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The White House's chief lawyer learned weeks ago that an audit of the Internal Revenue Service likely would show that agency employees inappropriately targeted conservative groups, a senior White House official said Sunday.
That disclosure has prompted a debate over whether the president should have been notified at that time.
In the week of April 22, the Office of the White House Counsel and its head, Kathryn Ruemmler, were told by Treasury Department attorneys that an inspector general's report was nearing completion, the White House official said. In that conversation, Ms. Ruemmler learned that "a small number of line IRS employees had improperly scrutinized certain organizations by using words like 'tea party' and 'patriot,' " the official said.
That's according to a preliminary report released to Congress by the Government Accountability Office (GAO) April 17th. An ELP is a business entity with more than 100 partners and more than $100 million in assets that is required to file a 1065-B tax return every year. They include large private equity firms, hedge funds and oil and gas partnerships. No partnerships that filed a Form 1065-B from tax years 2002 to 2011 had their tax return audited and closed by IRS from fiscal years 2007 to 2013, a footnote on page 14 of the GAO report stated.
Jim White, a spokesman for GAO, confirmed that no ELPs were audited by the IRS between 2007 and 2013, the last year statistics are available. However, he pointed out that there were only 15 ELPs out of 105 filing 1065-B returns nationwide in 2011 that met the $100 million asset threshold. Another 2,211 partnerships filed under IRS Form 1065 in 2011, but only 20 audits (or less than one percent) were closed that year, White told CNSNews.com, acknowledging that this is a very low audit rate. White noted that GAO is doing a follow-up and will be asking the IRS a number of questions to try to better understand the tax agencys audit decisions. These are the big guys, said Amy Elliott, legal editor at the non-profit Tax Analysts, who pointed out that some ELPs have up to $20 billion in assets. The IRS should be looking at them more.
Tax Analysts put a video up on You Tube explaining why the IRS treats these large partnerships as essentially too big to audit. So, were you the one that said at Tax Analysts that these are basically unaudited entities at this point, or audit proof I guess was the word used?" CNSNews.com asked Elliott. Right, I mean, I think there is a sense among partnership practitioners that these entities are essentially audit-proof, she replied. You know, its interesting, when I read the GAO report, I actually took issue a little bit with their $100 million asset threshold, she continued. I mean, yes it is the case that the larger the entity, the more you should argue that the IRS should look at it, because even if all it finds is a one percent adjustment, one percent on big ends up being a lot of money, as opposed to one percent on small. But really, I mean, the audit statistics are so poor in this area that, you know, if they can only and it takes a lot of resources for the IRS to audit a partnership so if they can only audit, you know, five of them, of these large partnerships, they should get the really really big ones.
ELPs - which Elliott says operate under extraordinarily complicated tax rules created by Congress in 1997 - were not even subjected to the same kind of scrutiny that the IRS typically focuses on similar-sized corporations. The IRS will come in and ask questions, but they do not have to go through the kind of full-on audits that major C-corporations have to go through. A lot of these partnership structures are so complicated to unwind and figure out whats going on that honestly, IRS agents wouldnt know the questions to ask, she told CNSNews.com. The GAO also reported that the average asset size of ELPs decreased from $2.5 billion in 2002 to $779 million in 2011, while the average number of direct partners decreased from a ten-year high of 973 in 2007 to 297 in 2011. Elliott agreed with White that the total number of ELPs is very small compared to other tax filers.
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