The Internal Revenue Service’s small business unit is expecting to head in a new direction to keep up with the times. Small corporations have longtime held the spotlight of IRS audits and inquiries. But seeing that S corporations, partnerships and other pass-through entities make up 95 percent of all U.S. businesses, the IRS now expects to focus their attention on partnerships.
Faris Fink, the commissioner in charge of the IRS’s Small Business/Self-Employed Division quotes “The Service has for a long time focused its energy on corporations…Frankly, we’re a little bit behind the curve in getting around to developing a partnership strategy.”
This strategy constitutes a tighter examination of complex returns in the future, starting now with training their agents in these types of businesses. “We as an organization have recognized that this is something that we’ve got to be paying attention to, not just this year, but going forward,” Fink said. “Frankly, our training was not geared for dealing with those types of large, complex partnerships,” he said. “Historically, we would think of a partnership as having, say, 10 partners” with a limited number of tiers.
IRS will have to wade through returns that no longer fall into that historical idea of 10 partners; some of the partnership returns IRS is now encountering list some 82,000 partners and 182 tiers, according to Putman Financial Group. Fink indicated that the IRS plans to step up its scrutiny of such returns in the future.
If you are a partnership and haven’t been doing a very good job with your bookkeeping, it’s time to make sure you have an accounting system in place. If audited, you’ll need to substantiate each deduction, and prove your income figures. If you need assistance with this aspect of your business, contact us today! 310-534-5577 or www.abandp.com. We’re here to help!
