Paul L. Caron

Tuesday, April 29, 2014

WSJ: MLPs and Hedge Funds Are Too Complicated to Be Audited

Following up on my previous posts:

Wall Street Journal:  Investments That Elude IRS Scrutiny: Master Limited Partnerships and Hedge Funds Are Often Too Complicated to Be Audited, by Laura Saunders:

Is your investment too complicated to be audited?

It could be, say experts, if it is a partnership stake in a large private-equity firm, hedge fund or master limited partnership. Examples include publicly traded partnerships such as Blackstone Group and KKR, oil and gas MLPs such as Magellan Midstream Partners or Kinder Morgan Energy Partners, and many privately held large partnerships as well.

The IRS reviewed the books and records of only 0.8% of large partnerships with 100 or more direct investors and $100 million or more in assets in fiscal 2012, according to recent findings from the Government Accountability Office, a federal watchdog agency. By contrast, the IRS audited 27.1% of corporations with $100 million or more in assets in the same year.

"Given their tax treatment, large partnerships are well-positioned to avoid IRS scrutiny," says Noel Brock, a partnership tax expert who teaches at West Virginia University and is both a certified public accountant and lawyer. That protection usually extends to the investments by individuals in such partnerships as well.

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