Newspaper article THE JOURNAL RECORD

Government Auditors Criticize IRS over Efforts to Police Partnerships

Newspaper article THE JOURNAL RECORD

Government Auditors Criticize IRS over Efforts to Police Partnerships

Article excerpt

WASHINGTON _ The IRS audits only one in 200 of the business partnerships providing millions of Americans with billions of dollars in income and doesn't even try to catch non-filers, congressional watchdogs say.

The findings from the General Accounting Office come as the Internal Revenue Service struggles to close an estimated overall gap of $127 billion between taxes owed and taxes collected each year.

Partnerships' share of the tax gap was about $6 billion in 1982. However, it's all but impossible to evaluate the seriousness of the problem today because the IRS hasn't studied the issue since then, the GAO said.

"The compliance presence of the IRS here is quite low. That's clear," said Jennie S. Stathis, the GAO's director of tax policy and administration issues.

Partnerships are an increasingly popular business structure offering an attractive means of sheltering income from tax, according to the GAO. They're not taxed directly. Instead, all income and loss flows through to the partners, who may be individuals, corporations, other partnerships or virtually any other legal entity.

Although the number of partnerships has remained about the same since the early 1980s, at 1.5 million, the number of partners has nearly doubled from 9.1 million in 1981 to 15.7 million in 1992. The partnerships' assets rose over the period from $1 trillion to $1.9 trillion and their net income went from a loss of $4.1 billion to a gain of $42.9 billion.

IRS officials did not immediately respond to a request for comment, but they earlier told the GAO they would reinstate the agency's computerized effort to catch non-filers, which had been discontinued in 1989.

The GAO criticized both IRS efforts to ensure partnerships were correctly stating their income and, in turn, that the partners were paying tax on their share of it. …

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