The growing number and complexity of large partnerships, such as hedge funds, are making it difficult for the Internal Revenue Service to audit them effectively, according to a new government report.

The report, from the Government Accountability Office, follows on the heels of an earlier GAO report this spring indicating that the IRS is performing more audits of large partnerships, but only a relatively tiny fraction of the growing population (see IRS Doing More Audits of Large Partnerships). The GAO defines large partnerships as those having $100 million or more in assets and 100 or more direct and indirect partners. Businesses organized as partnerships have increased in number in recent years while the number of C corporations (that is, those subject to the corporate income tax) has decreased.

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