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The IRS Aims to Close a Significant Tax Loophole for the Wealthy, Generating $50 Billion in Revenue

Ponca Post Team by Ponca Post Team
June 18, 2024
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According to the U.S. Treasury Department, the IRS is set to close a significant tax loophole for affluent taxpayers, which could potentially result in over $50 billion in revenue in the next ten years.

On Monday, a proposed rule and guidance was announced that aims to put a stop to “partnership basis shifting”. This maneuver involves the transfer of assets between affiliated parties to evade tax payments.

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According to officials from the Biden administration, after assessing the practice, it has been determined that there are no economic justifications for these transactions. Deputy Treasury Secretary Wally Adeyemo went on to state that it is “really just a shell game.” The officials further explained that the 2022 Inflation Reduction Act has provided additional funding to the IRS, which has led to increased monitoring and a greater understanding of this practice.

“The avoidance of owed taxes by wealthy taxpayers is facilitated through these tax shelters,” stated Danny Werfel, Commissioner of the IRS.

The IRS had reduced auditing of affluent individuals due to inadequate funding in previous years. This led to an increase in the transfer of assets among partnerships and companies.

According to the IRS, there has been a significant increase in filings for large pass-through businesses that utilize tax avoidance strategies outlined in the guidance. The number of filings has surged by 70% from 174,100 in 2010 to 297,400 in 2019. Surprisingly, the audit rates for these businesses have dropped drastically from 3.8% to a mere 0.1% during the same period.

In a recent statement, the Treasury unveiled new guidance suggesting that the top 1% of earners owe approximately $160 billion in taxes that go unpaid.

According to Miles Johnson, a partnership tax specialist and senior attorney adviser at NYU Law’s Tax Law Center, these types of transactions make income vanish from the tax system by generating depreciation deductions or other tax reductions that do not accurately represent any economic cost.

According to him, the IRS aims to prevent such transactions by removing their tax benefits and identifying them as lacking substance through the proposed rule and guidance.

The IRS has recently announced its commitment to targeting wealthy individuals who evade taxes by exploiting loopholes or avoiding payment altogether. This is part of their continuous effort to crack down on tax fraud committed by affluent taxpayers.

Over the course of the last year, various measures have been announced to crack down on individuals and companies who wrongly claim personal flights as business expenses and to recover unpaid taxes from wealthy individuals who have defaulted on their payments.

According to recent reports, the IRS has announced its plans to significantly increase audit rates for companies with assets exceeding $250 million. The rates are expected to rise to 22.6% by 2026, which is a substantial increase from the 8.8% rate observed in 2019. Additionally, the IRS also intends to escalate audit rates for large complex partnerships with assets over $10 million by tenfold. These moves signify the IRS’s stringent efforts to ensure tax compliance and deter tax evasion among high-earning entities.

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