An investigative arm of the federal government released a report on Thursday that says billions of dollars in alimony payments are either being improperly claimed by taxpayers, or are not fully being reported by alimony recipients.
The report from the Treasury Inspector General for Tax Administration, said that in 2010, 567,887 taxpayers claimed alimony deductions on their tax returns. Under current law, alimony payments can be deducted from taxable income, and recipients of alimony must report it as income.
The government has figured out that hundreds of thousands of people are cheating on their taxes through improper reporting of alimony payments. (AP Photo/Susan Walsh, File)
But the report said there were 266,190 alimony deductions for which there was either no corresponding claim of income by an alimony recipient, or the recipient claimed a different amount. It added that $10 billion in alimony payments were claimed, but $2.3 billion was unaccounted for in the tax forms of alleged alimony recipients.
TIGTA's report is called, "Significant Discrepancies Exist Between Alimony Deductions Claimed by Payers and Income Reported by Recipients."
In it, the inspector general recommended that the IRS take a closer look at tax returns with a higher risk of alimony fraud, and suggested that the IRS require all tax returns to include a valid recipient taxpayer ID number when claiming an alimony deduction.
"Apart from examining a small number of tax reruns, the IRS generally has no processes or procedures to address this substantial compliance gap," the report said, adding that the IRS has agreed to start taking steps to fix the problem. "The IRS stated that it enhanced its examination filters and will continue to review and improve its strategy to reduce the compliance gap."