IRS Audits Heavily Target Corporations Over Partnerships

The Government Accountability Office recently released a study on the subject of “Large Partnerships: Characteristics of Population and IRS Audits”.  This study tracked IRS activity related to such “large partnerships”, which the IRS defined as those that reported having 100 or more direct partners and $100 million or more in assets.

The number of large partnerships has grown significantly in recent years, from 720 to 2,226 between tax years 2002 and 2011. However the IRS completed only 31 field audits and 143 campus audits on such partnerships in fiscal year 2013. While field audits generally include a review of the books and records associated with the large partnership return, campus function audits are usually opened to pass through large partnership return audit adjustments to the related partners’ returns.  52 percent of campus function audits and 45 percent of field audits resulted in no change to the taxpayer’s return in fiscal year 2013.

Although the 2013 IRS Data Book was not available at the time of this report, a comparison of 2012 audit rates for large partnerships with similarly sized corporations reveals a significant difference in the percentage of firms targeted for audit.  Total large partnership audits were 7.9% of all submitted returns in 2012 (with only 0.8% of those IRS field audits, and the remaining 7.1% campus audits).  In contrast, 27.1% of similarly sized corporations were audited.  The significantly less attention paid to these large partnerships (which are mainly financial institutions such as hedge funds) has generated frustration in Congress and resulted in calls to reverse some of the large budget cuts made to the IRS in recent years.

 

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