U.S. Senators Marsha Blackburn, John Barrasso, Steve Daines, and James Lankford have expressed concerns regarding an IRS initiative targeting pass-through entities. These entities are primarily small businesses that play a significant role in local economies. The senators urged the U.S. Department of the Treasury to review this initiative, suggesting it may be ideologically driven rather than based on sound tax administration principles.
The senators emphasized that “pass-through entities form the bulk of Main Street businesses across the country,” including family businesses and professional services firms. They noted that these structures offer benefits such as liability protection and simplified tax filing. However, they raised concerns about whether the new enforcement unit is genuinely aimed at improving compliance or unfairly targeting specific business structures.
The senators highlighted challenges faced by smaller businesses in navigating audits under this program. They pointed out that the IRS’s October 2024 announcement stated that “LB&I will be responsible for starting pass-through exams, regardless of entity size” and mentioned “removing the entity-size barrier” to increase audit rates. This change could impose complex examination procedures on small businesses traditionally managed by a different division, potentially leading to disproportionate compliance burdens.
Further concerns were raised about the IRS’s reference to targeting “complex arrangements” without clear definitions, which might result in legitimate business structures being unfairly targeted. The announcement indicated a focus on increasing audit rates rather than addressing compliance issues through evidence-based risk assessments.
