Pass-throughs to get more IRS scrutiny

The IRS plans to shift more resources and attention to audits of pass-through entities in 2014 and beyond, according to published reports of comments by Faris Fink, head of the IRS Small Business/Self-Employed division. Accounting Web and CFO.com both reported recently that Fink (yes, the Fink who played Spock in a Star Trek parody training video that got IRS officials in hot water this summer) told an AICPA tax conference that the IRS is spending more time and money training agents to be prepared to examine pass-throughs, particularly partnerships.

CFO.com quoted Fink as saying, “We’ve got to develop a short-term and long term training plan to put the right tools in our examiners’ hands so they are more capable and better at looking at flow-throughs and particularly partnerships.”

Accounting Web said Fink described IRS training as not geared for dealing with “large, complex partnerships,” including some with as many as 82,000 partners and more than 180 tiers. The IRS historically was accustomed to partnerships with a limited number of tiers and around 10 partners, Fink reportedly said.

The IRS has recognized it needs to pay attention to larger partnerships that are designed to shield transactions from scrutiny, Accounting Web added in its report.

Partnerships, LLCs, S-Corps and sole proprietorships are pass-through entities for federal income tax purposes, so the income, losses, deductions and credits flow through and are taxed at the individual level.

Meanwhile, CFO.com, said the IRS is working to weed out unwarranted audits of small businesses. At the same time, the agency is giving renewed scrutiny to fuel-tax-reporting compliance under a project that began in 2012.