The IRS and Treasury Department have announced a plan to close a tax loophole that allows wealthy taxpayers to avoid paying what they owe. The loophole, known as "partnership basis shifting," involves operating through multiple legal entities to minimize tax obligations. This practice has been compared to a "shell game" that allows businesses and individuals to hide from their tax bills.
This plan is expected to generate up to $50 billion in revenue over the next decade and is part of the Democrats' Inflation Reduction Act, aimed at improving tax compliance among big corporations and wealthy Americans. Treasury Secretary Janet Yellen stated that the proposed rules will increase tax fairness and reduce the deficit.
However, the funding boost for the IRS has faced opposition from Republicans and critics who argue that it could lead to government overreach and harm lower-income Americans. They point out that the IRS tends to disproportionately target low-income Americans in tax audits, while high-income taxpayers with complex investments can easily avoid paying their fair share.
The IRS has assured that it will not increase audit rates for Americans earning less than $400,000 a year, focusing instead on cracking down on millionaires and large businesses that owe millions in back taxes. IRS Commissioner Danny Werfel emphasized that there are no plans to target middle- and low-income taxpayers in any way.
The government's efforts to close tax loopholes and increase tax compliance are part of a broader strategy to address high-end tax abuse and reduce the tax gap. While the move is aimed at promoting tax fairness, it has sparked debate over the potential impact on different income groups and the role of the IRS in enforcing tax laws.