MORE FROM THE INSPECTOR GENERAL - I THINK THIS ONE GOES IN THE CATEGORY OF “DOG BITES MAN”

Another interesting report from the Treasury Inspector General for Tax Administration (TIGTA) was released this week.  According to the Inspector General’s press release, the report “identifies a $2.3 billion gap between the amount of alimony deductions claimed by taxpayers in 2010 and corresponding income reported.”

Here’s the background: a person receiving alimony (spousal maintenance) payments from an ex-spouse is required to report those payments on their tax return as income, while the person making the payments can claim a deduction for the payments.  The person getting the tax benefit (deductions) may tend to over-report the payments, while the person getting the tax detriment (reportable income) is likely to under-report the amounts received.  

Here’s the maddening part, from the highlights of the report: “Apart from examining a small number of tax returns, the IRS general has no processes or procedures to address this substantial compliance gap.”  This means that the IRS has no procedures in place to try to find, and collect the tax payable on, $2.3 billion of taxable income in the form of alimony payments.