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Lev
Lev, Tax Advisor
Category: Tax
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Experience:  Taxes, Immigration, Labor Relations
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Im going to try to make this as concise as possible. BACKGROUND

Resolved Question:

I'm going to try to make this as concise as possible.

BACKGROUND INFORMATION

I have been going through the divorce from hell starting in the spring of 2011.

This question is in regards XXXXX XXXXX 2011 tax return. My wife filed for divorce in early spring of 2011 and by the end of the year the divorce had not been finalized or settled. However, a few weeks after the divorce was filed, I had bought a house and established my own household. Over the course of 2011, I paid my wife directly (by checks written directly to her) more than $26,000. So last April, I had been told by both my divorce attorney as well as my CPA that because we did not have an agreement in place or a signed decree, that all that money I paid her was not relevant from a tax standpoint. It is important to note at this point that although there was no decree from the judge or signed agreement in 2011 we were working under the boilerplate Pendente Lite for my state for divorce cases. I did my best to pay her according to that Pendente Lite document and I have documentation stating that whenever I paid her X amount from my paycheck, a certain amount was intended for "expenses" (essentially alimony) and another amount was intended for child support.

So when it came time to file, she did her own thing and filed as a single person and did not claim any of the money I paid her as income and I got screwed royally by her unilateral actions and ended up owing the IRS more than $5000. For the record, she was unemployed for most of 2011 and had very little income of her own.

Well, recently, I was actually reading the IRS publication on divorce and alimony (Pub 504) and was shocked to see the following statement describing a valid divorce instrument for tax purposes.

"A decree or any type of court order requiring a spouse to make payments for the support or maintenance of the other spouse. This includes a temporary decree, an interlocutory (not final) decree, and a decree of alimony pendente lite (while awaiting action on the final decree or agreement)."
PAGE 12

Upon reading that it became obvious to me that I may be able to amend my 2011 return and deduct some of what I paid her in 2011, thereby reducing my taxable income and perhaps not owe the IRS so much money.

FOR THE RECORD
**First, I understand that child support is not deductible but that alimony is.
**Second, I understand that alimony is deductible to me but must be declared as income by the spouse receiving alimony. (So it's a tax deduction for me and taxable income for her).

SO MY QUESTIONS ARE
1) If I file an amended return for 2011 where I deduct some of what I paid her as alimony how does the IRS handle the fact that she did not declare that alimony as income? I want to reiterate that I think the documentation I have is pretty indisputable in terms of what money I intended to be child-support and what money I intended to be for her "expenses" and / or "spousal support". I basically sent her an email every paycheck saying here's what I am doing and broke down the exact amounts and what they were intended for.
2) If I amend my return, I assume she would have to amend hers? What if she refuses to do so?
3) Would my amended (but disputed) return force an audit on hers or both of our returns?
Submitted: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year ago.

LEV :

Hi and welcome to Just Answer!
1) If I file an amended return for 2011 where I deduct some of what I paid her as alimony how does the IRS handle the fact that she did not declare that alimony as income?
When you deduct alimony payments - you must report your spouse's information (Name, Address and SSN). The IRS simply match that information and because she doesn't report alimony on her tax return - you will get a letter asking to provide supporting documents for your deduction - as you correctly referenced in the IRS publication 504. If your supporting documents will be accepted - your wife will be similar letter asking either to pay additional tax liability or provide documents that these are not taxable payments. If your documents will not be accepted - you will be assessed tax liability, penalties and interest.
That is how the IRS would handle that hypothetical situation.
2) If I amend my return, I assume she would have to amend hers? What if she refuses to do so?
As I mentioned above - the first step the IRS would do - validate your deduction. Based on the results - either your deduction will be disallowed or she will be assess additional tax liability.
When the IRS assesses the tax liability - and the taxpayer agree with changes proposed by the IRS - no amended return will be needed - the IRS will do all required changed on the tax account.
3) Would my amended (but disputed) return force an audit on hers or both of our returns?
That is not an audit. The IRS will just validate one deduction - and you will be asked to provide supporting documents. If your documents will be accepted and the IRS will accept your amended tax return - there will be the second step - the IRS will add the amount of alimony to your wife's taxable income and will calculate additional tax liability. In this case your wife will get a letter asking either to pay assessed liability or to provide her arguments. Normally she would be given 60 days to respond - and if not - the IRS will start collection of her assumed tax liability.

Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22618
Experience: Taxes, Immigration, Labor Relations
Lev and other Tax Specialists are ready to help you
Customer: replied 1 year ago.
So obviously the first step is that I file my amended return.

Can I go ahead and provide the supporting documentation at the time I submit my amended return or do I have to wait for them to ask for it?

What kind of supporting documentation will they require? What I have are a copy of the Pendente Lite instrument, Bank Statements, a detailed checking account reconciliation spreadsheet for the whole year I put together for my divorce trial and copies of the the emails when I stated what I was paying her and what it was for.

So after they receive the supporting documentation, they decide whether or not they agree that I am able to deduct some or all of that money? Correct?

If they agree, they then contact my wife and and inform her that an additional tax liability will be added to her return and request that she pay any money owed at that time?



Expert:  Lev replied 1 year ago.

So obviously the first step is that I file my amended return.

The first step I would suggest to verify if you have solid supporting documents.
If your documents might be not accepted by the IRS - you better not to amend your tax return and avoid complication.

Can I go ahead and provide the supporting documentation at the time I submit my amended return or do I have to wait for them to ask for it?
While you are not required - you may attach copies of supporting documents to your tax return - for payments - to be treated as alimony - please see IRS pub 504 - www.irs.gov/pub/irs-pdf/p504.pdf - your supporting documents MUST proof all these requirements.

What kind of supporting documentation will they require?
Alimony Requirements. A payment to or for a spouse under a divorce or separation instrument is alimony if the spouses do not file a joint return with each other and all the following requirements are met.
-- The payment is in cash.
-- The instrument does not designate the payment as not alimony.
-- The spouses are not members of the same household at the time the payments are made. This requirement applies only if the spouses are legally separated under a decree of divorce or separate maintenance.
-- There is no liability to make any payment (in cash or property) after the death of the recipient spouse.
-- The payment is not treated as child support.

So after they receive the supporting documentation, they decide whether or not they agree that I am able to deduct some or all of that money? Correct?

Yes - that is correct.

If they agree, they then contact my wife and inform her that an additional tax liability will be added to her return and request that she pay any money owed at that time?

Yes - that is correct.

 

Customer: replied 1 year ago.
It says the payment is in cash. Would I be correct that by cash they mean not and asset, such as equities or a car? I wrote checks to my wife for payment. That would be acceptable would it not?
Expert:  Lev replied 1 year ago.
That is correct - only payments in cash might be considered as alimony. Payments made with check are considered cash payments.
When assets are transferred (such as equities or a car) - that may not be treated as alimony.
Customer: replied 1 year ago.
LEV - thanks for your help. It's a relief having these questions answered.
Expert:  Lev replied 1 year ago.
You are very welcome!
Appreciate your warm words.
Please be sure to come back if you need any help or clarification.

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