The IRS could raise more than $50 billion in revenue over the next decade by ending a major tax loophole for wealthy taxpayers, The U.S. Treasury Department said on Monday.
The guidance and ruling announced yesterday includes plans to target – and essentially stop – “partnership basis shifting,” which is a process by which a business or person can move assets among a series of related parties to avoid paying taxes. The Treasury Department described the technique as “abusive,” with no other economic benefit than avoiding taxation – Deputy Treasury Secretary Wally Adeyemo called it “really just a shell game.”
To crack down on this so-called shell game, the IRS plans to increase its audits of wealthy tax payers in an effort to boost revenue. About $80 billion in new funding was directed to the tax agency by the Inflation Reduction Act, which was signed into law in 2022 by President Biden, and officials on Monday said that the additional money has enabled increased oversight and greater awareness of the practice of basis shifting.
The IRS has said it plans to sharply increase audits over the course of the next three years, although the agency has reiterated it won’t boost enforcement for people who earn less than $400,000 annually – which covers the bulk of American taxpayers. Instead, it plans to increase the audit rates for wealthy individuals with incomes of more than $10 million to 16.5%, up from 11% in 2019.
Other initiatives announced in the past year have included pursuing people and businesses that improperly deduct personal flights on corporate jets and collecting back taxes from delinquent millionaires.
Looking ahead… whether or not the IRS gets more funding to investigate instances of dodgy tax maneuvers will depend on what happens in November. President Biden wants an additional $104 billion for the IRS, while Republicans want to defund it.
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