IRS to ask for more info about divorce and separation on 1040

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The Internal Revenue Service plans to add a question to Schedule 1 of the Form 1040 next year asking taxpayers who claim a deduction for paying alimony to provide the date of their divorce or separation agreement, according to a new report.

The report, from the Treasury Inspector General for Tax Administration, is mainly devoted to assessing the IRS’s overall implementation of the Tax Cuts and Jobs Act. It includes a single recommendation, suggesting the IRS revise Schedule 1 of the 1040 to obtain additional information regarding divorce or separation agreements for tax year 2019 and later.

The IRS added Schedule 1 to the 1040, along with five other new schedules this tax season, in an effort to reduce the main Form 1040 to the size of a postcard.

IRS management agreed with TIGTA’s recommendation and plans to program and use filters to select tax returns for audit to determine if taxpayers are eligible for the deduction for alimony payments, and to revise Form 1040, Schedule 1 to request the date of divorce or separation agreements.

The 2017 tax overhaul eliminated or sharply limited various traditional tax deductions, including the alimony deduction. Only taxpayers who make payments under divorce or separation agreements entered into prior to Jan. 1, 2019, can continue to claim a deduction for payments made, and individuals who receive alimony pursuant to these agreements are supposed to continue to report the payments as income on their tax return.

“The IRS currently only requires the individual claiming an alimony deduction to provide the Taxpayer Identification Number of the individual who received the alimony,” said the report. “Without the date of the alimony agreement, the IRS will be unable to determine whether individuals claiming an alimony deduction are eligible to do so. When we brought this concern to IRS management’s attention, management stated that the IRS’s current plan for determining if the taxpayer is eligible for the alimony deduction claimed after Dec. 31, 2018, is to program filters that evaluate a taxpayer’s filing history with regard to the alimony deduction to determine if alimony was paid prior to TY 2019. IRS management stated that they would use the filters to select tax returns for audit. The volume of tax returns selected will be dependent on available resources and appropriate dollar thresholds.”

“We agree with the recommendation to capture the date of divorce agreements associated with alimony payment deductions and to implement controls to prevent improper deductions,” wrote Kenneth Corbin, commissioner of the IRS’s Wage and Investment Division, in response to the report. “This issue will first be applicable to tax year 2019 returns and we anticipate controls will be in place when these returns are filed in 2020.”

Besides the information about the alimony deduction, the report includes many details about the IRS’s implementation of the Tax Cuts and Jobs Act. It pointed out that the IRS faced numerous challenges implementing the 119 tax provisions of the tax overhaul. For example, the IRS needed to create 48 new tax products, revise 494 existing tax products, and perform computer programming changes affecting 128 information technology systems, including addressing changes in the location of data fields in its fraud detection systems. On top of that, the IRS had to update 202 tax products, including producing three new tax forms and related instructions. As of Nov. 26, 2018, the IRS had updated and issued in draft 158 of 169 tax products it planned to release to the public.

The redesigned Form 1040 brought its own set of challenges.

“In addition, the decision on May 24, 2018, to redesign the Form 1040, U.S. Individual Income Tax Return, significantly increased the scope of work for the IRS,” said the report. “For example, the redesigned Form 1040 affected 113 tax forms, 66 instructions, and 64 publications. The IRS also had to create or modify its tax return processing controls for the redesigned Form 1040. In addition, although the IRS missed some key milestone dates for the redesigned Form 1040, it released the Form 1040 as final on Dec. 12, 2018, ahead of the January 2019 target date.”

The IRS needed to develop an overall communication outreach strategy to tell taxpayers and tax professionals about the many tax law changes related to 81 of the 119 tax provisions of the Tax Cuts and Jobs Act. The IRS also developed a hiring and training plan to support its customer service initiatives. As of Dec. 1, 2018, the IRS onboarded 2,669 (88 percent) of 3,021 planned new hires and plans to spend about 2 million hours on training customer service employees.

Corbin compared the impact of the Tax Cuts and Jobs Act of 2017 to the earlier Tax Reform Act of 1986. “In contrast, the TCJA contained some provisions that were retroactive immediately or upon the date of enactment and had a potential impact on fiscal year returns that would begin to be filed within a matter of months,” he wrote. “Therefore IRS started implementation activities immediately after the TCJA was signed into law.”

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Tax returns Tax deductions Tax reform IRS TIGTA