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Schedule K-1 Compliance and the yK-1 Link Analysis Tool

Schedule K-1 Compliance and the yK-1 Link Analysis Tool. MSATA Conference August 22, 2006. Schedule K-1 Filings . Over 25 Million K-1s filed Over $1 Trillion income. Flow through filings increasing while corporate filings decreasing. Assets $10M+.

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Schedule K-1 Compliance and the yK-1 Link Analysis Tool

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  1. Schedule K-1 Compliance and the yK-1 Link Analysis Tool MSATA Conference August 22, 2006

  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 IRS LMSB SRPP Assets $10M+

  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. IRS LMSB SRPP

  9. yK-1 Link Analysis Tool An Overview

  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? Forms 1120(x) 1041, 1065, 990 K-1s Form 851 Affiliations Form 1040 TPI > $250,000 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 1065 Other 1120 1041 ????? 1120S 1120 TEGE 1040 Group Node Shapes indicate return type IRS LMSB SRPP

  15. yK1 Display Symbol Legend Red TPI > $250,000 Orange Total Assets > $10M Yellow Tax Shelter Black Tax Haven Address Dark Grey Foreign Address Colors indicate special attributes IRS LMSB SRPP

  16. Link Analysis Example Starting Point Controlling Party 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. +36,163,318 +543,458 -20,074,731 +867,508 -32,320,557 +37,938,415 +1,114,909 -40,149,462 +543,458 -20,074,731 +867,508 -32,320,557 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. Demonstration IRS LMSB SRPP

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