On 9/20/23, the IRS announced that it plans to establish a special area to focus on large or complex pass-through entities to help with high-income compliance efforts. With the assistance of improved technology as well as Artificial Intelligence, the IRS compliance teams will be better able to detect tax cheating, identify emerging compliance threats and improve case selection tools to avoid burdening taxpayers with needless “no-change” audits. With the assistance of Artificial Intelligence, the IRS will be able to expand the Large Partnership Compliance Program to select returns of the largest partnerships in the U.S. that represent a cross section of industries including hedge funds, real estate investment partnerships, publicly traded partnerships, large law firms and other industries. Artificial intelligence will enable the IRS to increase the examination focus and identify potential compliance risk in the areas of partnership tax, general income tax and accounting, and international tax.
IRS places more attention on high-income compliance issues by focusing on large or complex pass-through entities
“Pass-through organizations, which will be the focus of the new group, includes entities such as partnerships and S-corporations. These groups are not subject to the corporate income tax; instead, income is “passed through” onto the income tax returns of the individual or corporate owners and taxed at their income tax rates. Pass-throughs are frequently used by higher-income groups and can be complex tax arrangements”.
On 9/8/23, the IRS announced new compliance efforts that will focus on increasing scrutiny on high-income taxpayers, partnerships, corporations and promoters abusing tax rules on the books by using Artificial Intelligence and improved technology to identify sophisticated schemes to avoid taxes
Expansion in high-income/high wealth and partnership compliance work includes the pilot focused on largest partnerships leveraging Artificial Intelligence. “The complex structures and tax issues present in large partnerships require a focused approach to best identify the highest risk issues and apply resources accordingly. In 2021, the IRS launched the first stage of its Large Partnership Compliance (LPC) program with examinations of some of the largest and most complex partnership returns in the filing population. The IRS is now expanding the LPC program to additional large partnerships. With the help of Artificial Intelligence, the selection of these returns is the result of groundbreaking collaboration among experts in data science and tax enforcement, who have been working side-by-side to apply cutting-edge machine learning technology to identify potential compliance risk in the areas of partnership tax, general income tax and accounting, and international tax in a taxpayer segment that historically has been subject to limited examination coverage. By the end of September 2023, the IRS will open examinations of 75 of the largest partnerships in the U.S. that represent a cross section of industries including hedge funds, real estate investment partnerships, publicly traded partnerships, large law firms and other industries. On average, these partnerships each have more than $10 billion in assets”.
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