Treasury, IRS To 'Close Major Tax Loophole' To Bring $50 Billion In Government Coffers

The U.S. Treasury Department and the IRS are working together to "close a major tax loophole" often abused by complex and large partnerships to lower tax liabilities. Once implemented, this measure could bring the government more than $50 billion in revenue over the next 10 years.

The plan will focus on "related party basis shifting," which is typically used by related parties to increase deductions on assets or reduce future gains, thereby lowering the tax liability of the entities involved.

During a press call on Friday, IRS Commissioner Danny Werfel told reporters that "these tax shelters allow wealthy taxpayers to avoid paying what they owe."

The two agencies announced their intention to issue regulations on "basis shifting" after studying the scheme for about a year. A revenue ruling was also released, covering related-party partnership transactions that involve "basis shifting" without a "substantial business purpose" or any "economic substance," CNBC reported.

"Treasury and the IRS are focused on addressing high-end tax abuse from all angles, and the proposed rules released today will increase tax fairness and reduce the deficit," noted Janet Yellen, U.S. Secretary of the Treasury, in a statement.

The plan aligns with the IRS's goal of increasing audits among large corporations, the wealthiest taxpayers, and complex partnerships.

According to The Washington Post, high-end business partnerships, including wealthy individuals like real estate investors, have used these tax structures to shield themselves from being taxed on billions of dollars. The U.S. Treasury plans to crack down on the practice to ensure the right amount of revenue ends up in government coffers.

"These transactions don't create any economic activity for the U.S.," noted Wally Adeyemo, Deputy Treasury Secretary. He added that the sole purpose of such transactions is to "reduce tax bills."

Adeyemo emphasized that shutting down inappropriate basis shifting could lead to an increase in tax collection from partnerships by approximately $5 billion a year, amounting to about $50 billion over 10 years.