Read the text below.
The Internal Revenue Service (IRS) plans to end a major tax loophole for wealthy taxpayers that could raise more than $50 billion in revenue over the next decade, the U.S. Treasury Department says.
The proposed rule and guidance announced includes plans to essentially stop “partnership basis shifting”—a process by which a business or person can move assets among a series of related parties to avoid paying taxes.
Biden administration officials said after evaluating the practice that there are no economic grounds for these transactions, with Deputy Treasury Secretary Wally Adeyemo calling it “really just a shell game.” The officials said the additional IRS funding provided through the 2022 Inflation Reduction Act had enabled increased oversight and greater awareness of the practice.
“These tax shelters allow wealthy taxpayers to avoid paying what they owe,” IRS Commissioner Danny Werfel said.
Due to previous years of underfunding, the IRS had cut back on the auditing of wealthy individuals, and the shifting of assets among partnerships and companies became common.
The IRS says filings for large pass-through businesses used for the type of tax avoidance in the guidance increased 70%, from 174,100 in 2010 to 297,400 in 2019. However, audit rates for these businesses fell from 3.8% to 0.1% in the same time frame.
The 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.
Miles Johnson, a senior attorney adviser and partnership tax specialist at the Tax Law Center at NYU Law, said “These transactions effectively make income disappear from the tax system by creating depreciation deductions or other tax reductions that don’t reflect any true economic cost.”
He said the proposed rule and guidance shows that the IRS wants to stop these sorts of transactions “by eliminating their tax benefits and better identifying them to the IRS as without substance.”
The announcement is part of the IRS’s ongoing effort to zero in on high-wealth tax cheats who manipulate the tax code or don’t pay their taxes at all.
This article was provided by The Associated Press.