(UnitedHeadlines.com) – On June 17, the Internal Revenue Service announced new guidance that ends a tax loophole used by wealthy taxpayers, which could result in $50 billion in revenue over the next 10 years.
The new guidance would end a process used to avoid paying taxes known as “partnership basis shifting,” which is when a person or business moves their assets between a series of related parties. The Biden administration stated there are no economic grounds for these transactions.
Deputy Treasury Secretary Wally Adeyemo referred to the process as “really just a shell game.”
Due to funding in the 2022 Inflation Reduction Act for the IRS, officials became aware of the practice, which had become common among wealthy individuals. IRS commissioner Danny Werfel said wealthy taxpayers have been using such practices to “avoid paying what they owe.”
According to the U.S. Treasury Department, there is an estimated gap between what the top 1 percent of earners likely owe in taxes and what they pay in taxes of about $160 billion.
From 2010 to 2019, the filings for large pass-through businesses that used this tax avoidance process increased by 70 percent, to 297,400 from 174,100. During the same time frame, audit rates for these businesses dropped to 0.1 percent from 3.8 percent.
For companies with assets above $250 million, the IRS plans to increase audit rates from 8.8 percent in 2019 to 22.6 percent in 2026. Audit rates for large complex partnerships that have more than $10 million in assets are expected to be increased also.
The new guidance comes as the IRS continues to crack down on wealthy individuals who either do not pay their taxes or manipulate the tax code. The IRS previously announced initiatives targeting wealthy individuals, such as investigating businesses and people that deduct personal flights on corporate jets improperly and collecting back taxes from millionaires.
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