The Treasury Department and Internal Revenue Service (IRS) have launched a new initiative to crack down on tax planning through complex partnerships, aimed at raising $50 billion in tax revenue over the next decade. The move is part of the Biden administration’s efforts to close a “major tax loophole” used by businesses and the wealthy to minimize their tax liability.
The initiative targets “related party basis shifting,” a practice in which a single business operates through multiple legal entities to manipulate partnership tax rules and maximize tax deductions. The IRS claims that wealthy individuals and businesses are using armies of lawyers and accountants to develop such transactions, shortchanging the federal government of billions of dollars each year.
The Treasury Department and IRS announced on Monday that they will propose regulations to stop such actions, citing a year-long study on the matter. Treasury Secretary Janet Yellen said the proposed rules will increase tax fairness and reduce the deficit.
The IRS has increased efforts to audit the wealthy under President Joe Biden, who has infused the agency with new funding through the Democratic-backed 2022 Inflation Reduction Act. The Treasury Department estimates that the increased funding will increase tax revenue by $561 billion over the next decade.
Republicans have opposed the influx of IRS funding, arguing it would lead to increased audits on the middle class. Democrats, however, contend that the funding will be used to close the tax gap by targeting wealthy tax cheats, with a focus on those earning over $400,000.
