In the report titled, “Significant Discrepancies Exist Between Alimony Deductions Claimed by Payers and Income Reported by Recipients,” the IG found that, “in tax year 2010, a total of 567,887 taxpayers claimed alimony deductions totaling more than $10 billion.”
According to the IG, “an alimony income reporting discrepancy occurs when individuals claim deductions for alimony which they did not pay or individuals do not report alimony income they received.”
TIGTA executed the audit to identify any discrepancies and assess the controls IRS has in place to promote reporting compliance. Not only did TIGTA find that there were discrepancies between alimony deductions claimed and income reported, but the IRS did not have developed processes in place to address these reporting gaps.
“TIGTA’s analysis of the 567,887 Tax Year 2010 returns with an alimony deduction claim identified 266,190 (47 percent) tax returns in which it appears that individuals claimed alimony deductions for which income was not reported on a corresponding recipient’s tax return or the amount of alimony income reported did not agree with the amount of the deduction taken,” the report said.
“There is a discrepancy of more than $2.3 billion in deductions claimed without corresponding income reported,” it added.
Of these 266,190 tax returns, 84 percent were filed by the recipient where either alimony income was not reported, the income reported was less than the deduction claimed or alimony income was more than the deduction claimed. A lesser number of the claims, 36,795, or 14 percent were filed with no tax return by the recipient and two percent were for tax returns where the Taxpayer Identification Number (TIN) provided was missing or invalid.
The erroneous alimony deductions and unreported alimony income is expected to result in a revenue loss.
“Based on the results of completed IRS examinations, we estimate that noncompliance with regard to those returns not selected for examination totals more than $351 million in unreported tax resulting from an erroneous deduction or unreported income. Over five years, this could result in more than $1.7 billion in unreported tax,” the report stated.