IRS watchdog cites resource limits, duplication in partnership audits

Limited resources and a duplicative review process contributed to IRS problems with auditing large partnerships, a government watchdog said in a review issued earlier this month.

The Treasury Inspector General for Tax Administration (TIGTA) reviewed two IRS initiatives. One was the IRS sending Letter 6585, Soft Letter Pass-Through Entity Campaign, to 483 partnerships whose balance sheets contained a discrepancy. The other was the examination, or audit, of 82 of the largest U.S. partnerships.

The soft-letter campaign resulted in no responses to 163 letters, IRS rejection of 182 responses, and acceptance of 138 responses. In April 2024, the IRS decided not to examine any of the partnerships, citing resource limitations and lack of time remaining before the statute of limitations ran out, the report said.

“We believe the decision not to conduct examinations on partnerships that did not respond or whose responses were rejected presents a fairness issue and a burden for partnerships who potentially spent time and money responding to the letter,” TIGTA said. Learn more.