Large Partnerships: Characteristics of Population and IRS Audits

What GAO Found

This report provides data on the number and characteristics of large partnerships as well as Internal Revenue Service (IRS) audits of large partnership returns. For purposes of this report, GAO did not identify a statutory, IRS, or industry-accepted definition of a large partnership. Instead, GAO used a combination of criteria for partner size and asset size used by IRS to define large partnerships as those that reported having 100 or more direct partners and $100 million or more in assets. The number of large partnerships increased from 720 in tax year 2002 to 2,226 in tax year 2011. Large partnerships also increased in terms of the average number of direct partners and average asset size. IRS had data on two categories of large partnership return audits. First, the number of completed field audits of large partnership returns increased from 11 in fiscal year 2007 to 31 in fiscal year 2013. Second, IRS counted audits closed through its campus function, which increased from 42 to 143 over the same period. Unlike field audits, campus function audits generally do not entail a review of the books and records of the large partnership return but rather were opened to pass through large partnership return audit adjustments to the related partners' returns. The percentage of IRS audits that resulted in no change to the taxpayer's return varied from fiscal year 2007 to 2013 but was 52 percent for campus function audits and 45 percent for field audits in fiscal year 2013. 

Why GAO Did This Study

Due to the growth of large partnerships and the limited publicly-available data on them, GAO was requested to 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.

This is an interim report; it will contribute to a broader body of work GAO is conducting on large partnerships and any risks related to their tax compliance. The graphics and data in this report provide a high level overview of the population of large partnerships and of those large partnership returns that have been audited by IRS. GAO's broader, ongoing work on large partnerships will provide a more in-depth analysis of IRS data; it will explore why certain differences in the data exist, especially for data pertaining to the audited population of large partnership returns. In this ongoing work, GAO will also identify the challenges that auditing large partnership returns presents to IRS; in addition, GAO will evaluate various actions IRS is taking, both to address those challenges and to reduce the overall risk these entities may present to tax compliance.