schedule k-1 compliance and the yk-1 link analysis tool msata conference august 22, 2006
TRANSCRIPT
Schedule K-1 Compliance and the yK-1 Link Analysis Tool
MSATA ConferenceAugust 22, 2006
IRS LMSB SRPP 2
Schedule K-1 Filings
Over 25 Million K-1s filed Over $1 Trillion income
IRS LMSB SRPP 3
Flow through filings increasing while corporate filings decreasing
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
PY 2000 PY 2001 PY 2002 PY 2003 PY 2004
Nu
mb
er
of
Retu
rns
1120S
1065
1120
Assets $10M+
IRS LMSB SRPP 4
Possible reasons for shift to flow throughs
M & A activity reducing the population of C corporation filers
New entities electing LLC & LLP structure
Lower audit coverage on partnerships and S corporations
IRS LMSB SRPP 5
A History of Schedule K-1 Reporting
Prior to TY 2000 most K-1s filed on paper
Due to processing costs, K-1s were not transcribed
Only way to get K-1 data was to order returns
IRS LMSB SRPP 6
A History of Schedule K-1 Reporting
Taxpayer Relief Act of 1997 requires e-filing of Forms 1065 by partnerships with 100+ partners
TY 2001 all paper Schedules K-1 are transcribed
IRS LMSB SRPP 7
A History of Schedule K-1 Reporting
New Schedule K-1 developed Available TY 2004 for partnerships
and S corporations Available TY 2005 for trusts Modeled on Form W-2 Form is easily scanned
IRS LMSB SRPP 8
yK-1 Link Analysis Tool
An Overview
IRS LMSB SRPP 10
What is yK-1?
yK-1 is an interactive Java based software tool and database.
It is adapted from yFILES software by yWORKS and maintained by IRS Headquarters Research.
IRS LMSB SRPP 11
What is yK-1?
yK-1 uses K-1 data from corporations, flow-through returns, Forms 851 and K-1, and High Income Individual returns to visually depict relationships and income/loss flows between payers and payees.
IRS LMSB SRPP 12
What is yK-1?
K-1s Forms 1120(x) 1041, 1065, 990
Form 1040
TPI > $250,000
Form 851
Affiliations
IRS LMSB SRPP 13
What does it do?
yK-1 draws graphs of nodes and links Nodes represent tax returns and
other entities Links between the nodes reflect K-1
activity, and parent-subsidiary or husband-wife relationships
IRS LMSB SRPP 14
yK1 Display Symbol Legend
Shapes indicate return type
1120S
1040
1065
1041
1120
Other 1120
?????
TEGE
Group Node
IRS LMSB SRPP 15
yK1 Display Symbol Legend
Colors indicate special attributes
Red TPI > $250,000
Orange Total Assets > $10M
Yellow
Black
Tax Shelter
Tax Haven Address
Dark Grey Foreign Address
IRS LMSB SRPP 16
Link Analysis Example
Controlling Party
Starting Point
IRS LMSB SRPP 17
A Different Perspective
Link analysis helps to look at the enterprise in different ways, asking questions such as: What are the related entities? Are there known high-risk patterns
present? Which related entities present risk? Who really controls the enterprise?
IRS LMSB SRPP 18
yK-1 Uses
When used interactively, nodes and links can be queried to provide more detailed information (e.g., addresses, dollar amounts for transcribed fields).
When used interactively, graphs can be expanded to pursue more definitive views of nodes of interest and reorganized to make them clearer.
IRS LMSB SRPP 19
+37,938,415
+36,163,318
+867,508-32,320,557
+1,114,909-40,149,462
+867,508-32,320,557
+543,458-20,074,731
+543,458-20,074,731
IRS LMSB SRPP 20
yK-1 Uses Classification
Identifying potential issues based on relationships to other entities
Case Building Getting related returns into the case file Describing relationship between returns
Audit Planning Risk assessment
IRS LMSB SRPP 21
What’s Available Tax Years
2000-2004 Form Numbers
1120(x) 1065 1041 990 1040 5500
IRS LMSB SRPP 22