The Treasury and IRS have unveiled new tax regulations aimed at the uber-wealthy that could potentially generate $50 billion in additional revenue over the next decade. This initiative is intended to target “related party basis shifting transactions” where complex business structures are employed to inflate tax deductions.
One example of this practice is when a single company operates under multiple legal entities to shift the tax basis from a property that does not generate deductions to one that does. According to the Treasury, this practice contributes significantly to a $160 billion annual tax gap among the top 1% of filers, with filings from pass-through businesses with more than $10 million in assets increasing significantly from 2010 to 2019, while audits have decreased drastically during the same period.
Following extensive research, the Treasury has proposed several new rules as part of this multi-stage initiative, including increased reporting requirements for basis-shifting transactions. Additionally, the agencies have issued a revenue ruling challenging certain transactions for lacking economic substance. Treasury Secretary Janet Yellen stated that the focus is on addressing high-end tax abuse from every angle, acknowledging that resources from President Biden’s Inflation Reduction Act have contributed to combatting longstanding abuses. The agencies plan to take public comments into consideration before finalizing the rules.
