Pass-through entities can expect to see more IRS audits in 2020 and more over the next few years.
That’s in part because audit rates for pass-throughs have been dismally low in the recent past. The 2017 overall exam rates for partnerships and S corporations were 0.4% and 0.3%. This figure dropped to a measly 0.2% for these entities in 2018.
Also, in 2018, 40% of the partnership examinations and 29% of the S firm audits that were conducted by agents in the field resulted in no change to taxes. So, the IRS is going big after small pickings.