Treasury Inspector General for Tax Administration
July 15, 2015
TIGTA - 2015-21
Contact: David Barnes
WASHINGTON – Further efforts by the Internal Revenue Service (IRS) are needed to educate and notify taxpayers about provisions of the tax code requiring them to begin taking minimum distributions from their Individual Retirement Arrangements (IRA) when they reach a certain age, according to a new report released publicly today by the Treasury Inspector General for Tax Administration (TIGTA).
Taxpayers are required to begin withdrawing a minimum amount from certain types of IRAs when they reach age 70˝. When taxpayers do not make these withdrawals, it results in a loss of tax revenue. In previous audits, TIGTA has recommended that the IRS develop a strategy to address retirement provision noncompliance. In addition, there is congressional interest in educating taxpayers with respect to IRA provisions and not unreasonably penalizing them for innocent mistakes.
The overall objective of this audit was to determine whether IRS processes provide reasonable assurance that taxpayers are complying with provisions for taking required minimum distributions from their IRAs.
In its review, TIGTA found that, in response to prior TIGTA recommendations, the IRS has developed a broad-based strategy that focuses on educating taxpayers and individuals about IRA rules and notifying potentially noncompliant taxpayers of the minimum distribution requirement, a significant improvement from TIGTA’s prior reporting. However, the IRS could also take steps to improve its strategy, TIGTA found.
TIGTA recommended that, going forward, the IRS should consider: 1) directly communicating with taxpayers required to take a distribution and informing them about the distribution rules, using easily understood language; and 2) if the notice program is expanded, modifying the methodology for the required minimum distribution notices to identify additional noncompliant individuals.
In their response to the report, IRS officials partially agreed with the first recommendation and agreed with the second recommendation. The IRS stated that it recently added small business IRAs to its sample notice population. However, due to budget limitations, the IRS is not expanding its use of notices. In addition, the IRS agreed that direct communication with taxpayers reaching the age of 70˝ would be helpful, but it is not implementing this program due to budget constraints.
The IRS did not agree to inform estates of distribution rules associated with IRA inheritances. TIGTA continues to believe it would be beneficial to inform estates of inherited distribution requirements.
"Taxpayers who do not begin taking minimum distributions from their Individual Retirement Arrangements when they reach age 70˝ may simply be unaware of their statutory obligation to do so," said J. Russell George, the Treasury Inspector General for Tax Administration. "By clearly communicating with taxpayers required to take a distribution and informing them about the distribution rules, the IRS can raise taxpayer awareness, help them avoid the significant penalties associated with noncompliance, and prevent a loss of revenue to the Government," he added.
Read the report.
Note: The difference between the date TIGTA issues an audit report to the Internal Revenue Service and the date TIGTA publicly releases the report is due to TIGTA's internal review process to ensure that public release is in compliance with Federal confidentiality laws.
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