The IRS and Treasury Department on Monday announced plans to eliminate major tax loopholes exploited by wealthy taxpayers, a move that is expected to raise as much as $50 billion over the next decade.
The plan targets so-called “partnership basis shifting,” transactions that allow companies or individuals to increase deductions and minimize liabilities by operating through a number of different legal entities, according to the Treasury Department.
“These tax avoidance schemes allow wealthy taxpayers to avoid paying taxes,” IRS Commissioner Danny Wuerfel said in a statement.
Biden administration officials have likened the practice of changing tax rates to a “shell game” that allows companies and individuals to “dodge taxes.”
Funding for the latest enforcement action was included in the Democrats’ health care and climate change spending bill, known as the Beat Inflation Act, which President Biden signed into law in 2022.
The influx of funds is intended to improve tax compliance among big corporations and wealthy Americans and narrow an estimated $600 billion tax revenue shortfall.
“The Treasury Department and IRS are focused on addressing high tax abuses from every angle, and the proposed rules announced today will increase tax fairness and reduce the budget deficit,” Treasury Secretary Janet Yellen said in a statement.
The IRS budget increase has drawn fierce backlash from Republicans and other critics, who say it amounts to the worst kind of government expansion and could ultimately hurt low-income Americans.
That’s because the IRS unfairly targets low-income Americans when it conducts annual tax audits.
This discrepancy is largely due to the complex investments made by high-income taxpayers that can easily hide the difference between the tax they owe and the tax they actually file and pay.
The IRS has repeatedly said it will follow Treasury Secretary Janet Yellen’s orders not to increase audit rates on Americans making less than $400,000 a year — a message it reiterated earlier this year when the agency announced efforts to go after 1,600 billionaires and 75 large corporations it says owe millions in back taxes.
“As I have said many times before, there will not be a new wave of audits of low and middle-income families. [taxpayers]”We’re not going after independent stores,” Warfel previously told reporters. “That’s not in our plans in any way.”
