IRS Faces 2023 Audit of Its Own IRA Enforcement Efforts

The IRS uses that information to determine whether your clients owe the 10% additional tax on early qualified plan distributions.

Clients should also file Form 5329 when they add too much to IRAs, education savings accounts or health savings accounts, or when they fail to take required minimum distributions, or RMDs, from IRAs or other qualified retirement plans.

The Planned Audit Scope

One question is whether the planned TIGTA Form 5329 compliance effort audit will focus only on taxpayers who have put too much cash into IRAs or taken withdrawals early.

The auditors could also look at compliance efforts related to Form 5329 filing enforcement requirements for HSA users and for retirement savers who are supposed to be taking required minimum distributions.

The History

TIGTA looked at IRS enforcement of Form 5329 reporting requirements for excess contributions to IRAs in 2015.

TIGTA found that taxpayer compliance with excess contribution reporting rules, and it recommended that the IRS do more to educate taxpayers and IRA providers about the reporting requirements.

That year, TIGTA also found that only five of 80 traditional IRA holders studied followed the RMD rules properly. Taxpayer errors led to 42 RMD rule violations, and IRA trustee failures led to 33 violations.

In 2020, TIGTA published a heavily redacted report that identified a high rate of problems in IRS enforcement of early retirement distribution tax requirements. The agency estimated that the IRS could have collected about $5.8 million in additional taxes from 5,450 taxpayers who did file Form 5329 but claimed exceptions from the early withdrawal tax that appeared to be wrong.

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