IRS estimates closing asset loophole could increase tax collections by billions
Biden Administration Targets Tax Avoidance Strategies Used by Businesses and Wealthy Individuals
The Biden administration is taking a stand against businesses and wealthy individuals who have been manipulating the value of assets to lower their taxes through complex tax planning strategies. Treasury Department officials announced on Monday that they are cracking down on a practice known as basis shifting, where assets are moved between entities on paper solely to avoid taxes.
Deputy Treasury Secretary Wally Adeyemo stated that these transactions serve no economic purpose and are solely aimed at reducing tax bills. By putting an end to inappropriate basis shifting, the government aims to increase tax collections from partnerships by at least $5 billion annually over the next decade.
However, some argue that basis shifting is a legitimate tax planning tool allowed by the tax code. Robert Kovacev, a lawyer representing partnerships being audited by the IRS, believes that businesses are within their rights to take advantage of these practices and that the new rules may face legal challenges.
The IRS has observed that partnerships are manipulating the basis of assets to avoid taxes, with some businesses repeatedly depreciating the same asset to reset its basis. The agency plans to publish guidance for accountants and lawyers to clarify that basis shifting purely for tax avoidance is illegal and subject to audits. Teams within the IRS will be dedicated to scrutinizing such partnerships to ensure compliance.
If successful, the crackdown on basis shifting could lead to an additional $50 billion in tax collections over the next decade, helping to offset the increased funding allocated to the IRS by Congress. The Biden administration highlighted the surge in popularity of basis-shifting maneuvers in recent years, particularly among pass-through businesses with over $10 million in assets.
While some argue that congressional authorization is needed to fully address basis shifting, others believe that the IRS has the authority to tackle abusive transactions under the current system. The debate over tax avoidance strategies is likely to continue as the government intensifies its efforts to ensure tax compliance among businesses and wealthy individuals.
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