The IRS is planning to close a major tax loophole for wealthy taxpayers that could generate more than $50 billion in revenue over the next decade, according to the U.S. Treasury Department. The proposed rule and guidance aim to stop “partnership basis shifting,” a practice where assets are moved among related parties to avoid taxes. The IRS has identified this as a tax shelter that allows high-income taxpayers to evade their tax obligations. Due to previous underfunding, the IRS had cut back on auditing wealthy individuals, leading to an increase in asset shifting among partnerships and companies. The new guidance is part of the IRS’s efforts to crack down on tax avoidance by the top 1% of earners, who reportedly owe $160 billion more in taxes than they pay.
Deputy Treasury Secretary Wally Adeyemo characterized partnership basis shifting as a “shell game” with no economic basis, stating that these transactions effectively make income disappear from the tax system through deceptive deductions and tax reductions. The proposed rule and guidance aim to eliminate the tax benefits of these transactions and improve their identification by the IRS. Miles Johnson, a tax law specialist, emphasized that the IRS is taking significant steps to stop these practices and hold high-wealth tax cheats accountable. The IRS plans to increase audit rates on companies with assets over $250 million and large complex partnerships with assets over $10 million to combat tax evasion.
The guidance announced by the Treasury Department reflects the Biden administration’s commitment to closing tax loopholes and ensuring that wealthy individuals and businesses pay their fair share of taxes. The increased funding provided through the 2022 Inflation Reduction Act has enabled the IRS to enhance oversight and tackle tax avoidance schemes. The IRS commissioner highlighted that these tax shelters allow wealthy taxpayers to avoid paying what they owe, underscoring the need to address this issue to promote tax fairness and compliance. By curbing partnership basis shifting and other tax avoidance tactics, the IRS aims to narrow the tax gap and improve overall tax enforcement efforts.
The new guidance is part of the IRS’s ongoing efforts to target high-wealth tax evaders who exploit the tax code or engage in illegal tax practices. In recent years, the IRS has implemented various initiatives to pursue individuals and businesses that improperly deduct personal expenses, such as flights on corporate jets, and collect back taxes from delinquent taxpayers. By raising audit rates on large companies and partnerships, the IRS intends to deter tax evasion and ensure that all taxpayers, especially the wealthy, fulfill their tax obligations. The IRS’s focus on enhancing tax enforcement and cracking down on tax cheats reflects a broader commitment to fostering tax compliance and addressing inequities in the tax system.
Overall, the IRS’s proposed rule and guidance signal a concerted effort to strengthen tax enforcement and combat tax evasion among high-wealth individuals and businesses. The measures outlined in the guidance aim to close tax loopholes, increase audit rates, and improve oversight of tax-related transactions to promote tax fairness and compliance. By taking decisive action to address tax avoidance schemes and hold tax cheats accountable, the IRS is working towards narrowing the tax gap and enhancing overall tax revenue collection. The ongoing efforts by the IRS and the Treasury Department underscore the importance of enhancing tax enforcement measures to ensure that all taxpayers contribute their fair share to the tax system.
