Ex’s alimony actions trigger audit

Q. I received a notice from the IRS that I am being audited. Apparently, despite the fact that we modified our agreement in 2020, my ex-husband has continued to deduct his alimony payments on his tax returns and now the IRS wants to know why I haven’t claimed my alimony income. To make it worse, it looks like he started tacking on what he pays for my health insurance premiums and claiming that is alimony as well.

Is there an easy way to fix this? Now that my alimony is half what it used to be, money for legal fees is tight.

A. The first thing you need to do is go back and re-read your modification agreement very carefully. If, as part of the negotiation in your modification agreement, you elected to change the tax status of your alimony from taxable to nontaxable, then your modification agreement would have to specifically say that you are electing non-taxability status for the alimony payments going forward. Otherwise it will continue to be grandfathered as taxable income to you. If you discover the non-taxable election in your modification agreement, simply write back to the IRS enclosing the notice they sent you along with a copy of your modification agreement. I recommend highlighting the applicable language which elects non-taxability. This should trigger the IRS to turn their attention in the direction of your ex.

As for the health insurance premiums, if the agreement does not specify that his payment on account of your health insurance premiums is not to be considered taxable as alimony, there is an argument to be made that he can deduct the premiums on his tax return as alimony to you. Even if your new agreement does not make alimony non-taxable, the fact that he never before deducted his health insurance premiums as alimony suggests it was not intended to be alimony. This might be the hook you need to get back to court to address the taxation issue in a further modification. Show the judge what your after-tax net income is now and ask for an increase in alimony back to a level that meets your needs.