IRS Issues Warning on Upcoming Compliance Alert and Examinations for Large Partnerships in the United States

IRS to Increase Audit Rates for High-Income Earners and Large Partnerships

The Internal Revenue Service (IRS) recently announced that it will be increasing audit rates for high-income earners and large partnerships as part of its efforts to crack down on tax evasion and improve compliance. In a press release issued on September 8, 2023, the IRS stated that it will begin mailing compliance letters to partnerships starting in October 2023.

The compliance letters are expected to impact partnerships with over $10 million in assets. However, the IRS has a broader goal of increasing audit activity and examinations of large partnerships and high-income taxpayers in general. The agency aims to use improved technology and Artificial Intelligence (AI) tools to detect tax cheating, identify compliance threats, and improve case selection tools.

The new Commissioner of the IRS, Danny Werfel, emphasized the need to address the years of underfunding that led to the lowest audit rate for wealthy filers in IRS history. Commissioner Werfel’s new compliance plan includes prioritizing high-income cases, defined as taxpayers with a total positive income above $1 million and more than $250,000 in recognized tax debt.

To further this goal, the IRS plans to contact an additional 1,600 taxpayers falling within this category. The agency also intends to expand its Large Partnership Compliance Program (LPC), which was launched in 2021. The LPC focuses on examining the largest and most complex partnership returns in the filing population. By the end of September 2023, the IRS aims to open 75 examinations on the largest United States partnerships, including hedge funds, real estate investors, publicly traded partnerships, and large law firms.

Starting in October, the IRS will issue compliance letters to partnerships with over $10 million in assets and discrepancies on their balance sheets. These letters are a result of discrepancies amounting to millions of dollars between taxpayers’ end-of-year balances compared to the beginning balances of the subsequent year. Approximately 500 partnerships will receive compliance letters in the coming month.

This recent announcement aligns with Commissioner Werfel’s Inflation Reduction Act Strategic Operating Plan, which outlines the IRS’s goals and priorities following the agency’s receipt of $80 billion in funding. The plan focuses on improving services for taxpayers, resolving issues promptly, expanding enforcement on complex tax filings and high-dollar noncompliance, implementing cutting-edge technology and analytics, and developing a skilled and diverse workforce.

While the September 8, 2023 Press Release may not come as a surprise to those familiar with Commissioner Werfel’s priorities, the speed at which the IRS is taking action is notable. The agency is issuing compliance letters to taxpayers within six months of finalizing the Strategic Operating Plan, indicating a strong commitment to increasing compliance and addressing tax evasion.

As the IRS ramps up its efforts to target high-income earners and large partnerships, taxpayers and advisors should be prepared for increased scrutiny and a greater emphasis on compliance. It is crucial for taxpayers to ensure accurate and timely reporting of their income and assets to avoid potential penalties and audits.

Original Story at www.globalcompliancenews.com – 2023-09-19 07:27:42