IRS is setting up a new work unit to focus on large and complex partnerships
A partnership (or other passthrough entity) is not a taxable entity. Its tax items—e.g., income, gain, loss, deduction, and credit—are allocated to the partners. The partners then report on their own returns. Using a partnership or other passthrough instead of a C corporation therefore avoids a second layer of tax on the business’s income.
The IRS said in its September 20 press release that it is concerned taxpayers looking for ways to “shield income to avoid paying the taxes they owe” are using partnerships and other passthrough entities, like S corporations, to do that.
As part of its new compliance efforts, the IRS says it’s setting up a new unit, to be housed in the IRS Large Business and International (LB&I) division, that will use some of the IRA funding “to disrupt efforts” by large partnerships to avoid taxes.
The new unit, which will work with the National Treasury Employees Union (NTEU) and other external partners, will “formally ‘stand up’” in late 2024—although work on passthroughs “will continue to intensify in the meantime.”
The passthrough-compliance unit will be staffed with employees hired in an initiative—also announced in September—to open 3,700 new IRS positions. But current LB&I workers will also staff the new group. The IRS says that “IRS employees, no matter if they are just joining the IRS or have years of IRS experience, can expect expanded opportunities for development wherever they are in the agency.”
