TIGTA recommends IRS enhance controls to prevent improper SEP deductions

In a report, the Treasury Inspector General for Tax Administration (TIGTA) has recommended that the IRS enhance controls to detect and prevent improper Simplified Employee Plans (SEP) deductions by self-employed taxpayers.

Self-employed taxpayers may deduct contributions that are made to their own SEP or other qualified retirement plan account on line 28 of their individual tax return. TIGTA reviewed a sample of individual taxpayers to verify that the taxpayers who contributed to their own SEPs and claimed deductions had reported net earnings from self-employment income. TIGTA’s audit identified millions of dollars in potentially improper or fraudulent claims.

TIGTA recommended that the IRS enhance controls to prevent improper claims on line 28 and assess the need for additional third-party data to verify line 28 deductions. The IRS agreed that certain actions should be taken to improve existing processes; however, TIGTA did not believe that the IRS’s corrective actions were sufficient.

Source: TIGTA, “Millions of Dollars in Potentially Improper Self-Employed Retirement Plan Deductions Are Allowed,” March 20, 2014, Reference Number: 2014-10-008.