{"database": "openregs", "table": "congressional_record", "rows": [["CREC-2014-12-16-pt1-PgS6921-4", "2014-12-16", 113, 2, null, null, "Introductory Statement on S. 3018", "SENATE", "SENATE", "SSTATEMENTSIND", "S6921", "S6922", "[{\"name\": \"Carl Levin\", \"role\": \"speaking\"}]", "[{\"congress\": \"113\", \"type\": \"S\", \"number\": \"3018\"}]", "160 Cong. Rec. S6921", "Congressional Record, Volume 160 Issue 155 (Tuesday, December 16, 2014)\n\n[Congressional Record Volume 160, Number 155 (Tuesday, December 16, 2014)]\n[Senate]\n[Pages S6921-S6922]\nFrom the Congressional Record Online through the Government Publishing Office [www.gpo.gov]\n\n      By Mr. LEVIN:\n  S. 3018. A bill to amend the Internal Revenue Code of 1986 to reform\nthe rules relating to partnership audits and adjustments; to the\nCommittee on Finance.\n\n  Mr. LEVIN. Mr. President, today, I am introducing the Partnership\nAuditing Fairness Act, a bill designed to improve and streamline the\naudit procedures for large partnerships. This bill would ensure that\nlarge for-profit partnerships, like other large profitable businesses,\nare subject to routine audits by the Internal Revenue Service, IRS, and\neliminate audit red tape that currently impedes IRS oversight. This\nlegislation mirrors a provision in the Tax Reform Act of 2014,\nintroduced earlier this year by Congressman David Camp.\n  This legislation would fix a problem that has gained only more\nurgency with time and the explosion in growth of large partnerships,\nincluding hedge funds, private equity funds, and publicly traded\npartnerships. In a September 2014 report, the Government Accountability\nOffice, GAO, determined that the number of large partnerships, defined\nby GAO as those with at least 100 partners and $100 million in assets,\nhas tripled since 2002, to over 10,000, while the number of so-called C\ncorporations being created, which include our largest public companies,\n\n[[Page S6922]]\n\nfell by 22 percent. According to the GAO report, some of those\npartnerships have revenues totaling billions of dollars per year and\nnow collectively hold more than $7.5 trillion in assets, but the IRS is\nauditing only a tiny fraction of them. According to GAO, in 2012, the\nIRS audited less than 1 percent of large partnerships compared to 27\npercent of C corporations. Put another way, a C corporation is 33 times\nmore likely to face audit than partnership.\n  A recent hearing by the Permanent Subcommittee on Investigations,\nwhich I chair, demonstrated the critical need to audit large\npartnerships for tax compliance and abusive tax schemes. Our July 2014\nhearing presented a detailed case study of how two financial\ninstitutions developed a structured financial product known as a basket\noption and sold the product to 13 hedge funds that used the options to\navoid billions of dollars in Federal taxes. The trading by those hedge\nfunds was mostly made up of short term transactions, many of which\nlasted only seconds. However, the hedge funds recast their short-term\ntrading profits as long-term option profits, and claimed the profits\nwere subject to the long-term capital gains tax rate rather than the\nordinary income tax rate that would otherwise apply to hedge fund\ninvestors engaged in daily trading. One hedge fund used its basket\noptions to avoid an estimated $6 billion in taxes. Those types of\nabusive tax practices illustrate why large partnerships like hedge\nfunds need to be audited by the IRS just as much as large corporations.\n  During its review, GAO found that large partnerships are often so\ncomplex that the IRS can't audit them effectively. GAO reported that\nsome partnerships have 100,000 or more partners arranged in multiple\ntiers, and some of those partners may not be people or corporate\nentities but pass-through entities--essentially, partnerships within\npartnerships. Some are publicly traded partnerships, which means their\npartners can change on a daily basis. One IRS official told GAO that\nthere were more than 1,000 partnerships with more than a million\npartners in 2012.\n  GAO also found obstacles in the law. The Tax Equity and Fiscal\nResponsibility Act, TEFRA, now 3-decades-old, was enacted at a time\nwhen many partnerships had 30-50 partners; it does not adequately deal\nwith current realities. That is why I am introducing legislation to\nrepeal some of its provisions and streamline the audit and adjustment\nprocedures used for large partnerships so that the IRS can exercise\neffective oversight to detect and deter tax noncompliance or tax abuse\nschemes.\n  Three technical aspects of TEFRA create particularly difficult\nobstacles to IRS audits and tax collection efforts for large\npartnerships. The first requires the IRS to identify a ``tax matters\npartner'' to represent the partnership on tax issues, but many\npartnerships do not designate such a partner, and simply identifying\none in a complex partnership can take months. Second, notifying\nindividual partners prior to commencing an audit costs time and money,\nyet produces few if any benefits. Third, TEFRA requires that any tax\nadjustments called for by an audit be passed through to the\npartnership's taxable partners, but the IRS's process for identifying,\nassessing, and collecting from those partners is a manual rather than\nby electronic process, which makes it laborious, time consuming,\ncostly, and subject to error. For example, if a partnership with\n100,000 partners under-reported the tax liability of its partners by $1\nmillion, the IRS would have to manually link each of the partners'\nreturns to the partnership return. Then, assuming each partner had an\nequal interest in the partnership, the IRS would have to find, assess,\nand collect $10 from each partner. That collection effort is not\npractical nor is it cost effective. In addition, under TEFRA, any tax\nadjustments have to be applied to past tax years, using complicated and\nexpensive filing requirements, instead of to the year in which the\naudit was performed and the adjustment made.\n  Fixing the technical flaws in TEFRA is critical to ensuring that the\naudit playing field is level for all taxpayers. An essential element of\nany system of taxation is that it be fair--that is, that all those who\npay taxes have a reasonable expectation that they are being treated in\nthe same fashion as other taxpayers. Without fairness, not only does a\ntax system violate ethical principles, but the system itself fails to\ncollect taxes owed, arouses resentment and complaints, and can even\nspark widespread noncompliance. The current situation in which large\ncorporations are audited 33 times more than large partnerships is\nneither fair nor sustainable.\n  The Partnership Auditing Fairness Act would eliminate the existing\naudit disparity by streamlining the audit process for large\npartnerships. It would simplify audit notification and administrative\nprocedures. It would no longer require the IRS to waste audit time\ntrying to find a tax matters partner. It would allow the IRS to audit,\nassess, and collect tax from the partnership, rather than passing the\nadjustments through to and collecting from each taxable partner. It\nwould apply any tax adjustments to the tax year in which the\nadjustments were finalized, rather than past tax years under audit.\n  The enormous discrepancy in audit rates between partnerships and\nother business forms raises a fundamental question of fairness. If one\ntype of entity can be nearly free of IRS audits, businesses that do pay\ntheir taxes and are subject to the audit process rightly feel\ndisadvantaged. That lack of fairness is something we simply can't\ntolerate.\n  For these reasons, in the next Congress, I urge my colleagues to\nconsider supporting this legislation to fix the large partnership audit\nproblem.\n  Mr. President, I ask unanimous consent that a bill summary be printed\nin the Record.\n  There being being no objection, the material was ordered to be\nprinted in the Record, as follows:\n\n            Summary of the Partnership Auditing Fairness Act\n\n       The Partnership Auditing Fairness Act would ensure that\n     large for-profit partnerships, like other large profitable\n     businesses, are subject to routine audits by the IRS and\n     eliminate audit red tape that currently impedes IRS\n     oversight. Specifically, it would reform audit procedures\n     imposed by the 1982 Tax Equity and Fiscal Responsibility Act,\n     TEFRA, which are now outdated and contribute to the low audit\n     rate for large partnerships. The bill mirrors the same\n     provision addressing this issue in the larger tax reform bill\n     developed by Congressman David Camp. Key provisions of the\n     bill would:\n       Apply streamlined audit rules to all partnerships, but\n     allow partnerships with 100 or fewer partners, other than\n     partners that are pass-through entities, to opt out of the\n     bill's audit procedures and elect instead to be audited under\n     the rules for individual taxpayers.\n       Simplify partnership audit participation by having\n     partnerships act through a designated partnership\n     representative.\n       Simplify audit notification and administrative procedures\n     by repealing the TEFRA and Electing Large Partnership\n     requirement that the IRS notify all partners prior to\n     initiating an audit.\n       Streamline audit adjustments by authorizing the IRS to make\n     adjustments at the partnership level and apply the\n     adjustments to the tax year in which the adjustments are\n     finalized, rather than to the tax years under audit.\n       Streamline tax return filing by enabling partnerships to\n     include audit adjustments on their current tax returns for\n     the year in which the adjustments are finalized, instead of\n     having to amend prior-year returns.\n       Eliminate the TEFRA problem of having to find and\n     separately collect any tax due from each affected partner by\n     instead collecting the tax at the partnership level.\n       Enable partnerships to use administrative procedures to\n     request reconsideration of a proposed under payment of tax by\n     submitting tax returns for individual partners and paying any\n     tax due, while retaining the ability to contest all audit\n     results in court.\n                                 ______"]], "columns": ["granule_id", "date", "congress", "session", "volume", "issue", "title", "chamber", "granule_class", "sub_granule_class", "page_start", "page_end", "speakers", "bills", "citation", "full_text"], "primary_keys": ["granule_id"], "primary_key_values": ["CREC-2014-12-16-pt1-PgS6921-4"], "units": {}, "query_ms": 1.1879000812768936, "source": "Federal Register API & Regulations.gov API", "source_url": "https://www.federalregister.gov/developers/api/v1", "license": "Public Domain (U.S. Government data)", "license_url": "https://www.regulations.gov/faq"}