tax attorneys who specialize in divorce issues, such as alimony issues.

IRS Processing Tax Returns With Alimony Deductions

Individuals who pay alimony report the amount paid as a deduction on Line 31a (Alimony Paid) on Form 1040, U.S. Individual Income Tax Return.

These individuals are required to include the Taxpayer Identification Number (TIN) of the recipient on Line 31b of their tax return.

The IRS rejects an e-filed tax return claiming an alimony deduction if the recipient TIN is missing or incomplete.

For paper-filed tax returns with missing or incomplete recipient TINs, the IRS will suspend the processing of the tax return and correspond with the taxpayer to obtain a valid TIN. This review was performed in the Wage and Investment Division Submission Processing function located in Cincinnati, Ohio; the Small Business/Self-Employed Division Examination function located in Washington, D.C.; and the IRS campuses located in Andover, Massachusetts; Austin, Texas; and Ogden, Utah.

IRS Matching Alimony Deductions With Alimony Income

Each year subsequent to the processing of tax returns, the IRS Examination function performs a match of tax returns with alimony deduction claims to associated recipient TIN tax returns. This match is performed to identify tax returns for examination that have a high risk for alimony deduction noncompliance.

For those tax returns selected, the IRS performs an examination to determine if the deduction is valid. If the deduction is validated, then the associated recipient TIN tax return is reviewed to determine if the alimony income was reported correctly. However, the IRS will select for examination only those tax returns in which the alimony deduction claim is above a certain dollar amount.

Further limiting the effectiveness of IRS efforts to address alimony deduction and income discrepancies is that the number of examinations the IRS conducts is based on the allocation of limited examination resources.

Once the IRS performs the match of tax returns with alimony deduction claims to associated recipient TIN tax returns, it applies exclusionary filters to better identify those high-risk tax returns it will consider for examination. These filters are designed to exclude tax returns with certain characteristics that the IRS believes represent a low risk of alimony deduction/income noncompliance. The IRS has developed seven filters to assist it in identifying tax returns with the highest risk of alimony noncompliance.

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