IRS Establishes Unit to Enhance Tax Compliance at Pass-Through Entities

IRS Establishes Unit to Enhance Tax Compliance at Pass-Through Entities. In a bid to strengthen tax compliance among large partnerships and other pass-through entities, the Internal Revenue Service (IRS) has unveiled a new operational unit within its Large Business and International (LB&I) division. This move is part of a broader initiative by the IRS to bolster oversight and enforcement in this sector.

Boosting Enforcement with AI and Data Analytics

The newly formed unit is set to comprise individuals recruited as part of a recent IRS announcement to hire 3,700 agents. These agents will play a crucial role in expanding audits of large partnerships, corporations, and high-income individuals. IRS Commissioner Danny Werfel also revealed that the agency would harness artificial intelligence and data analytics to identify patterns of noncompliance among significant partnerships, including hedge funds, real estate investment partnerships, publicly traded partnerships, and prominent law firms.

Targeted Scrutiny for Pass-Through Entities

The scope of the new unit’s responsibilities extends to both partnerships and S corporations. It aims to address concerns regarding noncompliance within these pass-through entities. IRS Commissioner Danny Werfel emphasized that this initiative is part of a broader effort to ensure that the nation’s wealthiest taxpayers fulfill their tax obligations completely.

Tackling Noncompliance Amid Budget Challenges

Commissioner Werfel pointed out that the IRS is focusing on areas where noncompliance among high-income filers has proliferated over the last decade due to budget constraints. Pass-through entities have emerged as a key area of concern. To support its mission, the new unit will leverage funding from the Inflation Reduction Act, targeting certain large partnerships that may be using pass-throughs to intentionally shield income and avoid paying owed taxes.

A Commitment to Fairness and Accuracy

The IRS’s efforts align with its commitment to use Inflation Reduction Act funds to address historically low error rates among wealthy and large entities. At the same time, the agency aims to maintain consistent audit rates for middle- and low-income filers for years to come. This initiative underscores the IRS’s dedication to holding all taxpayers, especially the wealthiest, accountable for their tax liabilities.