ICYMI: U.S. Department of the Treasury, IRS Announce New Initiative to Close Loopholes, Ensure Wealthiest Taxpayers Pay What They Owe
WASHINGTON – Yesterday, the U.S. Department of the Treasury (Treasury) and the Internal Revenue Service (IRS) announced a new regulatory initiative estimated to raise more than $50 billion over the next decade. This initiative is one step in ongoing efforts to close loopholes and shut down abusive transactions using existing regulatory authority and ensure wealthy individuals, complex partnerships, and large corporations pay taxes owed.
Treasury and IRS guidance released yesterday kicks off a multi-stage regulatory effort that will stop large, complex partnerships from using opaque business structures to inflate tax deductions and avoid taxes. Once complete, Treasury estimates this initiative could raise more than $50 billion in revenue over 10 years – and potentially much more – compared to allowing these abusive transactions to continue unchecked. The new guidance will also complement the IRS’ ongoing enforcement campaign to recover revenue from large partnerships that are not paying the taxes they owe.
Among the techniques these taxpayers rely on to make billions of dollars in taxable income disappear are what are known as partnership basis shifting transactions. In these transactions, a single business that operates through many different legal entities (“related parties”) enters into a set of transactions that manipulate partnership tax rules to maximize tax deductions and minimize tax liability.
These transactions defy congressional intent to avoid tax liability with little to no other economic consequences for the participating businesses. For example, a partnership might shift tax basis from property that does not generate tax deductions (such as stock or land) to property that does (such as equipment). Taxpayers may also use these techniques to depreciate the same asset over and over.
