IRS intensifies scrutiny of Schedule K-1s - IRS News - Brief Article

California CPA, August, 2002

The IRS has launched a new compliance effort to encourage taxpayers to properly report partnership, S corporation or trust income or losses on their individual tax returns. Some taxpayers may receive notices requesting an explanation for a discrepancy.

Earlier this year the IRS began matching information reported on Schedule K-1 with income or losses reported on Form 1040 and other schedules.

The IRS will send notices to taxpayers when there is a mismatch in information provided on tax year 2000 returns. In many cases, the issue can be resolved with a letter or phone call.

The IRS processed more than 18 million Schedule K-1s for tax year 2000 recording $1.2 trillion in income to partners, stockholders and beneficiaries.

To date, some 65,000 notices have been issued in which the IRS found a mismatch between the information return and the individual's tax return.

IRS examiners manually screen mismatched returns to ensure consideration of issues such as passive loss limitations and income or losses reported on Schedule E.