IRS moves to end another major tax loophole and raise $50 billion in the process as they zero in on one group of Americans – here is who they are targeting
The IRS has set its sights on what it says is $50 billion of missing tax revenue lost to wealthy people shifting their assets between companies they own.
The US Treasury announced new rules on Monday to crack down on ‘partnership basis shifting’ as they warned they were coming after $160 billion of due revenue they say is unpaid by the top 1 percent of earners each year.
Biden administration officials said there is no economic justification for the transactions, with Deputy Treasury Secretary Wally Adeyemo calling them ‘really just a shell game’.
And they credited $80 billion of additional IRS funding provided through the 2022 Inflation Reduction Act for enabling 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.
The loophole works by allowing company owners to transfer assets to different companies where they can attract a smaller tax liability.
The agency says the practice surged as budget cuts forced it to slash its auditing of wealthy individuals.
Werfel insisted last month that there is no plan for a new wave of audits coming for middle and low income households, during a conference call with reporters.
But filings for large pass-through businesses used for the partnership loophole increased 70 percent from 174,100 in 2010 to 297,400 in 2019,’ it claims.
And audit rates for these businesses fell from 3.8 percent to 0.1 percent in the same time frame.
Any companies which are more than 80 percent controlled by the same person or entity and which file a consolidated tax return will be vulnerable under the new rules.
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’.
www.dailymail.co.uk/news/article-13540349/IRS-50-billion-tax-partnership-basis-shifting.html