The US Treasury and IRS are working together to close a tax loophole that has been widely used by the wealthy. The loophole involves complex business structures that inflate deductions, resulting in a loss of tax revenue for the government. Through proposed regulations, the agencies aim to generate $50 billion in fresh tax revenues over the next decade.
The initiative specifically targets related party basis shifting transactions, where companies use legal entities to shift their tax basis from non-deductible properties to deductible ones. This practice has been identified as a significant contributor to the $160 billion annual tax gap among the top 1% of filers.
In addition, there has been a significant increase in filings from pass-through businesses with assets exceeding $10 million between 2010 and 2019, coupled with a drastic decline in audits during the same period. This discrepancy has raised concerns about potential tax abuses that need to be addressed.
Following a year of research, the Treasury and IRS have proposed several new rules to curb high-end tax abuse. These rules include increased reporting for basis-shifting transactions and a revenue ruling that challenges certain transactions lacking economic substance. Treasury Secretary Janet Yellen emphasized the importance of addressing tax abuses and the positive impact of President Biden’s Inflation Reduction Act in combating these long-standing issues.
Before finalizing the rules, the agencies have invited public comments to ensure comprehensive and effective regulations are put in place to close the tax loophole for the uber-wealthy.
The US Treasury and IRS are taking steps to address a significant issue affecting wealthy individuals who use complex business structures to inflate their deductions and reduce their overall tax burden. Through proposed regulations, they aim to generate billions of dollars in fresh tax revenues over the next decade while also cracking down on potential tax abuses by pass-through businesses with assets exceeding $10 million.
One of the main focus areas is related party basis shifting transactions, where companies use legal entities to shift their tax basis from non-deductible properties to deductible ones. This practice has been identified as one of many contributors to
