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    Results:

    Subject Term: Partnerships

    2 publications with a total of 7 open recommendations including 4 priority recommendations
    Director: Mctigue Jr, James R
    Phone: (202) 512-7968

    3 open recommendations
    including 2 priority recommendations
    Recommendation: Congress should consider altering the TEFRA audit procedures to require partnerships to designate a qualified Tax Matters Partner (TMP) and, if that TMP is an entity, to also identify a representative who is an individual and for partnerships to keep the designation up to date.

    Agency: Congress
    Status: Open

    Comments: In October 2015, H.R. 1314 was amended to include the Bipartisan Budget Act of 2015, which included provisions that would repeal the TEFRA audit procedures and put in place new audit procedures for partnerships with more than 100 partners. This legislation was signed into law in November 2015. According to the legislation, the new audit procedures would require partnerships to designate a qualified representative for the partnership audit. However, the legislation did not require audited partnerships to identify a representative who is an individual nor do they require that audited partnerships keep the designation up to date as suggested in GAO's report. The legislation does give IRS the authority to develop regulations about how the partnership representative should be designated by the partnership and such regulations may address the items in GAO's report. Currently regulations are under development at IRS. The legislation specifies that the new partnership audit procedures apply to partnership returns filed for tax years beginning after December 31, 2017.
    Recommendation: The Commissioner of Internal Revenue should track the results of large partnerships audits: (a) define a large partnership based on asset size and number of partners; (b) revise the activity codes to align with the large partnership definition; and (c) separately account for field audits and campus audits.

    Agency: Department of the Treasury: Internal Revenue Service
    Status: Open
    Priority recommendation

    Comments: No executive action taken. IRS said that it plans to address parts of GAO's September 2014 recommendation about tracking the audit results on large partnerships but has not yet done so. In November 2014, IRS said that it plans to define large partnerships using asset size and the number of partners and to find an alternative method to account for field and campus large partnership cases using existing capabilities, but that revising IRS's activity codes to enable it to track large partnership audits would be dependent on future funding. In March 2017, IRS told GAO that it would need until September 2017 to address this recommendation as IRS continues to monitor efforts to implement the Bipartisan Budget Act (BBA). Section 1101 of the Bipartisan Budget Act of 2015 (Public law 114-74), which was enacted in November 2015, includes provisions that repeal TEFRA audit procedures and put in place audit procedures that would require partnerships with more than 100 partners to pay audit adjustments at the partnership level, among other changes. IRS explained that these changes significantly alter the procedural and administrative components of partnerships. IRS said it would need this additional time to analyze options and determine the most appropriate steps for effectively tracking the results of large partnership audits. Without changes to tracking partnership audit results, IRS cannot conduct analysis to identify ways to better plan and use IRS resources in auditing large partnerships as well as analyze whether large partnerships present a high noncompliance risk.
    Recommendation: The Commissioner of Internal Revenue should analyze the audit results by these activity codes and types of audits to identify opportunities to better plan and use IRS resources in auditing large partnerships.

    Agency: Department of the Treasury: Internal Revenue Service
    Status: Open
    Priority recommendation

    Comments: As of October 2016, the Internal Revenue Service (IRS) said that based on completion of GAO's recommendations on tracking results and after sufficient large partnership audit results have been obtained, it still plans to conduct a study to analyze these results and recommend any ways in which resource use can be improved. IRS still expects to complete this analysis by September 2018.
    Director: Mctigue Jr, James R
    Phone: (202) 512-7968

    4 open recommendations
    including 2 priority recommendations
    Recommendation: Congress should consider expanding the mandate for partnerships and corporations to electronically file their tax returns to cover a greater share of filed returns.

    Agency: Congress
    Status: Open

    Comments: No legislation enacted as of March 2017. Current law requires entities that file more than 250 returns during a year or partnerships with more than 100 partners to file electronically. A bill has been introduced in Congress, S. 3178, which would gradually lower the threshold to 20 returns. Requiring greater digitization of tax return information, as GAO suggested in May 2014, would help the Internal Revenue Service identify which partnership and S corporation tax returns would be most productive to examine. Improving IRS's selection of partnership and S corporation returns to examine would also benefit compliant taxpayers whose returns may otherwise be selected for examination. Further, expanded e-filing would reduce IRS's tax return processing costs.
    Recommendation: The Commissioner of Internal Revenue should develop and implement a strategy to better estimate (1) the extent and nature of partnership misreporting, and (2) the effectiveness of partnership examinations in detecting this misreporting.

    Agency: Department of the Treasury: Internal Revenue Service
    Status: Open
    Priority recommendation

    Comments: As of April 2017, IRS had initiated the Partnership Research Study (PRS). PRS is a smaller scale version of IRS's originally planed National Research Program (NRP) study for partnerships. IRS decided to conduct the smaller scale study because of resource constraints (the NRP study would have required IRS to audit 10,000 partnership tax returns, which is more than all the partnership returns that IRS normally audits in the course of a year; through PRS IRS plans to audit about 2,000 returns). PRS will be similar to an NRP study in that there are mandatory issues that will be audited, and stringent requirements for surveying (dismissing) examinations. IRS has started auditing 1,750 returns and will begin auditing 500 more returns starting in November. IRS is hopeful that PRS will allow it to determine (1) whether the differences in examination rates across different types of business entities are justified, and (2) whether an improved tool for selecting partnerships for examination, such as an updated partnership discriminant function, should be developed.
    Recommendation: The Commissioner of Internal Revenue should use the better information on noncompliance and program effectiveness to determine (1) whether the differences in examination rates across different types of business entities are justified, and (2) whether an improved tool for selecting partnerships for examination, such as an updated partnership discriminant function, should be developed.

    Agency: Department of the Treasury: Internal Revenue Service
    Status: Open
    Priority recommendation

    Comments: As of April 2017, IRS had initiated the Partnership Research Study (PRS). PRS is a smaller scale version of IRS's originally planed National Research Program (NRP) study for partnerships. IRS decided to conduct the smaller scale study because of resource constraints (the NRP study would have required IRS to audit 10,000 partnership tax returns, which is more than all the partnership returns that IRS normally audits in the course of a year; through PRS IRS plans to audit about 2,000 returns). PRS will be similar to an NRP study in that there are mandatory issues that will be audited, and stringent requirements for surveying (dismissing) examinations. IRS has started auditing 1,750 returns and will begin auditing 500 more returns starting in November. IRS is hopeful that PRS will allow it to determine (1) whether the differences in examination rates across different types of business entities are justified, and (2) whether an improved tool for selecting partnerships for examination, such as an updated partnership discriminant function, should be developed.
    Recommendation: While IRS works to improve the quality of its Schedule K-1 data, the Commissioner of Internal Revenue should develop a plan for conducting testing or other analysis to determine whether the improved Schedule K-1 data, perhaps combined with other IRS information about businesses and taxpayers, could be used more effectively to ensure compliance with the reporting of flow-through income.

    Agency: Department of the Treasury: Internal Revenue Service
    Status: Open

    Comments: IRS stated that it understands the objective of this recommendation and, at such time that resources are available to enhance capabilities, it would consider the proposed methodology of advanced testing. However, based on current and anticipated budget constraints, it does not expect its plans to change in the near future.