For example, "founders of companies who use IRAs to invest in nonpublicly traded shares of their newly formed companies can realize many millions of dollars in tax-favored gains on their investment if the company is successful," the GAO explained. "With no total limit on IRA accumulations, the government forgoes millions in tax revenue. The accumulation of these large IRA balances by a small number of investors stands in contrast to Congress's aim to prevent the tax-favored accumulation of balances exceeding what is needed for retirement."

Wyden says the state of retirement savings in the U.S. "is completely out of whack. On one hand you've got people sheltering millions of dollars in mega IRAs, while at the same time nearly a third of Americans have nothing set aside for retirement. It's abundantly clear that America needs a better system and tax code that supports retirement planning for all Americans."

Besides "mega IRAs," Wyden told the GAO to review self-directed IRAs, which he said "may be a growing target for fraud."

Wyden said that he's "committed to working with Treasury and the IRS" to implement GAO's recommendations and help prevent additional abuse and fraud in the tax code.

The GAO report notes that the IRS plans to collect data identifying nonpublicly traded assets comprising IRA investments, so that it can identify potential IRA noncompliance.

However, GAO said, "research on those taxpayers and IRA assets at risk will hinge on getting resources to effectively compile and analyze the additional data. IRS officials said IRA valuation cases are audit-intensive and difficult to litigate because of the subjective nature of valuation."

Also, "the three-year statute of limitations for assessing taxes owed can pose an obstacle for IRS pursuing noncompliant activity that spans years of IRA investment," GAO said.

In 2014, the GAO said the federal government will forgo an estimated $17.45 billion in tax revenue from IRAs, which Congress created to ensure equitable tax treatment for those not covered by employer-sponsored retirement plans.

"Congress limited annual contributions to IRAs to prevent the tax-favored accumulation of unduly large balances," GAO said. "But concerns have been raised about whether the tax incentives encourage new or additional saving."

Congress is re-examining retirement tax incentives as part of tax reform.

To improve IRS's ability to detect and pursue noncompliance associated with undervalued assets sheltered in IRAs and prohibited transactions, GAO recommended that the IRS commissioner:

• Approve plans to fully compile and digitize the new data from electronic and paper-filed Form 5498s to ensure the efficient use of the information on nonpublicly traded IRA assets.

• Conduct research using the new Form 5498 data to identify IRAs holding nonpublic asset types, such as profits interests in private equity firms and hedge funds, and use that information for an IRS-wide strategy to target enforcement efforts.

• Work in consultation with the Department of the Treasury on a legislative proposal to expand the statute of limitations on IRA noncompliance to help IRS pursue valuation-related misreporting and prohibited transactions that may have originated outside the current statute's three-year window.

• Building on research data on IRAs holding nonpublic assets, identify options to provide outreach targeting taxpayers with nonpublic IRA assets and their custodians, such as reminder notices that engaging in prohibited transactions can result in loss of the IRA's tax-favored status.

• Add an explicit caution in Publication 590 Individual Retirement Arrangements (IRAs) for taxpayers about the potential risk of committing a prohibited transaction when investing in nonpublicly traded assets or directly controlling IRA assets.