The IRS has set its sights on what it says is $50 billion in lost tax revenue due to wealthy people transferring their assets between companies.
The U.S. Treasury on Monday announced new rules to crack down on “partnership rebasing,” warning they would come after $160 billion in owed revenue that it says is not paid by the 1 percent. of those who earn the most each year.
Biden administration officials said, after evaluating the practice, that there are no economic rationales for these transactions, and Treasury Undersecretary Wally Adeyemo called it “really just sleight of hand.”
And they credited additional IRS funding provided through the Inflation Reduction Act of 2022 for allowing for greater oversight and greater awareness of the practice.
“These tax shelters allow wealthy taxpayers to avoid paying what they owe,” said IRS Commissioner Danny Werfel.
US Deputy Treasury Secretary Wally Adeyemo said the loophole was costing the US billions.
IRS says top 1% of earners avoid $160 billion in taxes owed each year
Taxpayers take advantage of the loophole by moving assets between a number of related parties.
Due to previous years of underfunding, the IRS had cut back on audits of wealthy people and the shifting of assets between partnerships and businesses became common.
The IRS says large pass-through company filings used for the type of tax evasion in the guide increased 70 percent from 174,100 in 2010 to 297,400 in 2019.
However, audit rates for these companies fell from 3.8 percent to 0.1 percent in the same period.
Miles Johnson, senior consulting attorney and corporate tax specialist at NYU Law’s Tax Law Center, said that “these transactions effectively cause income to disappear from the tax system by creating depreciation deductions or other tax reductions that do not reflect any economic costs.” real”. .
He said the proposed rule and guidance show that the IRS wants to stop these types of transactions by “eliminating their tax benefits and better identifying them to the IRS as having no substance.”
Monday’s announcement is part of the IRS’ ongoing effort to target high-wealth tax evaders who manipulate the tax code or don’t pay their taxes at all.
Initiatives announced last year have included going after people and companies that improperly deduct personal flights on corporate jets and collecting back taxes from delinquent millionaires.
The IRS plans to increase audit rates for companies with assets greater than $250 million to 22.6 percent in 2026, from a rate of 8.8 percent in fiscal year 2019.
It also plans to increase audit fees tenfold on large, complex partnerships with assets greater than $10 million.
