Divorce and Taxes
There are many federal income tax issues associated with a divorce case. A few are addressed here. Alimony received is taxable income to the recipient and a tax deduction for the payer. Transfers of property in a divorce are not taxable events.
If an ex-spouse is audited by the IRS, he or she may be entitled to innocent spouse relief, if they were not involved in his or her spouse’s business in a material way. Even if an ex-spouse does not qualify under the criteria of innocent spouse relief, he or she still may be eligible to avoid paying taxes on the ex-spouse’s business interests if he or she was a victim of domestic violence, or he or she experiences economic hardship.
I worked for the IRS for over ten years as a Revenue Officer, on the job instructor, classroom instructor, congressional liaison, and as an Assistant District Counsel. I am quite familiar with IRS procedure and policy. I reviewed offers in compromise, managed collection accounts, investigated complaints made by congressional constituents against IRS, and represented IRS in the US Tax Court after a party had been audited.