IRS Launches New Exam Unit Dedicated to Increasing Audits of Pass-Through Entities
By Anthony P. Daddino on October 23, 2024
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Anthony P. Daddino
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I always enjoy life-imitating-art moments, especially when a 1970s Saturday morning cartoon is involved. Yesterday the IRS launched a new initiative: A Wonder-Twin-esque collaboration between small and large business divisions of IRS Exam specifically devoted to ensuring compliance of pass-throughs of every size and form—including partnerships, S-corporations and trusts. Unlike the Wonder Twins, the IRS’ goal is not an octopus riding an ice unicycle (video HERE), but rather, “to reverse historically low audit rates” for pass-through entities.
Traditionally the IRS divided pass-through entity exams between LB&I and the Small Business/Self-Employed (SB/SE) divisions based on the size of the entity. Going forward, however, revenue agents in pass-through field operations will be assembled into geographically based teams that are responsible for primary exams of pass-through entity returns. LB&I will be responsible for starting pass-through exams, regardless of entity size. SB/SE will continue to examine pass-through entities as part of a related exam of a tax return.
Consolidating the case-working expertise and removing the entity-size barrier, the IRS contends, will help the IRS achieve its goal of increased audit rates in this complex area, streamline workflows and provide a more consistent experience for taxpayers. According to LB&I Commissioner Holly Paz, this new unit is not a temporary experiment but rather a long-term shift in approach: “This combination of LB&I and SB/SE’s diverse expertise… will undoubtedly have a lasting impact as we continue building a modern pass-through compliance structure that is passionate about taxpayer service and fair enforcement.”
While the IRS’ innovation efforts are admirable, only time will tell whether this is a fruitful endeavor. In the author’s experience, personnel from LB&I and SB/SE have not always played nicely in the sandbox.
What is clear, though, is that more pass-through entity audits are coming – a lot of them.
If you or your client have any questions about this Blog post or other tax-related topic, feel free to contact me at (214) 749-2464 or adaddino@meadowscollier.com.
Traditionally the IRS divided pass-through entity exams between LB&I and the Small Business/Self-Employed (SB/SE) divisions based on the size of the entity. Going forward, however, revenue agents in pass-through field operations will be assembled into geographically based teams that are responsible for primary exams of pass-through entity returns. LB&I will be responsible for starting pass-through exams, regardless of entity size. SB/SE will continue to examine pass-through entities as part of a related exam of a tax return.
Consolidating the case-working expertise and removing the entity-size barrier, the IRS contends, will help the IRS achieve its goal of increased audit rates in this complex area, streamline workflows and provide a more consistent experience for taxpayers. According to LB&I Commissioner Holly Paz, this new unit is not a temporary experiment but rather a long-term shift in approach: “This combination of LB&I and SB/SE’s diverse expertise… will undoubtedly have a lasting impact as we continue building a modern pass-through compliance structure that is passionate about taxpayer service and fair enforcement.”
While the IRS’ innovation efforts are admirable, only time will tell whether this is a fruitful endeavor. In the author’s experience, personnel from LB&I and SB/SE have not always played nicely in the sandbox.
What is clear, though, is that more pass-through entity audits are coming – a lot of them.
If you or your client have any questions about this Blog post or other tax-related topic, feel free to contact me at (214) 749-2464 or adaddino@meadowscollier.com.
