1 of 2 | “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 Monday in a news release. Photo by Ken Cedeno/UPI |
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June 17 (UPI) -- The IRS and Treasury Department on Monday unveiled two new rules aiming to end "a major tax loophole" that the wealthiest Americans have used to avoid paying tens of billions of dollars in taxes.
The new rules take aim at so-called "related party basis shifting" -- tax loopholes used by companies and wealthy individuals to manipulate tax rules to maximize tax deductions and minimize tax liability to "make billions of dollars in taxable income disappear," according to the Treasury.
Under these practices single businesses that operate as multiple different legal businesses or entities can move their assets among those entities to make "abusive" tax deductions or reduce gains when the asset is sold to effectively eliminate taxable income.
"These tax shelters allow wealthy taxpayers to avoid paying what they owe," Internal Revenue Service Commissioner Danny Werfel told reporters Friday on a press call.
The proposed regulations would effectively end the practice once and if finalized.
Tax filings from passthrough businesses with more than $10 million in assets increased 70% -- from 174,100 in 2010 to 297,400 in 2019 -- while the audit rate for these partnerships fell from 3.8% to 0.1%during the same time, the Treasury said.
So far this practice, attributed to the top 1% of tax filers, has contributed to an estimated tax gap -- the difference between what is owed and collected -- of $160 billion yearly.
The Treasury studied the issue for a year and said this "multi-stage regulatory effort" could raise more than an estimated $50 billion in tax revenue over the next 10 years in what it called "abusive transactions" to skirt paying taxes.
Treasury Secretary Janet Yellen credited President Joe Biden's Inflation Reduction Act which she said gave Treasury and the IRS the "tools to stop" these "longstanding abuses."
As part of this new rule change proposal, the IRS announced a "dedicated group" to focus guidance and on closing tax loopholes in the IRS' Office of Chief Counsel.
"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," Yellen said in a news release.
