IRS Commissioner Danny Werfel testifies before the House Appropriations Committee in Washington, D.C., on May 7, 2024.
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The U.S. Department of the Treasury and the IRS on Monday unveiled a plan to “close a major tax loophole” used by large, complex partnerships, which could raise more than an estimated $50 billion in tax revenue over the next 10 years.
The plan targets so-called “related party basis shifting,” where single businesses operating through different legal entities trade original purchase prices on assets to take more deductions or reduce future gains, according to the Treasury.
Pass-through business filings with more than $10 million in assets increased 70% between 2010 and 2019, but the audit rate for these partnerships fell from 3.8% to 0.1% during that period, according to the Treasury.
This has contributed to an estimated $160 billion a year tax gap — the shortfall between what is owed and collected — attributed to the top 1% of tax filers, the agency said.
The announcement comes less than one week after President Joe Biden‘s top economic advisor unveiled his “key principles” for tax policy, including sustained IRS funding.
“We should ensure ultra-wealthy taxpayers pay what they owe and play by the same rules by maintaining the President’s investment in the IRS,” White House National Economic Council advisor Lael Brainard told reporters Wednesday during a press call.
IRS funding has been a target for Republicans since Congress approved nearly $80 billion in funding via the Inflation Reduction Act.
