2013 Brings Increased IRS Scrutiny of Partnerships & Passthrough Entities

Partnerships and passthrough entities will receive much more attention by the IRS's Small Business/Self-Employed Division beginning in 2013.         

SB/SE is developing an enterprise-wide strategy, in conjunction with the Large Business and International Division, “to address the inherent risks that exist with these sorts of business structures,” Fink said at the Fall Tax Division Meeting of the American Institute for Certified Public Accountants.
        

IRS will lay the foundation next year for building the strategy through developmental stages, after which audit activity will increase in 2014, Fink said. That will mean a reduction in other types of returns that SB/SE handles, he added.
        

Over the first six to nine months of next year, IRS will pilot methods to better identify its workload by looking at the right kind of partnership entities and returns, Fink said. IRS will also focus on issue identification, such as looking at loss limitations or distributions, and make sure those issues feed into its workload identification strategy.
        

Fink also said IRS would work to provide additional training for its revenue agents, as the increased focus on partnerships will be done by field revenue agents.
        

Fink said he wanted to emphasize the point that the expanded focus on partnerships and passthrough entities does not mean IRS believes all partnerships are formed with the intention of avoiding payment of taxes. Rather, he said, IRS recognizes that more businesses are migrating to partnerships and away from traditional corporate structures.
        

This shift in priorities “makes good business sense,” Fink said, as IRS looks ahead to the types of business entities that are taking shape. The IRS will need feedback from practitioners, “as it does whenever it engages in an effort to shift direction to look at something more closely,” he said.

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Source:

Whitlock Canter LLC