The Internal Revenue Service is cracking down on a “major tax loophole” that wealthy individuals, complex partnerships, and corporations use to avoid paying the taxes they owe. This crackdown could generate over $50 billion in revenue over the next 10 years.
In collaboration with the U.S. Department of Treasury, the IRS unveiled a new initiative on Monday to put a stop to “basis shifting” transactions. These transactions involve moving assets between related parties to maximize tax deductions, minimize tax liability, and potentially depreciate the same asset multiple times.
According to the Treasury, wealthier taxpayers have been using this technique to eliminate billions of dollars in taxable income, leading to significant losses for the federal government annually. This practice has thrived due to limited IRS resources and declining audit rates.
After thorough research and with support from President Biden’s Inflation Reduction Act, the Treasury and the IRS are focusing on stopping basis-shifting transactions that aim to exploit deductions or reduce gains upon asset sale. They also plan to enhance reporting of these transactions to the IRS.
Once the proposed regulations are finalized, basis shifting will be prohibited within consolidated groups. This initiative is part of the IRS’s recent efforts to identify and penalize wealthy tax evaders, including auditing business-related tax deductions for private jets and targeting high-income taxpayers who have not filed returns in years.