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Tax filing discrepencies, alimony and high asset divorce

The Internal Revenue Service has inadvertently authorized billions of dollars of improper alimony deductions claimed by divorced individuals. These incorrect deductions were recently identified in an audit that compared the tax filings of ex-spouses. The audit that identified the discrepancies was completed by TIGTA (a/k/a the Treasury Inspector General for Tax Administration). While it is not completely uncommon to make a filing mistake with the IRS, Illinois residents who have recently gone through a high asset divorce that involves alimony may wish to pay close attention to these issues when filing their returns.

Allegedly, the audit discovered that in 2010, 567,887 individuals claimed deductions of $10 billion relating to alimony payments. The discrepancies total up to $2.3 billion in lost tax money for the government. The incorrect filings could be the result of taxpayers who are not completely familiar with tax laws and other regulations.

With regard to alimony payments, taxpayers are permitted to deduct moneys they pay to ex-spouses. Meanwhile, ex-spouses are required to pay income tax on that money received. Allegedly, almost half of the individuals who claimed alimony on their tax returns did so improperly in 2010. According to the IRS, officials will be targeting this large-scale compliance gap regarding alimony in the coming years. The study also showed that the IRS has not been acting to check if those claiming IRS deductions are also including the Social Security number of their ex-spouses as they are required to do. Penalties for failing to include an ex-spouse's Social Security number can be as high as $50.00.

In order to avoid penalties and fees from the IRS in a high asset divorce, Illinois residents may wish to seek professional help. A simple review of income and child support and alimony payments either paid or received is usually sufficient to determine if a filing has been properly prepared.

Source: Free Beacon, "IRS Approved $2.3 Billion in Fraudulent Alimony Deductions" Elizabeth Harrington, May. 22, 2014

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