Tax Administration

IRS' Partnership Compliance Activities Could Be Improved Gao ID: GGD-95-151 June 16, 1995

In fiscal year 1992, the number of partnerships totaled about 1.5 million--about the same as in 1981. During this period, however, the number of partners nearly doubled from 9.1 million to 15.7 million, partnership assets rose from $1 trillion to $1.9 trillion, and partnership net income went from a net loss of $4.1 billion to a net gain of $42.9 billion. Between 1988 and 1992, IRS audits of partnerships decreased by nearly half--from 0.93 percent to 0.50 percent--while audits of corporations more than doubled. Meanwhile, IRS in 1989 dropped its program to detect partnerships that have stopped filing required returns. This report determines the extent of partnership compliance with federal tax laws and identifies any steps IRS is taking to improve partnership compliance and additional measures that IRS could take to improve partnership compliance.

GAO found that: (1) the most current partnership compliance data showed that individual partners owed an additional $2.4 billion in taxes in 1982; (2) IRS will not have more current partnership compliance data until October 1998 when it completes its audits of tax year 1994 partnership returns; (3) IRS reliance on audits to detect partnership noncompliance has proven to be an inadequate strategy; (4) relatively few partnership returns have been audited in recent years because IRS has focused its resources on corporate audits; (5) partnership audits have resulted in audit adjustments more frequently than other business audits; (6) IRS could not measure the amount of net taxes assessed per partnership because it did not maintain data on the specific results of partnership audit adjustments; (7) IRS discontinued its delinquent partnership return program in 1989, but it plans to reinstate the program in 1996; (8) IRS does not have a computer document matching program for partnerships, but may develop one in its modernization efforts that will be completed in 2001; and (9) IRS is training revenue agents to identify partnership compliance issues, since it takes an average of 12 months to complete each partnership audit.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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