In keeping with TIGTA, the upkeep tax hole will rise to $ 3.2 billion

The discrepancies between the amount of maintenance deducted by payers and the amount reported as income by recipients rose 38% in six years to $ 3.2 billion for the 2016 tax year, the Inspector General of Tax Administration (TIGTA) reported Tuesday (TIGTA Rep ‘t) No. 2019-40-048 (8/719)).

TIGTA conducted the audit to follow up on its 2014 maintenance tax gap report (TIGTA Rep’t # 2014-40-022 (3/31/14); see previous reporting) which found a $ 2.3 billion maintenance tax gap was for the 2010 tax year. Despite the earlier findings and recommendations, most of which were accepted by the IRS more than five years ago, TIGTA found in its most recent report that the IRS still lacked enough system-wide processes to identify and maintain alimony differences and “not yet adequately addressing the significant compliance gap” they represent.

For alimony payable under separation agreements or divorce judgments carried out on or before December 31, 2018, the payer can deduct the alimony and is included in the recipient’s income. For agreements and decrees that are retrospectively carried out under the Tax Reductions and Employment Act (TCJA), PL 115-97, maintenance is neither deductible nor income-related, with the exception of maintenance that is based on previous agreements or as amended by law after December 31 Decree was paid, 2018, specifically in compliance with the TCJA repeal.

For the 2016 tax year, TIGTA analyzed 569,978 returns claiming alimony allowances of nearly $ 13 billion. The amount of alimony reported as income from 284,053 returns resulted in the discrepancy of $ 3.2 billion. Some returns that should have reported revenue did not report or report less than the appropriate deduction or were not submitted at all. Of the earnings reported for alimony payments, 175,820 reflected a difference between the income amount and the related deduction, for a total net discrepancy of $ 1.6 billion. The unreported income resulted in an apparently undervalued tax liability totaling more than $ 248 million for the tax year.

Taxpayers applying for a maintenance allowance must provide the recipient’s tax identification number (TIN). For 54,560 of the deduction returns, which reflect $ 1.5 billion in deductions, TIGTA did not find a tax return filed for the corresponding TIN (some may not have been required to file a return).

The recipient’s TIN was invalid for another 2,168 prints. TIGTA noted that the IRS lacks a consistent process for validating these TINs and flagging returns with invalid TINs for additional verification. Even though Sec. 6723 will impose a US $ 50 fine if a valid TIN is not provided. TIGTA noted that this penalty was rarely imposed, and when it did, it was valued at $ 5 instead of the legal amount due to incorrect programming.

Despite the increase in discrepancies and the IRS ‘earlier agreements in response to TIGTA’s findings, the service has only investigated a small and dwindling number of these returns, TIGTA explained. In FY 2010, the IRS selected 13,594 returns with alimony deductions for audit, down to 7,492 in FY 2016, which was approximately 5.1% and 3.2%, respectively, of the returns on maintenance income where TIGTA found a mismatch with an income equivalent noted deduction.

In response to this latest finding, IRS management indicated that the number of taxpayers reporting alimony could decrease due to the repeal of the TCJA. TIGTA countered that while the number of taxpayers reporting maintenance payments is unlikely to increase, the number of taxpayers who continue to report this under agreements and decrees before 2019 will remain significant for the foreseeable future.

TIGTA also noted that while the IRS recommended in its previous audit that the use of “soft” notices to taxpayers with alimony disparities be increased, it did not do so; TIGTA disagreed on several reasons given by IRS managers as to why soft communications (which are issued to taxpayers for informational purposes to let them know that they may have a bug on their return) are not feasible.

In response to this review, the IRS agreed to monitor and revise its filters for selecting which returns to review, improve TIN monitoring and processing of returns with invalid TINs, and properly reduce penalties for failing to present a valid TIN to rate.

– Paul Bonner ( is a senior editor at JofA.

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