Pension & Benefits News GAO recommends DOL and IRS collaborate on oversight of prohibited IRA transaction exemptions
Friday, August 30, 2019

GAO recommends DOL and IRS collaborate on oversight of prohibited IRA transaction exemptions

By Pension and Benefits Editorial Staff

The Government Accountability Office (GAO) has issued a report that recommends that the IRS and Department of Labor establish a formal means—such as a memorandum of understanding or other mechanism—to collaborate on oversight of prohibited individual retirement account (IRA) transaction exemptions. The GAO also recommended that the DOL begin to document policies and procedures for managing the exemption process.

The GAO noted that IRA owners are able to invest in a wide variety of assets, but they are prohibited from engaging in certain transactions involving IRA assets. IRA owners who engage in prohibited transactions may incur increased income tax liability, additional taxes, and the loss of the tax-advantaged status of their accounts. The DOL can grant exemptions from the prohibited transaction rules, and the IRS enforces tax laws relating to IRAs and can assess additional taxes.

The GAO was asked to examine: (1) DOL’s process for granting exemptions for prohibited IRA transactions and outcomes of that process; and (2) the extent to which the DOL and IRS collaborate on oversight of prohibited transaction rules for IRAs. The GAO reviewed relevant federal laws and regulations; examined agency guidance, exemption process documentation, and application case files; assessed interagency coordination using internal control standards and prior work on interagency collaboration; and interviewed DOL and IRS officials.

Findings. The GAO noted that although DOL and IRS share some information as part of their oversight responsibility for prohibited IRA transactions, no formal mechanism exists to help guide collaboration between the agencies. In prior work on interagency collaboration, the GAO has found that formal agreements, such as a memorandum of understanding, can help agencies monitor, evaluate, and update interagency collaboration. Formalizing the sharing of information between the DOL and IRS regarding IRA prohibited transaction exemptions could help the agencies better support their current coordination efforts and identify additional opportunities for greater collaboration.

With regard to the DOL’s application review process, the GAO found that the DOL has not sufficiently documented internal policies and procedures to help ensure effective internal control of its process. Documenting procedures could increase transparency about how applications are handled, reduce the risk of DOL employees carrying out their duties inconsistently, and provide a means to retain organizational knowledge should key personnel leave unexpectedly.


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