IRS Sent 483 Letters to Partnerships. Zero Exams Followed.

The IRS is failing to audit large partnerships effectively - and it's not just about money. According to a TIGTA report released earlier this month, it's about duplication, bad timing, and letting partnerships escape review entirely.

483 Letters Sent, Zero Exams Completed

The IRS sent Letter 6585 to 483 partnerships whose balance sheets showed discrepancies. That's a "soft letter" - polite, non-threatening, asking partnerships to explain themselves.

The results: 163 partnerships ignored it. 182 responded, but the IRS rejected their answers. Only 138 responses were accepted. Then, in April 2024, the IRS decided not to examine any of them. Not one. Why? Resource limitations and the statute of limitations running out.

TIGTA called that "a fairness issue." Translation: the partnerships who actually responded and spent time/money complying got the same outcome as the ones who blew it off.

Duplication Slowed Everything Down

The problem wasn't just lack of staff. It was duplicated work. Two revenue agents reviewed the same responses - consecutively, not concurrently. That doubled review time and ate up the compliance window.

TIGTA's recommendation: stop duplicating risk analysis steps. The IRS agreed.

Big Partnerships Slipping Through the Cracks

The Large Partnership Compliance (LPC) Program is supposed to catch big players using AI and experienced examiners. But fiscal year filers are escaping review because the IRS runs its risk model once a year.

TIGTA: "The risk of not including all partnership returns… provides an opportunity for large partnerships to evade a layer of review."

Of 82 large partnerships examined, 92% resulted in no-change determinations - meaning the IRS found nothing wrong. High no-change rates = wasted time. The IRS may need to refine how it picks targets.

The Tax Gap Problem

Partnerships, S corps, and trusts contribute $42 billion to the tax gap (the difference between what's owed and what's paid). But the IRS says that's probably understated because sophisticated noncompliance is hard to detect.

Examination rates for partnerships with $10M+ in assets fell from 2.7% in 2011 to less than 0.1% in 2023. Filings are up 138% in the same period.

Staff Cuts Hit Hard

Congress cut $41.8B from IRS Inflation Reduction Act enforcement funding. The pass-through entities program lost 20% of its 1,079 workers.

The IRS originally projected partnership exam rates would hit 1% by 2026 with full IRA funding. Now? "LB&I management will need to reassess their exam coverage goals… following the reduced staffing," the report said.

For CPAs advising partnerships: the odds of an exam are near zero, but the process - if it happens - is duplicative, slow, and often leads nowhere. That's not reassuring when $42 billion is on the line.