TIGTA Gives IRS Tips on Better Enforcing IRA Contribution Rules

By ASPPA Net Staff • April 10, 2015 • 0 Comments
The Treasury Inspector General for Tax Administration (TIGTA) recently issued a report on the results of its audit of how well the IRS identifies and addresses excess contributions to IRAs. It also made recommendations regarding how the IRS can do a better job.

IRA holders can only make contributions to their IRAs up to a set level each year. But that doesn’t mean that the rules are always followed.

In “Actions Can Be Taken to Further Improve the Strategy for Addressing Excess Contributions to Individual Retirement Arrangements,” TIGTA says that in response to recommendations it made previously, the IRS developed and implemented a broadbased strategy that focuses on educating tax preparers and individuals about IRA rules and notifying individuals when they may have exceeded contribution limits.

But TIGTA says there is more work to be done: It noted that the IRS developed education materials, but that they were for individuals and tax preparers and not IRA custodians. TIGTA identified a significant number of inaccurate IRA information documents IRA custodians submitted.

TIGTA recommended that when the IRS evaluates future efforts related to the IRA strategy, it should:

  • develop education materials for IRA custodians informing them of common mistakes made on information documents and the importance of submitting accurate information documents; and

  • identify a more complete and accurate group of individuals who may have made excess contributions from which the IRS can select cases for examination and enforcement.

IRS officials responded that they plan to continue to inform IRA custodians of issues and errors affecting the administration of IRAs from a taxation perspective. They also agreed to better identify IRA holders who may have exceeded the annual contribution limits.