What This Letter Means

Letter 3457, Pass-Through Audit Notification, tells you the IRS has started an examination of a pass-through entity you invested in. It's used for:

  • Partnerships not subject to TEFRA,
  • Partnerships that elected out of the Bipartisan Budget Act (BBA) audit rules, and
  • S corporations.

The law doesn't require this letter. The IRS sends it as a courtesy so your first contact about the audit isn't an audit report or a request to extend the time limit on your own return.

Why It Matters to You

Income, deductions and credits from these entities flow through to the owners' returns. If the IRS adjusts the entity's items, your share of those adjustments can change your own tax. Even when there's no change for the current year, an adjustment can affect carryovers like suspended losses or net operating losses in other years.

What to Do

  • Keep the letter with your return for that year.
  • Contact the entity's managing partner or officers. Find out what the IRS is examining and who is handling it.
  • Pull together your K-1 and your own records for the years involved.
  • Watch for later IRS mail about your own return. That can include a request to extend the statute of limitations, a proposed report, or a notice of deficiency. Those require action.

What Happens Next

If the entity's audit closes with no change, you should receive a no-change letter. If the entity is adjusted, the IRS may send you a report showing how your return changes. Before you sign a statute extension or agree to a report, get advice.

If you received Letter 3457 and want to protect your own return during the entity's audit, call us at (813) 229-7100.