Treasury, IRS unveil plan to close ‘major tax loophole’ used by large partnerships
What did IRS Commissioner Danny Werfel say about the effect of these tax shelters on wealthy taxpayers' tax obligations?
IRS Commissioner Danny Werfel said that the tax shelters used by wealthy taxpayers, specifically those involving related-party basis shifting, allow them to avoid paying what they owe in taxes1. These tax avoidance strategies have contributed to an estimated $160 billion a year tax gap attributed to the top 1% of tax filers. The IRS has been working to close these loopholes and increase audits on the wealthiest taxpayers, large corporations, and complex partnerships to ensure tax fairness and reduce the deficit.
What is "related party basis shifting" and how does it allow businesses to reduce their tax liabilities?
Related party basis shifting is a tax strategy used by businesses operating through different legal entities, such as partnerships. It involves trading original purchase prices on assets between the entities to take more deductions or reduce future gains. This practice effectively allows businesses to lower their tax liabilities by minimizing the amount of taxes they owe on capital gains and other income.
The U.S. Department of the Treasury and the IRS have identified this loophole and are now targeting it with new regulations. They plan to issue proposed regulations to close this tax loophole, which they believe could raise more than $50 billion in tax revenue over the next 10 years. The move is part of a broader effort to increase tax fairness and reduce the deficit by addressing high-end tax abuse from various angles.
What specific tax loophole is the U.S. Department of the Treasury and the IRS planning to close with their new plan?
The U.S. Department of the Treasury and the IRS are planning to close a major tax loophole known as "related party basis shifting." This loophole involves single businesses operating through different legal entities, trading original purchase prices on assets to take more deductions or reduce future gains. The plan aims to increase tax fairness and reduce the deficit by raising an estimated $50 billion in tax revenue over the next 10 years.