I recently acquired a client who had been doing his own taxes since the 1960s. He was divorced in 1982 and had been deducting the monthly payments ($712) he paid to his ex-wife as alimony. When I asked for his Marriage Settlement Agreement(MSA), he indicated that he didn’t have a copy.
His 2011 return was selected for a correspondence audit and he was asked to provide the proof of payment (which was not a problem). He also had to obtain the MSA from the Superior Court.
Upon reading the MSA 2 things became clear – (1) what he was showing as “alimony” was actually payments calculated in the division of his pension benefit. (2) There is no evidence of a QDRO. At least one Court case, M.D. Boudreau v US (95-1 USTC Para 50,115)holds that where is no QDRO that identifies an “alternate payee”, the participant bears the tax liability, even though he is paying part of the pension to his ex-wife.

I do not know that the ex-wife is not reporting the payments to her as taxable (the MSA does not discuss taxability), but I am afraid that she isn’t.

I would appreciate anyone’s experience with a similar situation – especially as to whether this might lengthen the statute of limitations.