The ERISA consultants at the Columbia Management Retirement Learning Center Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs and qualified retirement plans. A recent call with an advisor in Mississippi is representative of a common inquiry related to SIMPLE IRA plans. The advisor asked:
“Two of my clients have received notice that the IRS intends to audit their savings incentive match plans for employees (SIMPLE) IRA plans. Two questions: How can I help these particular clients through the audit process? What kind of operational guidance can I give my other clients who sponsor SIMPLE IRA plans to help them maintain compliant plans and avoid audits?”
Highlights of Discussion
• First off, an IRS examination or audit of a sponsor’s retirement plan is not the end of the world. Overcoming the fear of the unknown maybe helpful. The IRS has compiled resources to help plan sponsors and their financial advisors understand the process in its online EP Examination Process Guide. This guide covers all plan types, so some references may not be applicable to SIMPLE IRA plans. A section of the guide includes the "Top Ten Tips to Prepare for an Efficient Audit."
• Keep in mind that as taxpayers, plan sponsors have rights throughout the audit process and the IRS’ goal is to work with the sponsors. For example, deadlines for providing plan information to the IRS may be negotiable depending on the circumstances.
• With respect to your other clients who maintain SIMPLE IRA plans, fortunately, the IRS has a slew of compliance assistance information on its web site, starting off with a SIMPLE IRA Plan Checklist. This checklist includes eight key compliance questions and explanatory text that answers the question, “Why ask?” The IRS also provides the SIMPLE IRA Plan Fix-It Guide to help if a potential compliance issue is identified.
Conclusion
According to IRS statistics, small businesses are twice as likely as individuals to be selected for IRS audits in general. If your client is selected for a plan audit, as the British would say, “Keep calm and carry on.” Don’t let an IRS audit be intimidating. Get the facts and understand the process. Also, annual self-audits, using IRS guidelines and information can go a long way in giving plans sponsors peace of mind that their plans are in compliance.
The Columbia Management Retirement Learning Center Resource Desk is staffed by the Retirement Learning Center, LLC, a third-party industry consultant that is not affiliated with Columbia Management. For informational purposes only. Please consult a tax advisor or attorney for specific tax or legal needs. © 2014 Columbia Management Investment Advisers, LLC. Used with permission.
