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The IRS wants to close another huge tax loophole for the rich and raise $50 billion in the process
WASHINGTON (AP) – The IRS plans to close a major tax loophole for wealthy taxpayers that could raise more than $50 billion in revenue over the next decade, the US Treasury Department it says.
The guidance and decision announced Monday includes plans to essentially prevent “partnership basis shifting” — a process by which a company or person can transfer assets between a series of related parties to avoid paying taxes.
Biden administration officials said after evaluating the practice that there are no economic reasons for these transactions, with Deputy Treasury Secretary Wally Adeyemo calling them “really just a shell game.” Officials said additional IRS funding provided through the Inflation Reduction Act of 2022 it allowed for greater supervision and greater awareness of the practice.
“These tax havens allow wealthy taxpayers to avoid paying what they owe,” said IRS Commissioner Danny Werfel.
Due to previous years of underfunding, the IRS has reduced auditing of wealthy individuals and the transfer of assets between partnerships and corporations has become common.
The IRS says registrations for large pass-through companies used for the type of tax evasion in the guidance increased 70%, from 174,100 in 2010 to 297,400 in 2019. However, audit rates for these companies dropped from 3.8% to 0.1% in the same period. frame.
Treasury said in a statement announcing the new guidance that there is an estimated $160 billion gap between what the top 1% of earners likely owe in taxes and what they pay.
Monday’s announcement is part of the IRS’s ongoing effort to focus on high wealth tax fraud who manipulate the tax code or simply don’t pay their taxes.
Initiatives announced last year included a search for people and companies that improperly deducting personal flights on corporate jets and collecting back taxes from delinquent millionaires.
The IRS plans to increase audit fees on companies with assets over $250 million to 22.6% in 2026, from a rate of 8.8% in tax year 2019. It also plans to increase audit fees tenfold in large complex partnerships with assets exceeding 10 million dollars.
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See all of AP’s tax season coverage at https://apnews.com/hub/personal-finance.