| WASHINGTON, April 17
WASHINGTON, April 17 Fewer than 1 percent of
partnerships with more than $100 million in assets, including
hedge funds and private equity firms, are audited by the U.S.
Internal Revenue Service, a government report said on Thursday.
Despite a surge in the number of partnerships over the last
decade, the IRS did not conduct field audits for 99 percent of
these tax-favored businesses from 2007 through 2012, said the
preliminary report from the Government Accountability Office,
the investigative arm of Congress.
In response to the GAO report, the IRS said partnership
audits are a priority, but that "budget reductions over the past
few years have severely limited our work in this area."
The IRS audited 0.4 percent of all partnership tax returns
in 2013, including partnerships with less than $100 million in
assets, the agency said in data released in March. The agency
audited less than 1 percent of all 190 million tax returns it
received last year.
Partnerships, including hedge funds, private equity funds
and master limited partnerships, do not pay income taxes but
must file annual tax returns showing income, deductions, gains
and losses. The partners themselves pay individual income taxes.
The number of large partnerships with 100 or more partners
and $100 million or more in assets increased to 2,226 in 2011
from 720 in 2002, the GAO said.
Large corporations, which pay a 35 percent statutory
corporate tax rate, are regularly audited by the IRS. The
agency's revenue agents often work directly out of a large
U.S. senators on Thursday said the IRS is losing tax revenue
by not auditing big partnerships.
"It is obvious something is wrong with the IRS audit program
for large partnerships," Democratic Senator Carl Levin, chairman
of the Senate Permanent Subcommittee on Investigations, said in
a statement. Levin has criticized large U.S. companies for
aggressively avoiding taxes.
The GAO said its report was preliminary and that its review
of IRS partnership audits will continue.
(Editing by Howard Goller and Eric Walsh)