Alimony is deductible by the person making the payments. The receiving ex-spouse must report alimony as income on his or her tax return.
Unfortunately, in a recent Treasury Department audit of tax returns, 47% of those that claimed to pay alimony did not have a matching tax return from someone that added the payment back as income. This mismatch of alimony payments and claimed income is now one of the areas in the spotlight of the IRS.
To protect yourself, all divorce papers should be kept indefinitely. This includes retaining copies of separate maintenance agreements or other written documents that spell out the basis for alimony and/or child support payments. In addition, double-check the Social Security Number or Tax ID of your ex-spouse for accuracy. Errors in entry will, in all likelihood, begin to see penalties assessed.