The Internal Revenue Service says it could raise more than $50 billion over the next decade by closing a major tax loophole used by the wealthy, according to the Treasury Department.
Ending what's known as "basis shifting" could generate tens of billions of dollars in tax revenue over a decade
The Internal Revenue Service says it could raise more than $50 billion over the next decade by closing a major tax loophole used by the wealthy, according to the Treasury Department.
The agency said it will propose new regulations and issue a ruling that would put an end to “basis shifting,” or transactions where a business or individual moves assets to related parties to dodge taxes. The IRS will also establish a new team dedicated to focusing on the “abusive” practice, which has become more popular in recent years.
Filings from so-called passthrough businesses with more than $10 million in assets shot up 70% between 2010 and 2019, reaching 297,400. But the audit rate for those filings cratered to 0.1% in 2019, from 3.8% in 2010 — contributing to a $160 billion annual tax gap attributed to the wealthiest Americans.
“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,” Treasury Secretary Janet Yellen said in a statement.
The move comes as the IRS capitalizes on the additional funding it received through the 2022 Inflation Reduction Act to crack down on high-wealth tax dodgers who either evade or significantly decrease their tax bills through loopholes and other methods. There are about 125,000 high-income earners who have not filed tax returns going back as far as 2017, according to the IRS. Almost half-a-billion dollars have already been recovered since the agency began sending out noncompliance letters in February.
The agency has launched audits of 76 of the largest partnerships with assets over $10 billion, including hedge funds, large law firms, and real estate investment partnerships. The IRS has also pursued business and individuals who use flights on corporate jets as tax deductions; there are more than 10,000 corporate jets in the U.S.
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