Don’t Let IRA Reporting Blunders Keep You Up at Night
No one likes to make mistakes. And let’s face it, it can be embarrassing when tax reporting errors are brought to your attention by a client, or even worse, by an IRS agent. Reporting errors happen, though. We know your IRA team is doing its best right now in auditing your year-end reporting data, hoping to catch and correct errors before tax documents are printed and mailed.
Some reporting errors are complex. The rules may have changed. It can be challenging to keep up with new regulations, new IRS forms, and the status of proposed regulations that haven’t yet been finalized. Your staff also may not be aware of new rules, and your financial organization’s core processing system may not be programmed correctly or updated yet for these reporting changes, resulting in errors.
Unfortunately, the IRS does not consider your staff’s lack of training, or your core system programming issues as valid reasons for an IRA program that is out of compliance. Your financial organization is ultimately responsible for any IRS penalties that may result if an audit finds certain reporting errors.
At Ascensus, we’ve heard the horror stories. We assist many financial organizations in reducing the amount of tax season compliance errors that are discovered after they submit their information to us. In fact, during last year’s (2022) tax reporting, we identified and helped mitigate over 82,000 errors/warnings. And if you consider that one error is reported to both the IRA owner and to the IRS, then that is more than 160,000 in potential reporting form errors. At a cost of a $50 IRS penalty per reporting failure, that is more than $8 million in potential tax form error penalties, not to mention the hassle involved for IRA owners who may have to amend their taxes.
If you’ve had to deal with filing corrections for multiple years, then you know the hassles involved. Does your correction require one or two forms? How do you find a prior-year form in order to properly file a corrected form that the IRS won’t reject? Your core system provider may not help with corrections; some do, some don’t.
The key to our accuracy and our success is two-fold. We have experts who keep us updated on new regulations and tax reporting changes. As a result, we’ve built the technology to match our expertise in the field in order to find and mitigate tax reporting errors before they become problems for you or your clients. Our top priority is to ensure that our clients remain IRS compliant.
Rest Easy, We’ve Got You Covered During the Stressful Tax Reporting Season
Ascensus’s Fully-Administered Program takes the uncertainty and stress out of tax reporting for IRAs, HSAs, and Coverdell ESAs. Our clients use one of two methods to send us their information. Under the first method, your team can directly submit individual transactions into our secure online processing system, called IRAdirect®. Our built-in forms wizard will stop you immediately from entering incorrect information and will guide you on the right path to accurate transactions and reporting. So you can feel confident that you filled out the form correctly. Under the second method, your organization can send us a file with the total annual transactions.
With both methods, our compliance logic will root out errors in your data, saving you time and money. Some of these errors likely won’t be caught by your core system. For example, if an IRA owner dies and a distribution is reported in the year of death, this transaction will be flagged by our compliance logic. We need more information. If the distribution was taken before death, then the reporting should be correct. If the distribution was taken after the IRA owner died, then this is likely a distribution that was inaccurately reported in the name of the decedent instead of the beneficiary. Incorrect distribution codes—especially distribution codes for Roth IRAs—and incorrect withdrawal reporting for a deceased IRA owner’s account in the year of death are two common tax reporting mistakes that we can successfully catch before the tax forms are printed and mailed. We can also generate and mail tax forms to your account owners, the IRS, and any applicable state agencies.
To learn more about how Ascensus’s Fully-Administered Program can help take the stress out of tax reporting responsibilities for your financial organization, email us at salessupport@ascensus.com
