TREASURY
INSPECTOR GENERAL FOR TAX ADMINISTRATION
Filing Characteristics and
Examination Results for Partnerships and S Corporations
August 28, 2006
Reference Number: 2006-30-114
This
report has cleared the Treasury Inspector General for Tax Administration
disclosure review process and information determined to be restricted from
public release has been redacted from this document.
Phone Number |
202-927-7037
Email Address | Bonnie.Heald@tigta.treas.gov
Web Site |
http://www.tigta.gov
August 28, 2006
MEMORANDUM FOR COMMISSIONER, LARGE AND MID-SIZE BUSINESS DIVISION
COMMISSIONER, SMALL BUSINESS/SELF-EMPLOYED DIVISION
FROM: (for) Michael R. Phillips /s/ Michael E. McKenney
Deputy Inspector General for Audit
SUBJECT: Final Audit Report – Filing Characteristics and Examination Results for Partnerships and S Corporations (Audit # 200530019)
This report presents the results of our review of statistical information reflected in the filings and examinations of partnership and S corporation[1] tax returns. Our overall objective was to analyze the filing characteristics and examination trends of these flowthrough entities.[2] We conducted the review at our own initiative to highlight the important role the National Research Program (NRP) study plays in understanding what the rapid growth in filings of partnership and S corporation returns means for tax compliance. It has been more than 20 years since the Internal Revenue Service (IRS) studied how well these entities comply with tax laws. Since that study, flowthrough entities have become the fastest growing segments filing income tax returns with the IRS and are annually passing hundreds of billions of dollars in income and losses to their partners and shareholders.
Synopsis
We conducted the review at our own initiative to highlight the important role the NRP study plays in understanding what the rapid growth in filings of partnership and S corporation returns means for tax compliance.
From a practical standpoint, partnerships and S corporations have long provided a popular way of protecting income from taxation by having the legal capacity to offset wages and other income sources that partners and shareholders report on their tax returns. Changes in the legal and regulatory environment in the 1990s contributed to their popularity. Specifically, the legal and regulatory changes involved the creation of Limited Liability entities[3] and the issuance of so-called Check-the-Box Regulations[4] by the Federal Government. In 2004, the IRS processed approximately 1.19 million returns filed by Limited Liability entities, which was an 83 percent increase over the 650,000 returns from Limited Liability entities processed in 2000.
Like partnerships, S corporations have the legal capacity to offset income sources that shareholders report on their income tax returns. Additionally, S corporations provide their shareholders with the ability to save on the amount of employment taxes they would otherwise have to pay under most other types of business organizations. The prospect of offsetting income sources of shareholders and minimizing the amount of employment tax that must be paid can be particularly attractive benefits and could be reasons S corporations have become the most common type of corporate entity filing income tax returns with the IRS.
The IRS NRP study is fully underway studying the extent to which S corporations and their shareholders comply with the tax laws. From a compliance perspective, this effort and another one under consideration for partnerships are critically important for a number of reasons. Most important, perhaps, is that the study results are expected to enhance the IRS examination process that helps ensure taxes on the hundreds of billions of dollars of income and losses passing through these entities to shareholders and partners are reported and paid. The statistical validity and comprehensiveness of the NRP study is designed to provide the IRS with updated compliance data needed for deciding which partnership and S corporation returns should be examined and how best to focus millions of dollars of examination resources on the most significant areas of noncompliance.
The IRS last collected data on how well partnerships and S corporations comply with tax laws more the 20 years ago, and over time these data have become less reliable for examination workload selection. The IRS increasingly selects partnership and S corporation returns for examination under special projects to address specific types of noncompliance such as abusive tax schemes and transactions. Additionally, IRS executives have invested considerable efforts in various initiatives aimed at making the examination process more efficient.
Although we did not measure the impact these various projects and initiatives have had on the examination process, IRS statistics show the numbers of partnership and S corporation examinations are increasing and examiners are spending less time on the examinations while making more adjustments to the tax returns. Despite these positive trends, the number of examinations that are closed with no adjustment continues to be high and could likely be reduced with NRP study data to assist in the identification, selection, and examination processes. In Fiscal Year 2005, 44 percent of partnership and 43 percent of S corporation examinations resulted in no adjustments. This no-change rate means a significant amount of resources are being devoted to unproductive examinations, and compliant partnerships and S corporations are being unnecessarily burdened.
Besides updating workload selection formulas, the NRP study data are expected to be used for other important tax administration activities such as identifying areas where instructions and prefiling taxpayer services could be improved, suggesting legislative changes, and refining estimates of the tax gap (i.e., the amount of taxes owed but not voluntarily paid). Because of these benefits, numerous stakeholders, including the Treasury Inspector General for Tax Administration, Government Accountability Office, and IRS Oversight Board,[5] support the program.
Recommendations
We made no recommendations in this report. However, key IRS management officials reviewed the report prior to issuance.
Copies of this report are also being sent to the IRS managers affected by the report information. Please contact me at (202) 622-6510 if you have questions or Daniel R. Devlin, Assistant Inspector General for Audit (Small Business and Corporate Programs), at (202) 622‑8500.
Appendices
Appendix
I – Detailed Objective, Scope, and Methodology
Appendix
II – Major Contributors to This Report
Appendix
III – Report Distribution List
Appendix IV
– Detailed Figures of Statistical Information
Abbreviations
|
AIMS |
Audit Information Management System |
|
BRTF |
Business Return Transaction File |
|
FY |
Fiscal Year |
|
IRS |
Internal Revenue Service |
|
LLC |
Limited Liability Company |
|
LLP |
Limited Liability Partnership |
|
NRP |
National Research Program |
|
PY |
Processing Year |
|
TCMP |
Taxpayer Compliance Measurement Program |
|
TIGTA |
Treasury Inspector General for Tax
Administration |
|
TY |
Tax Year |
We conducted this review at our own initiative to highlight the important role the National Research Program (NRP) study has in understanding what the rapid growth in filings of partnership and S corporation[6] returns means for tax compliance. The NRP study is fully underway studying the extent to which S corporations and their shareholders comply with the tax laws. The study involves the identification, selection, and examination of approximately 5,000 tax returns filed by S corporations and processed by the Internal Revenue Service (IRS) for Tax Years (TY) 2003 and 2004. Statistically valid sampling techniques are being used so the results from the examinations can reliably measure the level of compliance in the universe of S corporations filing tax returns.
From a compliance perspective, this effort and another one under consideration for partnerships are critically important for several reasons. Most important, perhaps, is that the study results are expected to improve the IRS examination process by helping ensure the taxes on hundreds of billions of dollars of income and losses passing through these entities are reported and paid properly. The statistical validity and comprehensiveness of the NRP study is designed to provide the IRS with updated compliance data needed for deciding which partnership and S corporation returns should be examined and how best to focus millions of dollars of examination resources on the most significant areas of noncompliance.
During the review, we relied on computer programs to obtain data from IRS databases. In testing the data, we noted there were some data elements missing from the databases. This can occur when information is not included on a tax return when it is filed. We also matched a database containing tax return information with one containing examination results. As part of this matching process, we were unable to match all records in the databases. Where information was missing or records were unable to be matched, we noted this by using the term “Unknown” in the figures presented throughout the report.
The review was performed at the Treasury Inspector General
for Tax Administration (TIGTA) Office of Audit in Los Angeles, California,
during the period August 2005 through July 2006. The audit was conducted in accordance with Government Auditing Standards. Detailed
information on our audit objective, scope, and methodology is presented in
Appendix I. Major contributors to
the report are listed in Appendix II.
Detailed figures referred to in the body of the report are included in
Appendix IV. Many of the calculations
throughout the report and Appendix IV are affected by rounding. All initial calculations were performed using
actual numbers rather than the rounded numbers that appear in the report. The report does not include examination
results from the Coordinated Industry Case Program[7] because relatively few
entities are examined under this Program, and the examination procedures and
techniques differ from the vast
majority of other examinations conducted by the IRS.
Partnerships and S Corporations Are the Fastest
Growing Segments of Taxpayers Filing Tax Returns With the Internal Revenue
Service
From a practical standpoint, partnerships and S corporations have long provided a popular way of protecting income from taxation because they have the legal capacity to offset wages and other income sources that partners and shareholders report on their tax returns. Organizing a business as a partnership or an S corporation also allows these entities, as well as their partners and shareholders, to avoid double taxation on business profits. This treatment is unlike the traditional corporation that incurs a tax liability first at the corporate level and again when business profits are distributed to shareholders in the form of dividends. As illustrated in Appendix IV, operating as a partnership or S corporation can result in considerable tax savings.
Between January 2000 and December 2004, the number of partnership and S corporation tax returns processed annually by the IRS grew 21 percent, from 4.96 million to 6 million. By 2012, the IRS is projecting this number will increase another 42 percent to approximately 8.49 million.
Limited Liability entities[8] are a driving
factor in the growth rate of partnerships filing tax returns
Changes in the legal and regulatory environment in the 1990s contributed to making partnerships the fastest growing segment of all filers of tax returns with the IRS. Specifically, the changes involved the creation of Limited Liability Companies (LLC) and Limited Liability Partnerships (LLP)[9] by State governments and the issuance of the so-called Check-the-Box Regulations[10] by the Federal Government. In 2004, the IRS processed approximately 1.19 million returns filed by Limited Liability entities. This was an 83 percent increase over the nearly 650,000 returns from Limited Liability entities processed in 2000 and represented 47 percent of partnership returns processed in 2004 (see Figure 1).[11]
Figure 1:
Numbers and Types of Partnership Returns Processed |
||||||
|
Type
of Partnership |
Processing
Years[12] |
Percentage
Change |
||||
|
|
2000 |
2001 |
2002 |
2003 |
2004 |
PYs 2000 - 2004 |
|
General Partnership |
918,631 |
876,586 |
832,843 |
796,323 |
762,719 |
-16.97% |
|
Limited Partnership (┼) |
362,595 |
370,533 |
384,120 |
394,287 |
402,840 |
11.10% |
|
LLC |
606,760 |
714,048 |
832,268 |
962,894 |
1,106,678 |
82.39% |
|
LLP (┼) |
43,049 |
59,006 |
65,646 |
73,927 |
81,189 |
88.60% |
|
All other (√) |
134,093 |
143,662 |
151,057 |
165,656 |
170,463 |
27.12% |
|
Totals |
2,065,128 |
2,163,835 |
2,265,934 |
2,393,087 |
2,523,889 |
22.21% |
(┼) A limited partnership is one with at least one general partner
in which limited partners can purchase an interest and be liable only to the
extent of their interests and not risk personal liability. In an LLP, each partner is fully liable for
the debts of the partnership but not for acts of professional negligence or
malpractice committed by the other partners.
(√) All other includes other
partnerships and foreign partnerships for which the IRS began collecting data
in PY 2001 and partnerships with no entity designation.
Source: TIGTA analysis of the IRS Business Return Transaction File (BRTF)[13] for PYs 2000 - 2004.
As with all partnerships, most LLC partnership returns processed in 2000 through 2004 were concentrated in the finance/insurance industry sector and real estate industry sector. During this 5-year period, these 2 industry sectors filed 52.25 percent of all partnership returns processed. They reported accumulating $7.3 trillion in assets and distributing $68 billion of income and $36 billion in losses to their partners. The $7.3 trillion in assets represented 74 percent of the total assets on all partnership returns processed in 2004.
Partnership returns in the finance/insurance industry sector and real estate industry sector also were more likely to be linked to other partnerships. These linkages are referred to as tiered partnerships and generally involve a partnership that owns or is owned by one or more other partnerships. Tiered partnership returns processed in 2000 through 2004 for the real estate industry sector grew at a rate of 27.36 percent, while those in the finance/insurance industry sector grew by more than 50 percent. Of those partnerships with less than $250,000 in total assets, only 11 percent were linked to other partnerships while 72.75 percent of those with over $250 million in assets were linked to other partnerships.
Most S corporations have less than $10 million in
assets and only 1 shareholder
The growth in the number of S corporation returns processed from 2000 through 2004 continued a trend that was started in 1997 when they became the most common type of corporate entity filing income tax returns. In 2004, the IRS processed approximately 3.5 million S corporation returns. This was a 21 percent increase over the 2.89 million S corporation returns processed in 2000. S corporations with assets of less than $10 million represented over 99 percent of the S corporations filed in 2004 (see Figure 2).
|
Figure 2: Numbers and Types of S Corporation
Returns |
|||||||
|
Asset Classification |
Processing Years |
Change |
Percentage |
||||
|
|
2000 |
2001 |
2002 |
2003 |
2004 |
PY 2000 to |
PY 2000 to |
|
Under
$250,000 |
2,262,371 |
2,359,609 |
2,477,088 |
2,628,151 |
2,746,315 |
483,944 |
21.39% |
|
$250,000 to
under $1 million |
404,521 |
425,186 |
446,401 |
463,983 |
478,266 |
73,745 |
18.23% |
|
$1 million
to under $5 million |
173,570 |
182,275 |
191,358 |
197,359 |
202,867 |
29,297 |
16.88% |
|
$5 million
to under $10 million |
27,180 |
29,076 |
29,898 |
31,073 |
31,952 |
4,772 |
17.56% |
|
Totals
less than $10 million |
2,867,642 |
2,996,146 |
3,144,745 |
3,320,566 |
3,459,400 |
591,758 |
20.64% |
|
$10 million
to under $50 million |
19,469 |
21,336 |
22,124 |
23,025 |
24,347 |
4,878 |
25.06% |
|
$50 million
to under $100 million |
1,846 |
2,053 |
2,297 |
2,418 |
2,524 |
678 |
36.73% |
|
$100 million
to under $250 million |
1,016 |
1,126 |
1,374 |
1,383 |
1,449 |
433 |
42.62% |
|
$250 million
and over |
462 |
602 |
952 |
668 |
660 |
198 |
42.86% |
|
Totals $10 million
or more |
22,793 |
25,117 |
26,747 |
27,494 |
28,980 |
6,187 |
27.14% |
|
Grand Totals |
2,890,435 |
3,021,263 |
3,171,492 |
3,348,060 |
3,488,380 |
597,945 |
20.69% |
Source: TIGTA analysis of the S corporation BRTF for PYs 2000 - 2004.
Unlike partnerships, the S corporation filings were distributed over a wider variety of industries[14] although most S corporation tax returns processed in 2000 through 2004 were concentrated in a variety of service industry sectors. In 2004, the service industry sectors filed 31.26 percent of all S corporation returns processed. That same year, the service industry sectors reported holding $246 billion in assets and distributing $50 billion of income and $13.8 billion in losses to their shareholders. However, the $246 billion in assets represented only 11 percent of the total assets on all S corporation returns processed in 2004.
S corporations additionally provide shareholders with the ability to save on the amount of employment taxes they would have to pay if they were structured as sole proprietorships or partnerships. Continuing a trend that has existed for many years, S corporations owned by a sole shareholder dominated the data. Of the 3.45 million S corporation tax returns processed in 2004, approximately 54 percent had sole ownership (see Figure 3). As we have previously reported,[15] single ownership in an S corporation has the benefit of allowing owners to pay employment taxes on only the portion of profits they decide to pay themselves as a salary. This is very different from a sole proprietorship[16] that pays employment taxes based on a percentage of all profits. Single owners of S corporations annually paid themselves an average of $33,853 on returns filed in 2004. In contrast, these same S corporation returns reported average operating profits of $34,683 after taking deductions for officers’ salaries. This permitted sole-shareholder S corporations to save nearly $8.4 billion in employment taxes in TY 2003, or $4,504 on average. The prospect of offsetting income sources of shareholders or minimizing the amount of employment taxes that must be paid can be particularly attractive benefits and may be a primary reason why S corporations have become the most common type of corporate entity filing income tax returns with the IRS.
Figure 3 was removed
due to its size. To see Figure 3, please
go to the Adobe PDF version of the report on the TIGTA Public Web Page.
The IRS last collected data on how well partnerships and S corporations comply with the tax law more the 20 years ago under its Taxpayer Compliance Measurement Program (TCMP).[17] As we reported in 2004,[18] these data are out of date and, accordingly, less reliable for identifying, selecting, and examining the tax returns that pose the greatest compliance risk. The IRS, as a result, increasingly selects partnership and S corporation returns for examination under special projects to address specific types of noncompliance such as tax shelters. Additionally, IRS executives have invested considerable efforts in various initiatives aimed at making the examination process more efficient. Although we did not measure the impact these various projects and initiatives have had on the examination process, IRS statistics show the numbers of partnership and S corporation examinations are increasing and examiners are spending less time on the examinations while making more adjustments to the tax returns. Despite these positive trends, the number of examinations closed with no adjustment continues to be high and could likely be reduced with NRP data to assist in the identification, selection, and examination processes.
The numbers of partnership and S
corporation examinations are increasing and will likely continue to do so in
the future
Although the IRS has historically emphasized examining taxable entities, such as sole proprietorships, it is moving away from this emphasis and towards one that is focused on maintaining examination coverage across all filing segments and on areas presenting the highest compliance risk. This new focus will likely contribute to an increase in the numbers of partnership and S corporation tax returns examined if coverage is to be maintained over the growing number of tax returns expected to be filed by these entities. The IRS closed 37 percent more partnership examinations and 63 percent more S corporation examinations in Fiscal Year (FY) 2005 than it did in FY 2004 (see Figure 4). The increases occurred in nearly every size of partnership and S corporation but generally varied by industry segment.[19]
Figure 4:
FYs 2004 and 2005 Partnership and S Corporation |
|||||||
|
|
Partnership
Returns Examined |
S
Corporation Returns Examined |
|||||
|
Total
Assets |
FY
2004 |
FY
2005 |
Percentage |
FY
2004 |
FY
2005 |
Percentage
|
|
|
Under $250,000 |
2,199 |
3,544 |
61% |
3,473 |
5,737 |
65% |
|
|
$250,000 to under $1 million |
622 |
1,035 |
66% |
616 |
1,189 |
93% |
|
|
$1 million to under $5 million |
838 |
1,243 |
48% |
617 |
1,353 |
119% |
|
|
$5 million to under $10 million |
356 |
469 |
32% |
282 |
569 |
102% |
|
|
$10 million to under |
982 |
935 |
-5% |
795 |
1,063 |
34% |
|
|
$50 million to under |
272 |
286 |
5% |
132 |
150 |
14% |
|
|
$100 million to under |
290 |
307 |
6% |
91 |
106 |
16% |
|
|
$250 million and over |
348 |
409 |
18% |
58 |
42 |
-28% |
|
|
Unknown |
254 |
187 |
-26% |
336 |
201 |
-40% |
|
|
Totals |
6,161 |
8,415 |
37% |
6,400 |
10,410 |
63% |
|
Source: TIGTA analysis of the Audit Information Management System (AIMS)[20] for partnership and S corporation return examinations completed in FYs 2004 and 2005.
In terms of areas presenting the greatest compliance risk,
the IRS has identified abusive tax schemes and transactions as a priority area
for increased examination activity. This
focus has increased and will likely continue to increase the numbers of partnership
and S corporation returns that are examined. In 2000,
the IRS published guidance on 10 transactions that could trigger an
examination because they purportedly abuse the tax law, represent a significant
loss of tax revenue, and undermine the public’s confidence in the tax system. By 2004, there were 31 such transactions,
9 (29 percent) of which required the involvement of a partnership or an S
corporation in the transaction.
Partnership and S corporation examinations
are taking less time and generating more adjustments to items reported on the
tax returns
IRS surveys have shown consistently that business taxpayers believe the examination process is too long and consumes too much time. To address this issue and better leverage its examination resources, IRS executives have invested considerable effort in developing and implementing work process changes focused on reducing the length of examinations. Although we did not measure the impact the efforts have had on examinations, IRS statistics show that both the number of hours and number of calendar days spent on partnership and S corporation examinations decreased between FYs 2004 and 2005. The average number of days decreased nearly 19 percent, and the number of hours decreased nearly 34 percent on partnership examinations (see Figure 5).[21] Similar trends existed for S corporations during the period.[22]
|
Figure 5: Comparison Between the Numbers of Calendar Days
and Hours Spent on Partnership Examinations in FYs 2004 and 2005, by Total
Assets |
|||||||
|
|
Average Number of Days |
Average Number of Hours |
|||||
|
Total Assets |
FY 2004 |
FY 2005 |
Percentage |
FY 2004 |
FY 2005 |
Percentage |
|
|
Under
$250,000 |
495 |
456 |
-7.88% |
43.80 |
38.99 |
-10.98% |
|
|
$250,000 to
under $1 million |
530 |
350 |
-33.96% |
48.69 |
36.13 |
-25.80% |
|
|
$1 million to
under $5 million |
551 |
386 |
-29.95% |
55.95 |
34.49 |
-38.36% |
|
|
$5 million to
under $10 million |
511 |
521 |
1.96% |
79.15 |
50.74 |
-35.89% |
|
|
$10 million
to under |
482 |
516 |
7.05% |
114.35 |
79.60 |
-30.39% |
|
|
$50 million
to under |
479 |
581 |
21.29% |
138.20 |
103.85 |
-24.86% |
|
|
$100
million to under |
544 |
554 |
1.84% |
150.41 |
84.65 |
-43.72% |
|
|
$250
million and over |
735 |
625 |
-14.97% |
304.24 |
149.88 |
-50.74% |
|
|
Unknown |
2,521 |
1,585 |
-37.13% |
36.26 |
31.51 |
-13.10% |
|
|
Totals |
590 |
478 |
-18.98% |
73.87 |
48.89 |
-33.82% |
|
Source: TIGTA analysis of the AIMS for partnership and S corporation return examinations completed in FYs 2004 and 2005.
While the time and length of partnership and S corporation examinations are trending downward, the amount of examination adjustments made to items reported on the tax returns increased 81 percent between FYs 2004 and 2005.[23] When analyzing the examination adjustments, it is important to recognize what they do and do not represent. The examination adjustments, in general, measure only the items or portion of items the examiner believes were not properly reported on the tax return when it was filed. Examination adjustments do not measure the amount of taxes that ultimately will be assessed. Generally, the taxes assessed are significantly lower than the adjustments recommended by examiners to the items on the tax returns.
At the close of an examination, the partners or shareholders may either agree or disagree with the examiner’s determination. If the partners or shareholders agree, the examination adjustments are passed through to their individual tax returns where the taxes are computed based on their income tax brackets and percentage ownership in the entity. For example, if adjustments of $4,000 were made to the deductions on a tax return of an S corporation that had 2 equal shareholders who were in the maximum 35 percent tax bracket, each shareholder would be assessed $700 (50 percent of $4,000 multiplied by the 35 percent tax rate). If the partners or shareholders disagree with the examiner’s determination, the dispute is generally settled through the IRS appeals process or the court system, both of which can significantly reduce or even eliminate the adjustments.
Due to limitations with the IRS databases, we were unable to determine the tax assessments from partnership and S corporation examinations. However, the databases do track the amount of recommended adjustments and show that these entities are agreeing to more recommended adjustments. Nonetheless, the entities agreed with only 42 percent of the adjustments recommended in FY 2005 (see Figure 6). They continued to disagree with most adjustments. In FY 2005, partnerships and S corporations disagreed with 58 percent of the $6.2 billion in recommended adjustments.[24]
Figure 6 was removed
due to its size. To see Figure 6, please
go to the Adobe PDF version of the report on the TIGTA Public Web Page.
The numbers of partnership and S corporation
examinations that result in no adjustments remains a concern
Despite the positive trends in examination results, the large numbers of partnership and S corporation examinations closed with no adjustments will likely continue without NRP data to assist in the identification, selection, and examination processes. As the IRS reported to Congress in 2003, this no-change rate means a significant amount of resources are being devoted to unproductive examinations, and compliant partnerships and S corporations are being unnecessarily burdened.
In FY 2005,
44 percent of partnership and 43 percent of S corporation
examinations resulted in no adjustments.
From FY 2004, this was a 16 percent increase for partnerships and a
48 percent increase for S corporations (see Figure 7). The no-change rates in FYs 2001, 2002, and
2003 for partnerships were in the upper 40 percent range, while for S corporations
they were in the upper 30 percent range.[25]
Figure 7:
FYs 2004 and 2005 Partnership and S Corporation |
|||||||
|
|
Percentage
of Partnership Return Examinations With No Changes |
Percentage
of S Corporation Return Examinations With No Changes |
|||||
|
Total
Assets |
FY
2004 |
FY
2005 |
Percentage |
FY
2004 |
FY
2005 |
Percentage
|
|
|
Under $250,000 |
33.93% |
41.86% |
23.40% |
29.62% |
40.55% |
36.92% |
|
|
$250,000 to under $1 million |
33.93% |
55.40% |
63.30% |
21.92% |
40.69% |
85.67% |
|
|
$1 million to under $5 million |
38.68% |
52.79% |
36.48% |
21.79% |
52.48% |
140.84% |
|
|
$5 million to under $10 million |
47.99% |
42.17% |
-12.13% |
24.11% |
55.71% |
131.04% |
|
|
$10 million to under |
48.83% |
38.66% |
-20.83% |
41.27% |
45.52% |
10.32% |
|
|
$50 million to under |
49.54% |
37.60% |
-24.10% |
38.64% |
31.29% |
-19.01% |
|
|
$100 million to under |
31.11% |
38.03% |
22.25% |
34.44% |
36.79% |
6.82% |
|
|
$250 million and over |
27.44% |
28.72% |
4.66% |
20.00% |
35.90% |
79.49% |
|
|
Unknown |
29.61% |
28.33% |
-4.32% |
23.33% |
29.35% |
25.80% |
|
|
Totals |
37.94% |
44.13% |
16.32% |
29.16% |
43.05% |
47.62% |
|
Source: TIGTA analysis of the AIMS for partnership and S corporation return examinations completed in FYs 2004 and 2005.
IRS officials told
us they are concerned with the trend in the number of no-change examinations
and are evaluating closed examination case files to determine if factors other
than the absence of current compliance data may be contributing to the
no-change rates. Additionally, officials
noted that the productivity from partnership and S corporation examinations may
be higher than reflected by the no-change rate because the IRS reports the
results as a no-change when the adjustments do not change the partnership or S
corporation tax return, but do change a partner or shareholder tax return.
Besides providing updated data for deciding which tax returns should be examined, the NRP study data are expected to be used for such other important tax administration activities as identifying areas in which instructions and prefiling taxpayer services could be improved, suggesting legislative changes, and refining estimates of the tax gap (i.e., the amount of taxes owed but not voluntarily paid). Because of its benefits, numerous stakeholders support the NRP. In addition to the TIGTA, the Government Accountability Office has discussed and reiterated the need for such compliance data in several reports and Congressional testimony.[26] The IRS Commissioner has indicated the NRP is critical for measuring the level and sources of noncompliance. In its FY 2001 annual report, the IRS Oversight Board[27] supported the effort and solicited Congressional support for the Program.
Appendix I
Detailed Objective,
Scope, and Methodology
The overall objective of the review was to analyze the filing characteristics and examination trends of flowthrough entities.[28] We used computer programs to obtain data from the IRS BRTF[29] and AIMS.[30] We did not audit to determine the accuracy and reliability of the information in any of the databases. However, we assessed the reasonableness and completeness of the data analyzed as outlined in Steps III. and IV. To accomplish our objective, we:
I. Analyzed extracts from the IRS BRTF to assess the filing characteristics and trends of partnership and S corporation returns processed in PYs 2000 through 2004.
II. Analyzed extracts from the IRS AIMS to assess the characteristics and trends of partnership and S corporation examinations closed in FYs 2001 through 2005.
III. Compared extracts from the IRS BRTF to the IRS Data Books[31] to provide assurances the data analyzed were reasonable and complete.
IV. Compared extracts from the IRS AIMS to the IRS Table 37, Examination Program Monitoring, to provide assurances the data analyzed were reasonable and complete.
Appendix II
Major Contributors
to This Report
Daniel
R. Devlin, Assistant Inspector General for Audit (Small Business and Corporate
Programs)
Kyle
Andersen, Director
Frank
Dunleavy, Audit Manager
Earl
Charles Burney, Lead Auditor
William
Tran, Senior Auditor
Layne Powell, Information Technology
Specialist
Appendix III
Commissioner C
Office of the Commissioner – Attn: Chief of Staff C
Deputy Commissioner for Services and Enforcement SE
Deputy Commissioner, Large and Mid-Size Business Division SE:LM
Deputy Commissioner, Small Business/Self-Employed Division SE:S
Director, Research, Office of Research, Analysis, and Statistics RAS
Director, Examination, Small Business/Self-Employed Division SE:S:E
Director, Research, Small Business/Self-Employed Division SE:S:R
Director, Strategy, Research, and Program Planning, Large and Mid-Size Business Division SE:LM:SR
Chief Counsel CC
National Taxpayer Advocate TA
Director, Office of Legislative Affairs CL:LA
Director, Office of Program Evaluation and Risk Analysis RAS:O
Office of Internal Control OS:CFO:CPIC:IC
Audit Liaisons:
Commissioner C
Deputy Commissioner for Services and Enforcement SE
Commissioner, Large and Mid-Size Business Division SE:LM
Commissioner, Small
Business/Self-Employed Division SE:S
Appendix IV
Figure 1 – Income Tax Advantages of Flowthrough Entities
Figure 2 – Partnership Filings by Asset Class
Figure 3 – S Corporation Filings by Asset Class
Figure 4 – Partnership Filings by Type of Entity
Classification
Figure 5 – Composition of Partnership Entity Filings (PYs 2000
and 2004)
Figure 6 – Industry Composition of Partnership Filings
(PY 2004)
Figure 7 – Industry Composition of S Corporation Filings
(PY 2004)
Figure 8 – Partnership Filings by Industry Classification
Figure 9 – S Corporation Filings by Industry Classification
Figure 10 – Ownership of Partnerships (PY 2004)
Figure 11 – Ownership of S Corporations (PY 2004)
Figure 12 – Tiered Partnership Filings by Asset Class
Figure 14 – Partnership Return Examinations by Asset Class
Figure 15 – S Corporation Return Examinations by Asset
Class
Figure 16 – Top 5 Industry Classifications of Partnership
Return Examinations
Figure 17 – Top 5 Industry
Classifications of S Corporations Return Examinations
Figure 18 – Partnership Return Examinations by Type of
Entity Classification
Figure 19 – Partnership Return Examination No-Change Rates
by Asset Class
Figure 20 –
S Corporation Return Examination No-Change Rates by Asset Class
Figure 21 – Partnership Adjustments
Figure 22 – S Corporation Adjustments
Figure 23 –
Partnership Unagreed and Agreed Examination Results by Asset Class (FYs 2004 –
2005)
Figure 24 – S Corporation
Unagreed and Agreed Examination Results by Asset Class (FYs 2004 – 2005)
Figure 25 – Partnership Examination Hours per Return by
Asset Class
Figure 26 – S Corporation Examination Hours per Return
by Asset Class
Figure 27 – Partnership Examination Cycle Time per Return by
Asset Class
Figure 28 – S Corporation Examination Cycle Time per
Return by Asset Class
Figure 1: Income Tax Advantages of Flowthrough Entities. One benefit of operating as a partnership or S corporation is that business profits are taxed only once, rather than twice like a conventional corporation. This can be illustrated with the following example assuming the maximum corporate and individual tax rates are applicable for the entities involved and all profits are remitted to the owners. In a conventional corporation, $1,000 of business profits is first taxed at the corporate level, resulting in $350 in corporate income tax ($1,000 multiplied by the 35 percent maximum corporate tax rate), with the remaining $650 being paid to the shareholder as a dividend. The $650 dividend is subject to a special 15 percent tax rate for dividends at the individual level for a personal income tax of $97.50 ($650 multiplied by the 15 percent). As a result, the total tax on $1,000 of corporate earnings is $447.50. In contrast, $1,000 of business profits in a flowthrough entity (partnership or S corporation) is taxed only once at the individual level, resulting in a tax of $350 ($1,000 multiplied by the 35 percent individual tax rate).
The chart was removed
due to its size. To see the chart,
please go to the Adobe PDF version of the report on the TIGTA Public Web Page.
Figure 2: Partnership Filings by Asset Class. Partnership filings grew 22.21 percent in PYs 2000 - 2004. Partnerships reporting assets of over $10 million grew 36.71 percent, while those reporting assets of $10 million and under grew 21.81 percent.
|
|
Processing
Years |
Percentage
Change |
||||
|
Asset
Class |
2000 |
2001 |
2002 |
2003 |
2004 |
PYs 2000
- 2004 |
|
Under $250,000 |
1,319,655 |
1,351,902 |
1,389,769 |
1,482,285 |
1,554,061 |
17.76% |
|
$250,000 to under $1 million |
374,111 |
400,938 |
427,266 |
439,215 |
466,473 |
24.69% |
|
$1 million to under $5 million |
266,406 |
293,183 |
317,943 |
334,975 |
359,028 |
34.77% |
|
$5 million to under $10 million |
48,798 |
54,725 |
60,240 |
64,144 |
67,555 |
38.44% |
|
$10 million to under |
42,451 |
47,885 |
53,292 |
55,173 |
58,562 |
37.95% |
|
$50 million to under |
6,223 |
6,912 |
7,878 |
7,737 |
8,130 |
30.64% |
|
$100 million to under |
4,355 |
4,830 |
5,496 |
5,497 |
5,705 |
31.00% |
|
$250 million and over |
3,129 |
3,460 |
4,050 |
4,061 |
4,375 |
39.82% |
|
Totals |
2,065,128 |
2,163,835 |
2,265,934 |
2,393,087 |
2,523,889 |
22.21% |
Source: TIGTA analysis of the partnership BRTF[32] for PYs 2000 - 2004.
Figure 3: S Corporation Filings by Asset Class. S corporation filings grew 20.69 percent in PYs 2000 - 2004. S corporations reporting assets of over $10 million grew 27.14 percent, while those reporting assets of $10 million or under grew 20.64 percent.
|
|
Processing Years |
Percentage Change |
||||
|
Asset Class |
2000 |
2001 |
2002 |
2003 |
2004 |
PYs 2000 - 2004 |
|
Under
$250,000 |
2,262,371 |
2,359,609 |
2,477,088 |
2,628,151 |
2,746,315 |
21.39% |
|
$250,000 to
under $1 million |
404,521 |
425,186 |
446,401 |
463,983 |
478,266 |
18.23% |
|
$1 million to
under $5 million |
173,570 |
182,275 |
191,358 |
197,359 |
202,867 |
16.88% |
|
$5 million to
under $10 million |
27,180 |
29,076 |
29,898 |
31,073 |
31,952 |
17.56% |
|
$10 million
to under |
19,469 |
21,336 |
22,124 |
23,025 |
24,347 |
25.06% |
|
$50 million
to under |
1,846 |
2,053 |
2,297 |
2,418 |
2,524 |
36.73% |
|
$100
million to under |
1,016 |
1,126 |
1,374 |
1,383 |
1,449 |
42.62% |
|
$250
million and over |
462 |
602 |
952 |
668 |
660 |
42.86% |
|
Totals |
2,890,435 |
3,021,263 |
3,171,492 |
3,348,060 |
3,488,380 |
20.69% |
Source: TIGTA analysis of the S corporation BRTF for PYs 2000 - 2004.
Figure 4: Partnership Filings by Type of Entity Classification. Overall partnership filings grew 22.21 percent. In PYs 2000 - 2004, components grew as follows: LLCs 82.39 percent, LLPs 88.60 percent, and Limited Partnerships 11.10 percent. General partnerships declined nearly 17 percent over the same period. Foreign partnerships grew 79.48 percent, and other partnerships grew 32.78 percent.
|
|
Processing
Years |
Percentage
Change |
||||
|
Partnership
Classification |
2000 |
2001 |
2002 |
2003 |
2004 |
PYs 2000
- 2004 |
|
General Partnership |
918,631 |
876,586 |
832,843 |
796,323 |
762,719 |
-16.97% |
|
Limited Partnership |
362,595 |
370,533 |
384,120 |
394,287 |
402,840 |
11.10% |
|
LLC |
606,760 |
714,048 |
832,268 |
962,894 |
1,106,678 |
82.39% |
|
LLP |
43,049 |
59,006 |
65,646 |
73,927 |
81,189 |
88.60% |
|
Foreign Partnership[33] |
|
2,178 |
3,033 |
3,530 |
3,909 |
79.48% |
|
Other[34] |
|
6,650 |
7,737 |
8,393 |
8,830 |
32.78% |
|
Unknown |
134,093 |
134,834 |
140,287 |
153,733 |
157,724 |
17.62% |
|
Totals |
2,065,128 |
2,163,835 |
2,265,934 |
2,393,087 |
2,523,889 |
22.21% |
Source: TIGTA analysis of the partnership BRTF for PYs 2000 - 2004.
Figure 5: Composition of Partnership Entity Filings (PYs 2000 and 2004). LLCs increased from 29 percent to 44 percent of partnerships, while General Partnerships decreased from 45 percent to 30 percent and Limited Partnerships decreased from 18 percent to 16 percent.
Figure 5 was removed due to its size. To see Figure 5, please go to the Adobe PDF
version of the report on the TIGTA Public Web Page.
Figure 6: Industry Composition of Partnership Filings (PY 2004). The top 5 industry classifications accounted for 71 percent of all partnership filings in PY 2004. “Real Estate and Rental & Leasing” and “Finance/Insurance” made up 53 percent of these partnership filings in PY 2004.
Figure 6 was removed due to its size. To see Figure 6, please go to the Adobe PDF
version of the report on the TIGTA Public Web Page.
Figure 7: Industry Composition of S Corporation Filings (PY 2004). The top 5 industry classifications accounted for 72 percent of the S corporation filings in PY 2004. Service sector industries made up 31 percent of these S corporation filings in PY 2004.
Figure 7 was removed due to its size. To see Figure 7, please go to the Adobe PDF
version of the report on the TIGTA Public Web Page.
Figure 8: Partnership Filings by Industry Classification. Partnership returns processed in PYs 2000 - 2004 were concentrated in the real estate and finance/insurance industry sectors. The top 5 industry categories of partnerships grew 28 percent.
|
|
Processing
Years |
Percentage
Change |
||||
|
Industry
Classification |
2000 |
2001 |
2002 |
2003 |
2004 |
PYs 2000
- 2004 |
|
1. Real Estate and Rental & Leasing |
832,348 |
878,128 |
925,188 |
1,001,047 |
1,067,465 |
28.25% |
|
2. Finance/Insurance |
210,971 |
240,095 |
259,380 |
271,205 |
276,636 |
31.13% |
|
3. Professional, Scientific, and
Technical Services |
127,744 |
135,935 |
144,795 |
154,326 |
160,963 |
26.00% |
|
4. Construction |
113,797 |
120,903 |
128,200 |
133,918 |
140,783 |
23.71% |
|
5. Other Than a Type of Service |
103,056 |
107,456 |
109,211 |
124,814 |
137,384 |
33.31% |
|
Totals for Top 5 Industries |
1,387,916 |
1,482,517 |
1,566,774 |
1,685,310 |
1,783,231 |
28.48% |
|
Retail Trade |
107,712 |
109,850 |
113,064 |
121,539 |
128,355 |
19.16% |
|
Agriculture, Forestry, Fishing, and
Hunting |
116,885 |
119,331 |
121,205 |
125,534 |
127,475 |
9.06% |
|
Other Services |
60,656 |
63,183 |
66,773 |
72,772 |
77,503 |
27.77% |
|
Accommodation and Food Services |
58,861 |
62,565 |
66,356 |
72,157 |
76,546 |
30.05% |
|
Health Care and Social Assistance |
37,254 |
39,626 |
42,615 |
46,153 |
49,087 |
31.76% |
|
Manufacturing |
33,250 |
35,293 |
36,736 |
39,915 |
41,833 |
25.81% |
|
Wholesale Trade |
28,503 |
31,134 |
33,266 |
35,519 |
38,173 |
33.93% |
|
Arts, Entertainment, and Recreation |
26,965 |
28,703 |
30,773 |
33,430 |
35,436 |
31.41% |
|
Administration and Support, Waste
Management, and Remediation Services |
23,391 |
26,104 |
28,653 |
32,328 |
34,611 |
47.97% |
|
Transportation and Warehousing |
21,099 |
23,184 |
24,902 |
27,388 |
28,791 |
36.46% |
|
Information |
21,105 |
22,812 |
23,663 |
26,366 |
27,969 |
32.52% |
|
Mining |
23,876 |
24,269 |
25,032 |
26,222 |
26,875 |
12.56% |
|
Management of Companies and Enterprises |
11,684 |
13,148 |
14,644 |
17,399 |
18,520 |
58.51% |
|
Education Services |
4,029 |
4,341 |
4,797 |
5,361 |
5,857 |
45.37% |
|
Service Type of Business |
7,372 |
8,274 |
7,823 |
7,296 |
5,582 |
-24.28% |
|
Utilities |
2,107 |
2,315 |
2,448 |
2,579 |
2,704 |
28.33% |
|
Unknown |
92,463 |
67,186 |
56,410 |
15,819 |
15,341 |
-83.41% |
|
Totals |
2,065,128 |
2,163,835 |
2,265,934 |
2,393,087 |
2,523,889 |
22.21% |
Source: TIGTA analysis of the partnership BRTF for PYs 2000 - 2004.
Figure 9: S Corporation Filings by Industry Classification. The top 5 industry categories of S corporations grew 30 percent in PYs 2000 - 2004. Industry classifications in the service sector grew 30 percent.
|
|
Processing
Years |
Percentage
Change |
||||
|
Industry
Classification |
2000 |
2001 |
2002 |
2003 |
2004 |
PYs 2000
- 2004 |
|
1. Service Industry Sectors[35] |
840,089 |
913,632 |
971,034 |
1,045,206 |
1,090,354 |
29.79% |
|
2. Construction |
322,702 |
355,350 |
385,328 |
411,324 |
436,535 |
35.27% |
|
3. Retail Trade |
325,090 |
342,665 |
362,761 |
384,347 |
399,625 |
22.93% |
|
4. Real Estate and Rental & Leasing |
319,048 |
334,426 |
352,210 |
374,264 |
394,836 |
23.75% |
|
5. Health Care and Social Assistance |
133,873 |
148,351 |
165,227 |
184,414 |
202,466 |
51.24% |
|
Totals for Top 5 Industries |
1,940,802 |
2,094,424 |
2,236,560 |
2,399,555 |
2,523,816 |
30.04% |
|
Wholesale Trade |
152,130 |
158,089 |
164,267 |
166,274 |
167,710 |
10.24% |
|
Manufacturing |
140,785 |
145,664 |
149,181 |
153,892 |
154,837 |
9.98% |
|
Finance/Insurance |
108,189 |
116,960 |
125,390 |
133,569 |
140,615 |
29.97% |
|
Transportation and Warehousing |
88,383 |
95,625 |
100,858 |
107,522 |
111,646 |
26.32% |
|
Agriculture, Forestry, Fishing, and
Hunting |
66,441 |
69,967 |
72,683 |
75,916 |
77,639 |
16.85% |
|
Arts, Entertainment, and Recreation |
57,301 |
60,923 |
65,403 |
69,740 |
72,998 |
27.39% |
|
Other Than a Type of Service |
72,927 |
63,471 |
63,461 |
64,742 |
72,523 |
-0.55% |
|
Information |
49,908 |
52,848 |
55,021 |
56,974 |
59,251 |
18.72% |
|
Mining |
18,033 |
18,294 |
18,655 |
19,302 |
19,483 |
8.04% |
|
Management of Companies and Enterprises |
12,007 |
12,234 |
13,041 |
13,655 |
14,185 |
18.14% |
|
Utilities |
3,325 |
3,265 |
3,362 |
3,594 |
3,634 |
9.29% |
|
Unknown |
180,204 |
129,499 |
103,610 |
83,325 |
70,043 |
-61.13% |
|
Totals |
2,890,435 |
3,021,263 |
3,171,492 |
3,348,060 |
3,488,380 |
20.69% |
Source: TIGTA analysis of the S corporation BRTF for PYs 2000 - 2004.
Figure 10: Ownership of Partnerships (PY 2004). Ninety-three percent of all partnerships have 10 or fewer partners. Fifty-three percent of partnerships have 2 partners, 17 percent have 3 partners, 23 percent have 4 to 10 partners, and 6 percent have 11 to 50 partners. Partnerships with 51 or more partners represent only 1 percent of all partnerships.
Figure 10 was removed due to its size. To see Figure 10, please go to the Adobe PDF
version of the report on the TIGTA Public Web Page.
Figure 11: Ownership of S Corporations (PY 2004). Eighty-seven percent of S corporations have three or fewer shareholders. Fifty-four percent of S corporations have 1 shareholder, 28 percent have 2 shareholders, and 5 percent have 3 shareholders.
Figure 11 was removed due to its size. To see Figure 11, please go to the Adobe PDF
version of the report on the TIGTA Public Web Page.
Figure 12: Tiered Partnership[36]
Filings by Asset Class. Tiered partnerships grew 31 percent in PYs
2000 – 2004, while tiered partnerships with $10 million or more in assets
grew 45 percent.
|
|
Processing
Years |
Percentage
Change |
||||
|
Asset
Class |
2000 |
2001 |
2002 |
2003 |
2004 |
PYs 2000
- 2004 |
|
Under $250,000 |
136,478 |
126,237 |
135,585 |
164,426 |
177,573 |
30.11% |
|
$250,000 to under $1 million |
71,268 |
70,165 |
75,158 |
82,085 |
86,002 |
20.67% |
|
$1 million to under $5 million |
88,039 |
90,729 |
98,916 |
108,813 |
115,369 |
31.04% |
|
$5 million to under $10 million |
24,576 |
26,044 |
29,434 |
32,732 |
34,595 |
40.77% |
|
$10 million to under |
26,256 |
28,257 |
32,810 |
35,350 |
37,922 |
44.43% |
|
$50 million to under |
4,355 |
4,621 |
5,641 |
5,683 |
6,138 |
40.94% |
|
$100 million to under |
3,012 |
3,252 |
3,935 |
4,046 |
4,360 |
44.75% |
|
$250 million and over |
2,031 |
2,087 |
2,737 |
2,782 |
3,183 |
56.72% |
|
Totals |
356,015 |
351,392 |
384,216 |
435,917 |
465,142 |
30.65% |
Source: TIGTA analysis of the partnership BRTF for PYs 2000 - 2004.
Figure 13: Top 5 Industry Classifications of Tiered Partnership Filings With Assets of $10 Million or More. Tiered partnerships with assets over $10 million grew 45 percent in PYs 2000 - 2004. Partnerships in the “Finance/Insurance” category grew 63 percent, while partnerships in the “Real Estate and Rental & Leasing” category grew 43 percent.
|
|
Processing Years |
Percentage Change |
||||
|
Industry Classification |
2000 |
2001 |
2002 |
2003 |
2004 |
PYs 2000 - 2004 |
|
1. Real
Estate and Rental & Leasing |
16,488 |
17,764 |
20,703 |
22,278 |
23,658 |
43.49% |
|
2. Finance/Insurance |
11,144 |
12,303 |
15,253 |
16,142 |
18,149 |
62.86% |
|
3. Accommodation
and Food Services |
975 |
977 |
1,089 |
1,108 |
1,136 |
16.51% |
|
4. Management
of Companies and Enterprises |
818 |
809 |
938 |
1,053 |
1,095 |
33.86% |
|
5.
Manufacturing |
673 |
761 |
853 |
910 |
946 |
40.56% |
|
Totals for Top 5 Industries |
30,098 |
32,614 |
38,836 |
41,491 |
44,984 |
49.46% |
|
All Other
Industries |
3,804 |
4,017 |
4,433 |
4,710 |
4,912 |
29.13% |
|
Unknown |
1,752 |
1,586 |
1,854 |
1,660 |
1,707 |
-2.57% |
|
Totals |
35,654 |
38,217 |
45,123 |
47,861 |
51,603 |
44.73% |
Source: TIGTA analysis of the partnership BRTF for PYs 2000 to 2004.
Figure 14: Partnership Return Examinations by Asset Class. Partnership return examinations increased 37 percent between FYs 2004 and 2005 with the largest increase, 66 percent, taking place in partnership returns with assets of $250,000 to under $1 million.
|
|
Fiscal
Years |
Percentage
Change |
|||||
|
Asset
Class |
2001 |
2002 |
2003 |
2004 |
2005 |
FYs 2001
- 2005 |
FYs 2004
- 2005 |
|
Under $250,000 |
1,217 |
1,536 |
2,490 |
2,199 |
3,544 |
191.21% |
61% |
|
$250,000 to under $1 million |
592 |
734 |
938 |
622 |
1,035 |
74.83% |
66% |
|
$1 million to under $5 million |
749 |
939 |
1,249 |
838 |
1,243 |
65.95% |
48% |
|
$5 million to under $10 million |
248 |
370 |
626 |
356 |
469 |
89.11% |
32% |
|
$10 million to under |
405 |
597 |
1,027 |
982 |
935 |
130.86% |
-5% |
|
$50 million to under |
171 |
172 |
272 |
272 |
286 |
67.25% |
5% |
|
$100 million to under |
127 |
160 |
243 |
290 |
307 |
141.73% |
6% |
|
$250 million and over |
154 |
240 |
283 |
348 |
409 |
165.58% |
18% |
|
Unknown |
1,392 |
779 |
712 |
254 |
187 |
-86.54% |
-26% |
|
Totals |
5,055 |
5,527 |
7,840 |
6,161 |
8,415 |
66.47% |
37% |
Source: TIGTA analysis of the AIMS for partnership return examinations completed in FYs 2001 - 2005.
Figure 15: S Corporation Return Examinations by Asset Class. S corporation return examinations increased 63 percent between FYs 2004 and 2005 with the largest increase, 119 percent, taking place in returns with assets of $1 million to under $5 million.
|
|
Fiscal Years |
Percentage Change |
|||||
|
Asset Class |
2001 |
2002 |
2003 |
2004 |
2005 |
FYs 2001 - 2005 |
FYs 2004 - 2005 |
|
Under
$250,000 |
4,631 |
4,807 |
4,367 |
3,473 |
5,737 |
23.88% |
65% |
|
$250,000 to
under $1 million |
1,567 |
1,697 |
1,359 |
616 |
1,189 |
-24.12% |
93% |
|
$1 million to
under $5 million |
2,242 |
2,351 |
1,751 |
617 |
1,353 |
-39.65% |
119% |
|
$5 million to
under $10 million |
802 |
885 |
654 |
282 |
569 |
-29.05% |
102% |
|
$10 million
to under |
1,122 |
942 |
963 |
795 |
1,063 |
-5.26% |
34% |
|
$50 million
to under |
143 |
135 |
132 |
132 |
150 |
4.90% |
14% |
|
$100
million to under |
97 |
97 |
97 |
91 |
106 |
9.28% |
16% |
|
$250
million and over |
30 |
34 |
39 |
58 |
42 |
40.00% |
-28% |
|
Unknown |
1,818 |
695 |
333 |
336 |
201 |
-88.94% |
-40% |
|
Totals |
12,452 |
11,643 |
9,695 |
6,400 |
10,410 |
-16.40% |
63% |
Source: TIGTA analysis of the AIMS for S corporation return examinations completed in FYs 2001 - 2005.
Figure 16: Top 5 Industry Classifications of Partnership Return Examinations. Examination of partnership returns in the “Finance/Insurance” and the “Real Estate and Rental & Leasing” industry classifications increased 228 percent and 97 percent, respectively, in FYs 2001 - 2005.
|
|
Fiscal
Years |
Percentage
Change |
|||||
|
Industry
Classification |
2001 |
2002 |
2003 |
2004 |
2005 |
FYs 2001
- 2005 |
FYs 2004
- 2005 |
|
1. Finance/Insurance |
566 |
756 |
1,111 |
1,084 |
1,856 |
227.92% |
71.22% |
|
2. Real Estate and Rental & Leasing |
813 |
1,020 |
1,470 |
1,245 |
1,601 |
96.92% |
28.59% |
|
3. Agriculture, Forestry, Fishing, and
Hunting |
261 |
378 |
499 |
241 |
578 |
121.46% |
139.83% |
|
4. Professional, Scientific, and
Technical Services |
213 |
229 |
392 |
414 |
505 |
137.09% |
21.98% |
|
5. Retail Trade |
158 |
259 |
420 |
351 |
493 |
212.03% |
40.46% |
|
Totals Top 5 Industries |
2,011 |
2,642 |
3,892 |
3,335 |
5,033 |
150.27% |
50.91% |
|
All Other Industries |
1,453 |
1,906 |
3,028 |
2,479 |
3,104 |
113.63% |
25.21% |
|
Unknown |
1,591 |
979 |
920 |
347 |
278 |
-82.53% |
-19.88% |
|
Totals |
5,055 |
5,527 |
7,840 |
6,161 |
8,415 |
66.47% |
36.58% |
Source: TIGTA analysis of the AIMS for partnership return examinations completed in FYs 2001 - 2005.
Figure 17: Top 5 Industry Classifications of S Corporation Return Examinations. Examinations of S corporation returns in the “Retail Trade” industry increased 26 percent, while those in the “Construction” industry declined 25 percent between FYs 2004 and 2005.
|
|
Fiscal Years |
Percentage Change |
|||||
|
Industry Classification |
2001 |
2002 |
2003 |
2004 |
2005 |
FYs 2001 - 2005 |
FYs 2004 - 2005 |
|
1. Retail
Trade |
1,057 |
1,153 |
1,027 |
751 |
1,332 |
26.02% |
77.36% |
|
2.
Construction |
1,554 |
1,572 |
1,333 |
600 |
1,160 |
-25.35% |
93.33% |
|
3. Finance/Insurance |
423 |
528 |
377 |
376 |
960 |
126.95% |
155.32% |
|
4.
Manufacturing |
1,335 |
1,297 |
1,006 |
547 |
906 |
-32.13% |
65.63% |
|
5.
Professional, Scientific, and Technical Services |
829 |
908 |
832 |
713 |
895 |
7.96% |
25.53% |
|
Totals Top 5 Industries |
5,198 |
5,458 |
4,575 |
2,987 |
5,253 |
1.06% |
75.86% |
|
All Other
Industries |
4,782 |
4,924 |
4,383 |
2,881 |
4,716 |
-1.38% |
|