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GAO-14-379R 1 (2014-03-19)

handle is hein.gao/gaobaahsh0001 and id is 1 raw text is: G A O U.S. GOVERNMENT ACCOUNTABILITY OFFICE 441 G St. N.W. Washington, DC 20548 March 19, 2014 The Honorable Ron Wyden Chairman Committee on Finance United States Senate The Honorable Carl Levin Chairman The Honorable John McCain Ranking Member Permanent Subcommittee on Investigations Committee on Homeland Security and Governmental Affairs United States Senate Large Partnerships: Characteristics of Population and IRS Audits In recent years, the number of businesses organized as partnerships has increased significantly, rising 47 percent between tax years 2002 and 2011.1 In tax year 2011, nearly 3.3 million partnerships accounted for $20.6 trillion in assets and $580.9 billion in total net income.2 Also from 2002 to 2011, large partnerships-measured in terms of asset size and number of direct partners3-increased significantly as well.4 Between those tax years, large partnerships (with 100 or more direct partners and $100 million or more in assets) increased more than 200 percent, accounting for $2.3 trillion in total assets and $69.1 billion in total net income by tax year 2011. As the size and number of these large partnerships has grown, Congress and others have raised concerns about the extent to which the Internal Revenue Service (IRS) is able to audit these entities and minimize compliance risk. Due to the growth of large partnerships and the limited publicly-available data on them, it was requested that we provide information on the number and characteristics of large partnerships and on those large partnership returns that have been subject to IRS audit. Specifically, this report describes (1) the number and characteristics of large partnerships, and (2) the number of IRS audits of large partnership returns and the characteristics of those audits. 1A partnership is a pass-through or flow-through entity for tax purposes because the income earned by partnerships is attributed to (or passed through to) the owners of the business; this income is-in general-taxed only once for partners who are taxable (as is done under the individual income tax system). 2Internal Revenue Service, Partnership Returns: Selected Balance Sheet and Income Statement Items, Tax Years 1999-2011, Historical Table 11, Statistics of Income (SOl) Bulletin, accessed February 18, 2014, http://www.irs.gov/uac/SOI-Tax-Stats-Historical-Table-1 1. 3Direct partners are those partners that have a direct interest in the large partnership during the tax year. 4The terms large partnership and large, widely-held partnership do not have a single, widely accepted definition. The Internal Revenue Code (IRC) does define an electing large partnership as a partnership that had 100 or more direct partners during the preceding tax year and makes an election. Electing large partnerships choose an alternative IRS reporting and auditing process that uses a Form 1065-B to report annual partnership tax information. See 26 U.S.C. § 775(a)(1). GAO-14-379R Large Partnerships Page 1

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