Investment Funds’ Complexity Stymies IRS Audits, GAO Says

Large partnerships, including private-equity firms and hedge funds, are often so complex that the Internal Revenue Service can’t audit them effectively, the Government Accountability Office found.

In a report released Sept. 18, the GAO focused on more than 10,000 large partnerships that have at least 100 partners and $100 million in assets. Most are in the finance and insurance industries.

In fiscal year 2012, the IRS audited 0.8 percent of large partnerships, similar to its audit rate for all individual taxpayers. Many large corporations, by contrast, have teams of IRS auditors working at their corporate offices; their audit rate is ...