IRS Partnership Adjustments In Millions May Produce No Tax

You would think that if a partnership was audited and there was an income adjustment in the millions, that would be really bad news for the partners, but a report just released by the Treasury Inspector General for Tax Administration (TIGTA) indicates that such an adjustment might have no effect at all thanks to an undisclosed "specific tolerance amount". The report recommends that the IRS come up with better measurements of the revenue generated by partnership audits. The IRS responded that resource limitation preclude implementation of some of TIGTA's recommendations. Overall the report might be a bit demoralizing to practitioners who strive to get things right in a fairly complex area. On the other hand, those inclined to play the audit lottery (a violation of AICPA ethical standards by the way) would be cheering if they read this report. Of course, the latter crowd does not include a lot of readers of arcane tax material.