IRS Cracking Down on Loophole for Wealthy Tax Evaders

Audio version available here (1 min. 35 sec.)

The IRS has announced a major step that could end a loophole wealthy tax evaders use that costs the rest of the nation $50 billion. This effort to stop “high-wealth tax cheats” is the IRS’s plan to end a loophole called “partnership basis shifting”, which many tax evaders have used for years.

What is partnership basis shifting? The IRS announced that it would be ending partnership basis shifting, which is a “process by which a business or person can move assets among a series of related parties to avoid paying taxes”. Experts say that this loophole has become a “tax shelter” for wealthy taxpayers to avoid paying what they owe. This practice ultimately affects taxpayers across the nation, potentially costing $50 billion over the next ten years.

Businesses using this tax avoidance strategy increased by 70% from 2010 to 2019; however, audit rates decreased from 3.8% to 0.1% during this same time. This disparity has culminated in the top 1% of the nation having an estimated $160 billion tax gap. In previous years, the IRS blamed underfunding for its failure to audit the wealthy. Now, with funding from the 2022 Inflation Reduction Act, the IRS has increased its efforts to have “oversight and greater awareness” on the malpractices of wealthy taxpayers.

As the IRS continues to create new guidelines to hold wealthy taxpayers responsible, it is important to stay informed on the latest IRS news. This is so you can ensure you and your business are in compliance with all up to date regulations. If you are worried your business may be in the IRS’s crosshairs, reach out to XQ CPA’s tax team for guidance. Our priority is helping you stay in compliance with the IRS. Schedule a FREE consultation at the link below!

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Sources:

https://www.irs.gov/newsroom/irs-announces-new-steps-to-combat-abusive-use-of-partnerships-agencys-focus-intensifies-as-new-guidance-closes-loopholes-worth-tens-of-billions