IRS Lowers Partnership Audit Expectations for 2025 But Expands Auditing Team

As recently reported by Bloomberg, the IRS has lowered its goal for the number of partnership audits it will initiate in 2025 to 3,600. For context, the IRS sought to initiate just over 4,000 partnership audits in 2024 but managed only slightly less than 2,300.

In its 2024 Agency Financial Report, the IRS attributes the shortfall in 2024 to, among other factors, the time that experienced auditors had to devote to training new auditor hires. Even though the IRS’s auditing team was not at full capacity last year, of the approximately 2,300 audits, 76 were of the largest partnerships in the U.S. across industries including real estate investment partnerships, publicly traded partnerships, large law firms, and hedge funds. According to the IRS, on average, each of these partnerships had more than $10 billion in assets. But partnerships of all sizes potentially face an increased risk of an audit.

The IRS’s investment in growing its auditing team may mean it is positioned for more robust and effective audits of selected partnerships in 2025. The agency has hired and trained specialized “accountants, engineers, economists, data scientists, attorneys, and tax experts” with the specific goal of examining the returns of large corporations and complex partnerships.

Interestingly, the IRS acknowledges that it is now using AI tools to select partnerships for audit, hoping to get a better bang for the buck. It remains to be seen how a change in administration and control of Congress will impact IRS funding and priorities. Until then, taxpayers should be anticipating an uptick in the number and effectiveness of partnership audits, which, historically, have been less common than corporate and individual audits.