WASHINGTON — The tax authorities plans to close a major tax gap for wealthy taxpayers, which could generate more than $50 billion in revenue over the next decade. US Treasury Department say.
The guidance and rulings announced Monday include plans to essentially end “partnership basis shifting” – a process by which a company or individual can move assets between a series of related parties to avoid taxes.
Biden administration officials said after reviewing the practice that there are no economic rationale for these transactions, with Deputy Treasury Secretary Wally Adeyemo calling it “really just a shell game.” Officials said the additional IRS funding through the Inflation Reduction Act 2022 would have allowed for greater scrutiny and greater awareness of the practice.
“These tax shelters allow wealthy taxpayers to avoid paying what they owe,” said IRS Commissioner Danny Werfel.
Due to previous years of underfunding, the IRS had cut back on wealthy individuals’ checks and shifting assets between partnerships and corporations became common.
The IRS says filings for large pass-through companies used in the guidelines for the type of tax avoidance increased by 70%, from 174,100 in 2010 to 297,400 in 2019. However, audit rates for these companies fell from 3 over the same time .8% to 0.1%. frame.
The Treasury Department said in a statement announcing the new guidelines that there is an estimated $160 billion gap between what the top 1% of earners are likely to owe in taxes and what they pay.
Monday’s announcement is part of the IRS’s ongoing efforts to respond to this high wealth tax fraud who manipulate the tax code or don’t pay taxes at all.
Initiatives announced over the past year include pursuing people and companies to do just that incorrectly deducting personal flights with business jets and collecting delinquent taxes overdue millionaires.
The IRS plans to increase audit rates for companies with assets over $250 million to 22.6% in 2026, from a rate of 8.8% in tax year 2019. It also plans to increase audit rates tenfold for large complex partnerships with assets exceeding $10 million.
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See all of AP’s tax season coverage at https://apnews.com/hub/personal-finance.