WASHINGTON — The Internal Revenue Service audits less than 1 percent of large business partnerships, according to a government report released Tuesday.
That means some of Wall Street’s largest hedge funds and private equity firms are largely escaping close scrutiny by the IRS, said Sen. Carl Levin, D-Mich.
The Government Accountability Office says the number of large businesses organized as partnerships has more than tripled since 2002, yet hardly any get audited. In 2012, only 0.8 percent were subjected to field exams in which agents do a thorough review of books and records.
The GAO defines large partnerships as those with more than 100 partners and more than $100 million in assets.
“Auditing less than 1 percent of large partnership tax returns means the IRS is failing to audit the big money,” said Levin, who chairs the Senate subcommittee on investigations.
“It means over 99 percent of the hedge funds, private equity funds, master limited partnerships and publicly traded partnerships in this country, some of which earn tens of billions each year, are audit-free,” Levin said.
More than 80 percent of large partnerships are in the finance and insurance industries, the GAO report said.
The IRS said auditing partnership returns is a priority, but that budget cuts over the past four years have left the agency with the lowest number of enforcement personnel in years.
“Since Fiscal 2010, the IRS budget has been reduced by nearly $900 million,” the service. “The IRS has about 10,000 fewer employees than in 2010, affecting our work across our taxpayer service and enforcement categories. Last year, we had 3,100 fewer people in our key enforcement positions than in 2010.”
Overall, the IRS audited fewer than 1 percent of returns by individuals last year, though the chances of getting audited increased with income, according to IRS statistics.
The GAO report says the audit rate for large partnerships has been low since at least 2007.