Update: 2025 Partnership Audit Expectations

At the beginning of the year, the IRS announced it was lowering its partnership audit expectations for 2025 due to challenges in hiring and training to the levels contemplated by the expansive IRS audit budget provided by the Biden administration. The IRS also noted its commitment to enhancing the effectiveness of partnership audits by using new AI tools.

Major media outlets are now reporting layoffs of as many as 7,000 IRS employees (with some reporting a 50% reduction in force). While the precise impact of these layoffs on the number of partnership audits is unknown, reduced personnel at IRS is likely to reduce even further the number of partnership audits that the IRS can practically initiate this year.

While reduced partnership audits may strike some for the better, it is also possible that partnership audits initiated by the IRS become more time-consuming and difficult to resolve. When the IRS lacks adequately trained personnel for audit and other compliance efforts, taxpayers may confront obstinacy instead of collaborative efforts to understand complex structures, and sometimes less interest in compromise.

Apart from audit matters, clients should expect an even greater impairment of the ability to resolve IRS processing errors.

Questions about what to expect from the 2025 tax landscape? Please reach out to Michael Tuchman or another member of LP’s Tax Planning team.