William Simpson
The IRS could collect more than $50 billion in revenue over the next decade, closing a major tax loophole for wealthy taxpayers, the U.S. Treasury Department says. he said Monday.
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. The Treasury Department described the technique as “abusive” with no economic benefit other than tax avoidance.
The push to eliminate the loophole comes amid a push from the IRS to increase your audits of tax fraud for the rich in an effort to increase revenue. About $80 billion in new funding was directed to the tax agency under the Reducing Inflation Act, which was signed into law in 2022 by President Joe Biden, and officials said Monday that the additional money allowed for greater oversight and awareness about the practice of base change.
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.”
“These tax havens allow wealthy taxpayers to avoid paying what they owe,” said IRS Commissioner Danny Werfel.
Increase in IRS Audits
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 target high-net-worth tax fraudsters who manipulate the tax code or simply fail to pay their taxes.
The IRS said it plans to dramatically increase audits over the next three tax years, although the agency reiterated that it will not increase oversight for people earning less than $400,000 annually — which covers the majority of U.S. taxpayers. Instead, it plans to increase audit fees for wealthy individuals with incomes over $10 million to 16.5%, up from 11% in 2019.
Other initiatives announced last year included pursuing people and companies that improperly deduct personal flights on corporate jets and collecting back taxes from delinquent millionaires.
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