Alimony received not be reported?

[AZ-Tax]

New clients for 2012 tax year. Upon reading both ex's 2011 tax returns, one spouse claimed an Alimony deduction and the Alimony recieving spouse didnt claim the Alimony as income. I researched TTB and could not locate anywhere where the recepient of the Alimony does not have to claim it.

[DaveinTexas]

Could be one of two scenarios

Either:
1. The spouse claiming the alimony deduction did so in error, the amount he paid was actually child support (See Divorce Decree for some guidance).
2. The spouse not claiming the alimony as income did so in error, in which an amended return should be suggested.

Approach the spouse claiming the deduction first and ask to view the Divorce Decree. Some attorneys are wise to the fact that alimony is tax deductible to the payer, so their attorney might have inserted wording in the decree to support the deduction.

I don't know of any reason alimony would not be reported as taxable income, unless the form of payment was in the form of a QDRO distribution from an 401K/IRA and the distribution was already reported as income.

[New York Enrolled Agent]

New clients for 2012 tax year. Upon reading both ex's 2011 tax returns, one spouse claimed an Alimony deduction and the Alimony recieving spouse didnt claim the Alimony as income.

You are stepping into a huge Conflict of Interest situation. I would suggest you refer one spouse to a different practitioner.

[mactoolsix]

Required bank statements

You are stepping into a huge Conflict of Interest situation. I would suggest you refer one spouse to a different practitioner.

We had a similar thing happen last year with a divorced couple - they don't get along at all, signed a conflict of interest agreement, but will not allow any exchange of information what so ever. We use two different EA's for the interview. The husband claimed more alimony paid to the wife than the wife claimed as income. Hubby provided canceled checks and a log of each payment. In the end we required the wife to furnish her bank statements before we would complete the returns.

It becomes a very dicey situation, and since I was not an interviewer for either, I was chosen to call each to ask for documentation - checks, bank statements, etc. How do you not tell someone what your looking for without telling them?!!@#!!

Mike

[jimmcg]

You are stepping into a huge Conflict of Interest situation. I would suggest you refer one spouse to a different practitioner.

Preferably the one you determine is avoiding taxes after you read the court approved divorce agreement.

[David1980]

We had a similar thing happen last year with a divorced couple - they don't get along at all, signed a conflict of interest agreement, but will not allow any exchange of information what so ever. We use two different EA's for the interview. The husband claimed more alimony paid to the wife than the wife claimed as income. Hubby provided canceled checks and a log of each payment. In the end we required the wife to furnish her bank statements before we would complete the returns.

It becomes a very dicey situation, and since I was not an interviewer for either, I was chosen to call each to ask for documentation - checks, bank statements, etc. How do you not tell someone what your looking for without telling them?!!@#!!

Mike

Other than the fact you knew how much the husband paid, did you have any reason to doubt the amount the wife claimed as income? Would you require all taxpayers receiving alimony to provide checks, bank statements, etc.?

[mactoolsix]

Other than the fact you knew how much the husband paid, did you have any reason to doubt the amount the wife claimed as income? Would you require all taxpayers receiving alimony to provide checks, bank statements, etc.?

Only because the wife's records were very sketchy and disorganized, plus she was being a bit evasive about the issue. If she had gone to an entirely different office for her tax prep, she probably would have filed and there would have been a mismatch at the IRS. In reality we breached the client agreement because we knew what was in the other's file, however I was able to convince her to provide bank statements to verify the alimony received.

Most divorced couples agree to share the information, thus we can get them to work somewhat together, so no we don't normally require checks and bank statements.

Mike

[taxea]

Only because the wife's records were very sketchy and disorganized, plus she was being a bit evasive about the issue. If she had gone to an entirely different office for her tax prep, she probably would have filed and there would have been a mismatch at the IRS. In reality we breached the client agreement because we knew what was in the other's file, however I was able to convince her to provide bank statements to verify the alimony received.

Most divorced couples agree to share the information, thus we can get them to work somewhat together, so no we don't normally require checks and bank statements.

Mike

I wouldn't count on the checks all being deposited. If you have copies of the ex-husband's checks and the memo says alimony for month of then that is your documentation.
Also IRS RULES trump divorce court...I would read the divorce agreement, it is possible that part of the payment is child support or something else and the ex-husband is writing one check for everything.

[ChEAr$]

If both ex spice (plural of spouse) engage you to prepare a tax return, then each one should furnish you a (separate) copy of the agreement incorporated in the final divorce. (just to make sure the two are the same).

Then, and only then, you have the alimony figures specified, and can prepare the returns withOUT there being a conflict of interest.

Just because you prepare returns for ex spice does not mean there is automatically a conflict of interest.

[taxea]

Chears is right. You need to get the divorce papers from both. There is no conflict of interest if you are capable of providing services to each independent of the other. What you know and whether you disclose it is the conflict issue. You would have to service both without disclosing what you know from one "spice" to the other "spice".
And thanks Chears....that makes for a much simpler post.

[mactoolsix]

English lesson

. . . . spice (plural of spouse)

Sorry, but the word spouse is Italic entering English derived from the French - The plural is spouses
spouse came about much later than Old English, thus the French influence.

Early words that come from German descent thru Old English have mutated spellings
Similar Germanic plurals:
mouse - plural is mice
man - men
louse - lice
tooth - teeth

However, recently I've seen spice regularly used as a plural for spouse.

Sorry, but I have no cite for this . . .

[DaveinTexas]

I think spice is used online a few times

Sorry, but the word spouse is Italic entering English derived from the French - The plural is spouses
spouse came about much later than Old English, thus the French influence.

Early words that come from German descent thru Old English have mutated spellings
Similar Germanic plurals:
mouse - plural is mice
man - men
louse - lice
tooth - teeth

However, recently I've seen spice regularly used as a plural for spouse.

Sorry, but I have no cite for this . . .

This is the trouble with Google searches, if you type in part of your your answer when searching you will find websites with yout answer every time; "spice is the plural of spouse". But if you type in a question, "what is the plural for spouse?" You will find right away that spouses is the plural of spouse.

I too am guilty of searching for my answers on Google whilst including part of the answer in the question. You have to be careful with the wording.

Besides, everyone should know that the plural of Moose is Meese (according to urban dictionary

[ChEAr$]

Others have seen it too? Well Darn it!

Here I thought all along I had coined the word.

[Gary2]

Getting back to the subject at hand, while not every case of handling divorced couples presents a conflict of interest, I don't see how anyone can say it isn't in this case after reading the following experience (which isn't the OP's):

We had a similar thing happen last year with a divorced couple - they don't get along at all, signed a conflict of interest agreement, but will not allow any exchange of information what so ever. We use two different EA's for the interview. The husband claimed more alimony paid to the wife than the wife claimed as income. Hubby provided canceled checks and a log of each payment. In the end we required the wife to furnish her bank statements before we would complete the returns.

It becomes a very dicey situation, and since I was not an interviewer for either, I was chosen to call each to ask for documentation - checks, bank statements, etc. How do you not tell someone what your looking for without telling them?!!@#!!

What were you (the two EAs, not you individually) doing comparing notes on the two returns? If you look at the regs at 301.7216-2(c)(2), you'll see that for preparers at the same firm, EA1 working for TP1 can share info with EA2 for the purpose of helping with TP1's return. That means that EA1 can't just give the info to EA2 (working on TP2's return) so that EA2 can make sure TP2's return is correct. And vice versa. There are additional cases where it's ok to share info within a firm, but the bottom line is that you don't have carte blanche to do so. The fact that you were caught in this dicey situation shows why the two EAs should never have compared notes. While you did the best you could, and there may have been no ultimate harm done, the mere fact that you asked for additional backup opens the possibility that the wife could conclude there was a discrepancy between the two returns, particularly if your firm had prepared the returns for both parties in previous years without question and she was aware that her ex used your firm.

In general, it is ok for two different preparers at one firm to work for the two ex's, but you need to be aware that comparing notes isn't appropriate. Depending on your office procedures, if there's a risk of information crossing the Chinese wall between the two preparers, it may be inappropriate at your particular office.

Since the OP is (I'm assuming) a one-person office, there's no way to build that wall. There are worse things that can happen besides mismatches on the alimony (which can always be innocent bookkeeping errors). Suppose one spouse brings in a 1099-INT from a forgotten US Savings Bond that's in joint name, and is properly split 50/50 between them. How do you explain to the other spouse that there's missing income and you can't sign the return, but you also can't explain the missing income? Or even worse, how do you prevent the potentially slanderous gossip that one spouse may provide concerning the other from affecting your relationship with the other?

Just say no. Sometimes you may need to say no to both.

Preferably the one you determine is avoiding taxes after you read the court approved divorce agreement.

I wouldn't count on the checks all being deposited. If you have copies of the ex-husband's checks and the memo says alimony for month of then that is your documentation.
Also IRS RULES trump divorce court...I would read the divorce agreement, it is possible that part of the payment is child support or something else and the ex-husband is writing one check for everything.

These two quotes reveal another conflict of interest problem, built upon the error of relying on the divorce agreement. The divorce agreement only defines what's supposed to happen, not what actually happened. If the spouse paying alimony is a month short, you can't claim the full twelve months just because that's in the divorce decree. But now - as expressed in these notes - you're going to refuse to allow the spouse receiving the alimony to claim only 11 months worth, just because the divorce agreement says otherwise. Or suppose spouse 1 mails the Dec. alimony payment on Dec. 15, but the spouse 2 claims it wasn't received until Jan 10, and has the bank statement showing the deposit to prove it? Whose side do you take? Can you be sure that spouse 2 didn't receive it Dec. 20 and deliberate hold onto it to postpone claiming the income?

So when can you take both spouses without a conflict? I can think of two cases. One is if they agree to sharing information, and preferably if they agree to joint advice. The other is when you know enough to conclude that the two tax returns can't have any adverse implications between them, i.e., no alimony and no possibility of splitting dependency with an 8332 (where "no possibility" is based on the actual facts and circumstances, and not on any provision of the divorce agreement, e.g. more than half the support provided by a grandparent). There might be cases where I'd stretch the 8332 issue, say if the divorce decree is unconditional and both spouses have made it clear that they won't rock the boat on that issue.