Interim Guidance on the Internal Revenue Service’s Large Partnership Compliance Pilot Program
Late last month, the Internal Revenue Service’s Large Business & International Division issued guidance on its Large Partnership Compliance Pilot Program. The guidance, which takes effect immediately, covers the identification, selection and delivery of large partnership tax returns, exam procedures, and the expected evolution of the program.
Identification. Partnership tax returns with more than $10 million in assets will fall under the jurisdiction of the Large Business & International Division. In addition to the $10 million asset threshold (which c’mon, how many real estate partnerships don’t exceed the threshold with their fixed assets alone), it is believed that total revenue, recently required Schedule K-1 disclosures such as tax basis capital accounts and built-in gains, and partnerships with foreign investors and/or foreign transactions (don’t forget the new Schedules K-2 and K-3 reporting) will be heavily considered.
Modeling and Classification. The Large Business & International Division expects to rely heavily on data analytics, which is similar to what the IRS is already doing under their Large Corporate Compliance Program. The Large Business & International Division will also evaluate Subchapter K issues specific to partnerships, as well as operational issues that may or may not be specific to partnerships.
Exam Procedures. The exam procedures outlined in Internal Revenue Manual 4.46, Large Business & International Examination Procedures, and Internal Revenue Manual 4.10, Examination of Returns, Internal Revenue Manual 4.31, Passthrough Entity Handbook, and the updated Bipartisan Budget Act procedures to be incorporated into Internal Revenue Manual 4.31.9, Centralized Partnership Audit Regime, will be followed.
Feedback. The identification of large partnerships and the way by which these entities are audited is expected to change over time. As a reminder, the Biden administration is hoping to increase funding to the IRS by $80 billion over the next 10 years. The increased complexity of partnership tax returns is just one of the reasons why.
Source: IRS.gov
- Carey M. Heyman, CPA
- Managing Principal of Industry - Real Estate
- CliftonLarsonAllen LLP
- Century City (Los Angeles)
Carey is the Managing Principal of the Real Estate Industry at CLA. He is a trusted advisor with close to 20 years of experience providing accounting, assurance, tax, and consulting services to real estate industry owners, operators, family offices, developers and syndicators. Carey has a strong track record of helping clients build and retain capital by leveraging tax- and cost-saving strategies and employing tax credits and incentives. He also consults with high net worth individuals, large family groups, and owners of closely-held businesses on all aspects of tax planning, estate planning, and retirement planning.
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