On June 17, the Internal Revenue Service (IRS) unveiled new guidance aimed at closing a tax loophole used by wealthy taxpayers, a move projected to rake in $50 billion in revenue over the next decade. The latest directive targets “partnership basis shifting,” a crafty tactic where individuals or businesses move their assets among related parties to sidestep paying taxes. The Biden administration, always eager to find new revenue streams, declared there are no legitimate economic grounds for these transactions.
Deputy Treasury Secretary Wally Adeyemo didn’t mince words, dismissing the process as “really just a shell game.” Because who better to recognize a shell game than a bureaucrat in Washington?
Thanks to the 2022 Inflation Reduction Act, which funneled more cash into the IRS, officials have supposedly just now become aware of this practice. Apparently, this was such a well-kept secret that it took millions of dollars for the IRS to figure it out. IRS Commissioner Danny Werfel smugly proclaimed that wealthy taxpayers have been using such practices to “avoid paying what they owe.” No kidding, Danny.
According to the U.S. Treasury Department, the gap between what the top 1% of earners owe in taxes and what they actually pay is about $160 billion. This gap is the latest dragon the IRS knights are valiantly attempting to slay.
From 2010 to 2019, filings for large pass-through businesses using this tax dodge increased by 70%, rising from 174,100 to 297,400. Meanwhile, audit rates for these businesses plummeted to a mere 0.1% from 3.8%. But don’t worry, the IRS plans to ramp up audit rates for companies with assets above $250 million from 8.8% in 2019 to 22.6% in 2026. Because nothing says “economic growth” like more audits.
For those larger-than-life complex partnerships with over $10 million in assets, expect the IRS to knock on your door more frequently, too. It seems the IRS has decided that if they can’t figure out the tax code themselves, they’ll just audit until they get lucky.
This crackdown is part of the IRS’s ongoing vendetta against wealthy individuals who dare to use the tax code to their advantage. The IRS previously announced initiatives targeting affluent individuals, like probing businesses and people deducting personal flights on corporate jets improperly and chasing down back taxes from millionaires.
Because why focus on simplifying an impossibly convoluted tax code when you can just keep punishing those who manage to navigate it successfully?
So here we are, with the IRS flexing its newfound muscles thanks to the generous funding boost. They’re gearing up to hunt down the wealthy, armed with their revamped audit strategies and righteous indignation. And who could blame them? After all, it’s easier to blame the rich than to address the systemic inefficiencies and loopholes built into the tax system by the very same lawmakers now calling for crackdowns.
As this saga unfolds, one can’t help but wonder if the IRS’s real game is a shell game of its own—shuffling blame, resources, and efforts in a never-ending quest to justify its existence. Stay tuned, folks. The IRS’s hunt for the elusive tax dollars is just heating up, and it’s bound to get interesting.
