According to Law360, the Internal Revenue Service will keep using an educational compliance tool called soft letters to prod taxpayers to comply with a centralized partnership audit regime that has recently turned its focus to larger and more complicated entities, an agency official said.
Soft letters, which the agency commonly sends out as a compliance measure in other areas, will be an ongoing effort in a relatively new practice area for pass-through entities within the IRS' Large Business and International Division, according to Clifford R. Scherwinski, director of that practice area. He spoke during the D.C. Bar Tax Conference, held in Washington, D.C., and online.
So when the IRS sends out such a letter, "it's not always going to result in an audit," he said.
During a round of audits in 2023, the IRS sent 500 soft letters to LB&I partnerships with beginning- and ending-year balance sheet discrepancies, he said.
In 2021, the IRS began its focus on partnership audits of large, high-wealth entities as part of the centralized partnership audit regime enacted by the Bipartisan Budget Act 2015, which took effect in 2018. The agency dialed up those efforts in fall 2023 and identified 76 of the country's largest partnerships for audit thanks in large part to the 2022 Inflation Reduction Act's additional funding for the IRS.
The targeted partnerships have an average total of assets exceeding $10 billion, according to Scherwinski.
To improve the audit process, Scherwinski said, his practice area employed advanced data analytics techniques, as well as expertise from new hires that have experience dealing with these complicated business structures.
Scherwinski's team also looked at a stratified sample across various industries.
"We intentionally looked at ... hedge funds, real estate, publicly traded partnerships, large law firms and other industries out there, because we need to again learn from these experiences," he said.
The goal is "to really continue to understand the tax risk that's posed" by these large, high-wealth entities that file tax returns, Scherwinski said.
Have an IRS Tax Problem?
Contact the Tax Lawyers at
www.TaxAid.com or www.OVDPLaw.com
or Toll Free at 888 8TAXAID (888-882-9243)
Read more at: Tax Times blog
