Levin, Wyden, McCain Release GAO Preliminary Report on Scant IRS Audit Coverage of Large Partnerships

WASHINGTON – Sens. Carl Levin, D-Mich., Ron Wyden, D-Ore., and John McCain, R-Ariz., today released a preliminary report by the U.S. Government Accountability Office that discloses that the Internal Revenue Service is failing to audit 99% of the tax returns filed by large partnerships with assets exceeding $100 million.

“The GAO report shines a needed spotlight on how the IRS is auditing large partnerships, and the news isn’t good,” said Levin, chairman of the Senate Permanent Subcommittee on Investigations. “The GAO report shows that while the number of these massive partnerships with massive assets has exploded, IRS audits haven’t kept pace.”

According to GAO, “[b]etween tax years 2002 and 2011, the number of businesses organized as partnerships (with 100 or more partners and $100 million or more in assets) increased more than 200 percent, accounting for $2.3 trillion in assets and $68.9 billion in total net income by 2011.” Yet in 2012, for example, IRS field audits reviewed the books and records of only 0.8% of large partnership returns, according to the preliminary report.

“Auditing less than 1% of large partnership tax returns means the IRS is failing to audit the big money,” said Levin. “It means over 99% of the hedge funds, private equity funds, master limited partnerships, and publicly traded partnerships in this country, some of which earn tens of billions each year, are audit-free. It is obvious something is wrong with the IRS audit program for large partnerships. We literally cannot afford to allow these entities to go unaudited.”

The final GAO report is expected to provide additional qualitative analysis of why the IRS has performed so few audits of large partnerships. It is expected to focus in part on the unified partnership audit procedures in the Tax Equity and Fiscal Responsibility Act (TEFRA), which some view as responsible for making large partnership audits time-consuming and expensive.

“If Congressionally-imposed red tape or budget cuts are partly responsible for the poor audit numbers, we need to find that out and change it,” Levin added.

The GAO report was requested by Levin, McCain, and former Sen. Max Baucus, who preceded Sen. Ron Wyden, D-Ore., as chairman of the Senate Finance Committee.

The Government Accountability Office is the investigative arm of Congress. The report, Large Partnerships: Characteristics of Population and IRS Audits, GAO Report No. GAO-14-379R, will be available at 5:00 p.m. this afternoon on the GAO website at http://www.gao.gov/products/GAO-14-379R.   [The GAO Report is also available to the left of this press release, under Related Files, on the Permanent Subcommittee on Investigations’ website.]