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Merlo
Merlo, Accountant
Category: Tax
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Experience:  25+ years tax consulting. Specializing in returns for US citizens living abroad
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Was paying alimony $2100/month in 1978. When ...

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Was paying alimony $2100/month in 1978. When gradually reduced from $1500, in 1985, to $500/month in 1988, I mistakenly continued paying $1500/mo as alimony, and deducted that amount from taxes. I realize my error and am aware that I will owe taxes for the non-alimony payment/deduction, as well as interest. This was an innocent, but not too bright, mistake. Will there also be fines for my errors?
Submitted: 6 years ago.
Category: Tax
Expert:  Merlo replied 6 years ago.

Did you every receive the excess money back from your ex spouse? Are you still making alimony payments to her?

Customer: replied 6 years ago.
Reply to Merlo's Post: I have not received the excess money back, and I do not intend to ask for it back. I am still making alimony payments; total payment $1560/mo, but only $500 is actual alimony according to the divorce settlement, which provides $500/mo for rest of life if she does not remarry.
Another question: assuming a 30% tax bracket, what might be my liability in back taxes and fines?
Expert:  Merlo replied 6 years ago.

Hello againCustomer

From what you have told me it sounds like you have been overstating your deductions by approximately $12,000 per year. If your marginal tax bracket (your top tax bracket) is 35%, then you may be liable for as much as an additional $4200 in taxes for one year. Keep in mind that you will have to do an amended return for each year that was filed incorrectly, so the actual tax may vary from year to year depending on what your top bracket was in that year and what the tax rates were at that time.

In addition to whatever additional tax is owed, the IRS may impose a penalty for late payment which is currently assessed at 0.5% per month on the tax amount due, or a maximum of 25% of the total tax due. There will also be interest compounded daily on the tax that was underpaid. The interest rate used changes quarterly, and is currently at 5%. So as you can see, the amount you may end up owing could be substantial, particularly depending on how many years you need to amend.

In some circumstances, penalties can be waived if the taxpayer can prove that there was reasonable cause for the error. In determining whether or not the IRS will waive penalties, they will generally look at things such as the reason for the error, the taxpayer's previous history of compliance, the length of time it took to report the error and whether or not the circumstances were beyond the taxpayer's control. To apply for a waiver of penalties you would need to submit Form 2210 to the IRS.

If this was helpful please press the Accept button. Positive feedback is also appreciated.

Thank you and good luck in getting this resolved.

Merlo, Accountant
Category: Tax
Satisfied Customers: 9783
Experience: 25+ years tax consulting. Specializing in returns for US citizens living abroad
Merlo and 4 other Tax Specialists are ready to help you

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