Large Partnerships With Growing Number of Partnerships, IRS Needs to Improve Audit Efficiency (United States Government Accountability Office)

September 2014

KEYWORDS: taxes, large partnerships, IRS


United States Government Accountability Office

  • United States Government Accountability Office


In recent decades, there has been a dramatic shift in the way American businesses organize and pay taxes. The shift has been towards legal structures known as pass-through entities, such as partnerships, and away from C corporations that are subject to the corporate income tax. For example, between 2002 and 2011, the number of partnerships increased 47 percent to 3.3 million while the number of C corporations decreased by 22 percent to 1.6 million. Partnerships do not generally pay income taxes—they pass their income and losses through to their partners who report them on their income tax returns and make any associated tax payments.

Large partnerships, which we define as those with 100 or more direct and indirect partners and $100 million or more in assets, have grown even faster.1From 2002 to 2011, the number of large partnerships more than tripled to more than 10,000 and large partnerships hold trillions of dollars of assets.

Large partnerships create a number of tax law enforcement challenges for the Internal Revenue Service (IRS) that we have described in recent reports.The challenges are due to the complexity of large partnerships as well as the number of partners. Since partnerships can be partners in other partnerships, large partnerships frequently have tiers of partnerships, creating indirect partners. Such complex structures make it difficult for IRS to find the source of income and then trace it through the tiers to the ultimate taxable partners. There are legitimate reasons for businesses to set up complex structures of entities, such as isolating one part of a business from liability for the losses of another part.


Related Research and Data