Additional Coverage:
- The IRS wants to end another major tax loophole for the wealthy and raise $50 billion in the process (newsbreak.com)
The U.S. Treasury Department revealed that the IRS is targeting a significant tax strategy favored by affluent taxpayers, with expectations to boost revenue by over $50 billion in the next ten years. This crackdown focuses on curbing “partnership basis shifting,” a tactic that allows the shifting of assets between related entities to minimize tax liabilities.
Officials from the Biden administration, after assessing these transactions, found them economically unjustifiable, with Deputy Treasury Secretary Wally Adeyemo describing the maneuvers as mere financial trickery. This move comes on the heels of the 2022 Inflation Reduction Act, which has provided the IRS with additional resources, enabling better scrutiny and understanding of these tax avoidance strategies.
IRS Commissioner Danny Werfel criticized the use of such shelters by the wealthy to shirk their tax responsibilities. Historical underfunding of the IRS led to a decrease in audits of affluent individuals and the widespread practice of transferring assets among partnerships and firms to evade taxes.
The IRS observed a 70% surge in filings by large pass-through entities, which are typically utilized for avoiding taxes, from 174,100 in 2010 to 297,400 in 2019. Yet, the audit rates for these entities plummeted during the same period.
The Treasury pinpointed a roughly $160 billion discrepancy between the taxes that the wealthiest 1% should be paying and what they are actually paying.
Miles Johnson, a senior attorney adviser at the Tax Law Center at NYU Law, noted that these tax strategies result in the vanishing of taxable income through deductions and other reductions that don’t correspond to real economic losses. He commended the IRS’s steps to counter these schemes by nullifying their tax advantages and making them more recognizable to the agency as insubstantial.
This announcement is part of a broader IRS initiative aimed at targeting tax evasion among the affluent, including those improperly claiming deductions and those owing significant back taxes. The IRS is also planning to significantly increase audit rates for large businesses and complex partnerships in the coming years, marking a decisive move against tax evasion strategies.