ICYMI: U.S. Department of the Treasury, IRS Announce New Initiative to Close Loopholes, Ensure Wealthiest Taxpayers Pay What They Owe

WASHINGTON – Yesterday, the U.S. Department of the Treasury (Treasury) and the Internal Revenue Service (IRS) announced a new regulatory initiative estimated to raise more than $50 billion over the next decade. This initiative is one step in ongoing efforts to close loopholes and shut down abusive transactions using existing regulatory authority and ensure wealthy individuals, complex partnerships, and large corporations pay taxes owed.

 Treasury and IRS guidance released yesterday kicks off a multi-stage regulatory effort that will stop large, complex partnerships from using opaque business structures to inflate tax deductions and avoid taxes. Once complete, Treasury estimates this initiative could raise more than $50 billion in revenue over 10 years – and potentially much more – compared to allowing these abusive transactions to continue unchecked. The new guidance will also complement the IRS’ ongoing enforcement campaign to recover revenue from large partnerships that are not paying the taxes they owe.

Among the techniques these taxpayers rely on to make billions of dollars in taxable income disappear are what are known as partnership basis shifting transactions. In these transactions, a single business that operates through many different legal entities (“related parties”) enters into a set of transactions that manipulate partnership tax rules to maximize tax deductions and minimize tax liability. These transactions defy congressional intent to avoid tax liability with little to no other economic consequences for the participating businesses. For example, a partnership might shift tax basis from property that does not generate tax deductions (such as stock or land) to property that does (such as equipment). Taxpayers may also use these techniques to depreciate the same asset over and over.

Below is a sampling of the coverage on yesterday’s announcement.

Associated Press: The IRS wants to end another major tax loophole for the wealthy and raise $50 billion in the process

The 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 guidance and ruling being announced Monday 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.

Reuters: U.S. Treasury, IRS to close $50 bln tax loophole on partnerships

The U.S. Treasury and Internal Revenue Service said on Monday they will close a tax loophole exploited by large, complex partnerships, an action that they estimated could raise $50 billion in new revenue over 10 years.

The Treasury said the IRS would no longer allow partnerships to shift tax liabilities to related parties or different legal entities in order to maximize tax deductions and minimize liability.

New guidance on the subject coincide with the IRS' stepped-up enforcement campaign to increase audits of large, complex partnerships, backed by some $60 billion in funding over 10 years for the agency approved by Congress in 2022.

The Washington Post: Closing asset loophole could add billions to tax collections, IRS says

The Biden administration plans to stop businesses and wealthy individuals from manipulating the value of assets in arcane ways such as using the same assets over and over again to lower their taxes.

High-end business partnerships like hedge funds and wealthy individuals such as real estate investors have inappropriately used labyrinthine structures to shield tens of billions of dollars from taxation, Treasury Department officials said Monday as they vowed to crack down on the practice. They announced several steps to address a tax planning strategy known as basis shifting, in which complex business partnerships can move assets from one entity to another on paper for no reason other than to avoid taxes.

“These transactions don’t create any economic activity for the U.S.,” Deputy Treasury Secretary Wally Adeyemo said. “Their sole purpose is to reduce tax bills.”

CNBC: IRS plans to raise $50 billion over 10 years, closing loophole exploited by the wealthy 

The IRS estimates it will raise more than $50 billion over the next decade by closing a loophole often exploited by wealthy filers seeking to avoid paying taxes.

The loophole allows such taxpayers, as well as businesses, to move assets between entities in a way that authorities say has no economic purpose. Deputy Treasury Secretary Wally Adeyemo called the practice “really just a shell game" in a statement.

The use of such pass-through businesses has nevertheless increased 70% from 2010 to 2019, and helped allow the top 1% avoid paying $160 billion in taxes, Treasury said.

“Treasury and the IRS are focused on addressing high-end tax abuse from all angles, and the proposed rules released today will increase tax fairness and reduce the deficit,” U.S. Secretary of the Treasury Janet Yellen said in a statement.

The Wall Steet Journal: IRS Seeks $50 Billion in Clampdown on Partnerships’ Tax Maneuvers 

The Biden administration is starting a new initiative to limit tax dodging through the use of partnerships, aiming to collect more than $50 billion over a decade through tighter rules announced Monday. 

The proposals attack a technique known as basis shifting among related parties, where partnerships that share common ownership move tax basis from assets that can’t be depreciated—like stock and land—to assets such as equipment that can generate depreciation deductions. Sometimes, officials said, businesses repeatedly depreciate the same asset.

The Treasury Department and Internal Revenue Service said Monday that taxpayers must begin disclosing such transactions to the government. The administration also will soon issue formal rules designed to restrict the practice, and some of those rules will become effective as of Monday. Officials said the agency’s recent expansion is giving auditors a clearer view into businesses’ tactics, prompting the new rules.  

CNN: Latest IRS effort to target wealthy tax cheats could raise $50 billion over a decade

The Internal Revenue Service announced Monday its latest move to crack down on wealthy tax cheats – an ongoing effort boosted by funding received through the Democrat-backed Inflation Reduction Act.

The agency estimates the new initiative could result in the collection of $50 billion over 10 years by closing a major tax loophole used by some business partnerships to avoid paying taxes they owe.

As the November election approaches, the Biden administration is eager to show how it’s using money from the 2022 legislation – which provided the IRS with a massive, 10-year investment – to bring in more tax revenue and modernize taxpayer services.

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