IRS to Crack Down On Alimony Deduction

The Treasury Inspector General for Tax Administration (“TIGTA”) recently issued a report titled “Tax Cuts and Jobs Act: Assessment of Implementation Efforts”.  The report recommended the IRS revise Form 1040, Schedule 1, to obtain additional information regarding divorce or separation agreements for the Tax Year 2019 and later.  IRS management agreed with this recommendation and plans to take appropriate corrective actions to review Form 1040, Schedule 1.

As anyone who works in the divorce community is aware, the Tax Cuts and Jobs Act repealed the deduction for alimony payments made pursuant to divorce or separation agreements entered into after December 31, 2018.  This created a vast influx of divorce cases running into the Courthouse to settle and sign agreements by December 31, 2018.

Currently, the IRS only requires the individual claiming an alimony deduction to provide the Taxpayer Identification Number of the individual who received the alimony payment.  Without the date of the alimony agreement, the IRS will be unable to determine whether individuals claiming an alimony deduction are eligible to do so.

The IRS stated their current plan for determining if the taxpayer is eligible for the alimony deduction claimed after December 31, 2018, is to program filters that evaluate a taxpayer’s filing history with regard to the alimony deductions prior to tax year 2019.  The volume of tax returns selected will depend on available resources and appropriate dollar thresholds.  The appropriate dollar thresholds were not disclosed.

Taxpayers who signed a divorce or separation agreement by December 31, 2018, began paying alimony in 2019 but made no alimony payments in 2018 may receive notices from the IRS requesting further information related to the divorce or separation agreement effectuated.

The Valuation, Forensic, Litigation team at Sax LLP are available to help support you and your clients with all financial matters related to the divorce process.

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