According to recently released Internal Revenue Service examination percentages for the last decade, S corporations and partnerships are being audited at higher rates for fiscal year 2015 (October 1, 2014 through September 30, 2015).
Meanwhile, large C corporations (those with assets of $10 million and higher) are being audited less frequently and are currently at the lowest percentage in the same 10 year measurement period—down to 11.15% of the returns filed in the prior calendar year which were examined in fiscal year 2015, a decrease from 2014 when 12.23% of returns filed in the prior calendar year were audited.
As the Internal Revenue Service has shifted resources from corporate examinations to pass through business entities, S corporation audits have increased by 11.11% from 2014 to 2015 and partnership audits experienced an 18.6% increase for the same period. It should be noted that for purposes of interpreting the new numbers, nearly all multi-member limited liability companies default under entity rules in the Internal Revenue Code to partnership status. Thus, the increase accorded partnerships also include entities formed under state law as limited liability companies.
It is important to note that only 66,484 income tax returns were filed for large C corporations while more than 4.6 million S corporation returns were filed, and more than 3.7 million partnership returns were filed. So while the numbers show an increasing level of activity from the Internal Revenue Service with respect to pass through business entities, the total number of examinations is still small, just under one half of one percent for S corporations and just over one half of one percent for partnerships while more than 11 percent of the large C corporations are audited.
Questions and comments may be submitted to Bob Grossman or Don Johnston.
