IRS Needs To Curb Excessive Deductions for Self-Employment Retirement Plans
GGD-82-85
Published: Aug 26, 1982. Publicly Released: Aug 26, 1982.
Skip to Highlights
Highlights
GAO reported on the deductions which self-employed individuals have been allowed, since 1962, to contribute to retirement plans authorized by Congress, known as "Keogh plans." Because the legal requirements associated with these plans are complex, there is considerable potential for error in computing allowable deductions.
Recommendations
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Internal Revenue Service | The Commissioner of Internal Revenue, to help alleviate the problem of excessive Keogh deductions, should provide taxpayers with some basic guidance on Keogh deductions in the Form 1040 instructions and Publications 17 and 334. At a minimum, the guidance should specify that taxpayers should be self-employed to be eligible for such deductions. It should also specify that different rules govern defined benefit and defined contribution plans. Further, the guidance should specify, with respect to defined contribution plans, that an individual must have net profits from self-employment to be eligible for a deduction and that the deduction cannot exceed certain percentage and dollar limits. Also, the Commissioner may want to consider developing a worksheet for use by taxpayers in computing Keogh deductions. The worksheet could be included in Publications 17, 334, and/or 560. |
Closed – Implemented
When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
|
| Internal Revenue Service | The Commissioner of Internal Revenue, to help alleviate the problem of excessive Keogh deductions, should develop and implement a service center error correction program for excessive Keogh deductions. In so doing, the Commissioner may wish to revise the Form 1040 to require taxpayers to specify whether they contribute to defined contribution or defined benefit plans. |
Closed – Implemented
The IRS Counsel has determined that the error correction program cannot be used to disallow excessive KEOGH deductions. IRS has established alternative procedures for testing and recovering excessive deductions and verifying contributions claimed, which should accomplish the intent of the recommendation.
|
Full Report
Office of Public Affairs
Topics
Program managementRetirement benefitsStandards evaluationTax lawTax nonpaymentUnderpaymentsVoluntary complianceTax deductionsTaxpayersPublications