IRS Commissioner Danny Wuerfel testifies before the House Appropriations Committee in Washington, DC on May 7, 2024.
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The U.S. Treasury Department and the IRS on Monday announced a plan to “close significant tax loopholes” exploited by large, complex partnerships that could raise an estimated $50 billion or more in tax revenue over the next decade.
The plan targets so-called “related party tax credit transfers,” in which a single company operating through different legal entities swaps the original purchase price of assets to receive more deductions or reduce future profits, according to the Treasury Department.
“These tax avoidance schemes allow wealthy taxpayers to avoid paying taxes,” IRS Commissioner Danny Wuerfel said at a press conference on Friday.
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Taxpayers may be able to avoid the penalty by making second-quarter estimated payments by June 17.
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The Bureau announced its intention to issue proposed regulations after a year of studying the rule shift issue. It also issued a revenue ruling regarding related party partnership transactions involving rule shifts that lack “economic substance” or “substantial business purpose” for the parties.
The plan builds on the IRS’s ongoing efforts to step up audits of the wealthiest taxpayers, large corporations, and complex partnerships.
“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.
According to the Treasury Department, filings for pass-through businesses with more than $10 million in assets increased 70% between 2010 and 2019, but the audit rate for these partnerships fell from 3.8% to 0.1% during the same period.
This results in an estimated $160 billion annual tax shortfall (the difference between taxes owed and taxes collected) that is attributable to the top 1 percent of taxpayers, the agency said.
The IRS Funding Struggle
The announcement was made by the President Joe Biden’s top economic adviser has laid out the “key principles” of his tax policy, including continued funding for the IRS.
“By preserving the president’s investment in the IRS, we should ensure that ultra-wealthy taxpayers pay their taxes and play by the same rules,” White House National Economic Council adviser Lael Brainard told reporters at a press conference on Wednesday.
Funding for the IRS has been a Republican target since Congress approved nearly $80 billion in funding through the Inflation Control Act.
