On Monday, the IRS and Treasury Department unveiled a plan to end a major tax loophole used by wealthy taxpayers. The decision to close the loophole could generate up to $50 billion in revenue over the next decade.
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The new plan from the IRS will address the “partnership basis shifting” transaction that allows a business or person to operate through numerous different legal entities in order to take bigger size deductions and minimize what they owe, the Treasury Department shared.
The Biden administration said the loophole was like a “shell game” that let businesses and individuals “hide from a tax bill” when it comes due.
IRS Commissioner Danny Werfel said the “tax shelters allow wealthy taxpayers to avoid paying what they owe.”
The new efforts to close tax loopholes like this come from the Inflation Reduction Act, which was signed into law in 2022. The funding has allowed the IRS to focus on tax compliance and ensure that what is owed is paid.
“Treasury and the IRS are focused on addressing high-end tax abuse from all angles, and the proposed rules released today will increase tax fairness and reduce the deficit,” Treasury Secretary Janet Yellen said in a statement.
With Yellen ordering the IRS to focus on higher earners and not to increase audit rates for Americans who earn less than $400,000 a year, the agency has set its sights on 1,600 millionaires and 75 large businesses that it says owe millions in back taxes.
“As I’ve said over and over again, there is no new wave of audits coming for middle- and low-income [taxpayers], coming for mom-and-pops,” Werfel previously told reporters. “That is not in our plans in any way, shape or form.”
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