IRS CRACKDOWN: TARGETING THE RICH, SECURING BILLIONS!
The Internal Revenue Service (IRS) is on the warpath, hunting down what it claims to be a staggering $50 billion in missing tax revenue. Their target? Wealthy individuals who shuffle their assets between companies they own, a strategy the IRS deems a “shell game.”
On Monday, the US Treasury unveiled new rules designed to dismantle ‘partnership basis shifting,’ a tactic allowing the rich to evade paying their fair share of taxes. This move comes as part of a broader campaign to recover the $160 billion in unpaid taxes attributed annually to the top 1 percent of earners.
Biden’s IRS: Armed and Funded
Biden administration officials, emboldened by the $80 billion boost in IRS funding from the 2022 Inflation Reduction Act, have declared an all-out assault on these tax shelters. Deputy Treasury Secretary Wally Adeyemo minced no words, calling the transactions economically unjustifiable and purely manipulative.
“These tax shelters allow wealthy taxpayers to avoid paying what they owe,” IRS Commissioner Danny Werfel stated bluntly. The loophole in question allows business owners to transfer assets to different entities, thereby reducing their tax liability.
The Impact of Budget Cuts and the Rise of Tax Evasion
The IRS points to a surge in such evasive practices as a direct result of past budget cuts, which severely hampered its ability to audit the wealthy. From 2010 to 2019, filings for large pass-through businesses—a key vehicle for the partnership loophole—skyrocketed by 70 percent, while audit rates plummeted from 3.8 percent to a mere 0.1 percent.
Werfel has reassured middle and low-income households that they are not the targets of a new wave of audits. However, businesses that are over 80 percent controlled by a single entity and file consolidated tax returns will now face increased scrutiny under the new rules.
Legal Experts Weigh In
Miles Johnson, a senior attorney advisor and partnership tax specialist at the Tax Law Center at NYU Law, supports the crackdown. “These transactions effectively make income disappear from the tax system,” he said, explaining that they create depreciation deductions and other tax reductions that don’t reflect any real economic cost.
Johnson noted that the new rules are designed to strip these transactions of their tax benefits and make them more visible to the IRS. “This update reflects our ongoing effort to focus compliance resources where they need to be,” he added.
Aiming for $50 Billion
The IRS anticipates that these measures will reclaim $50 billion over the next decade, intensifying their focus on high-wealth tax evaders who manipulate the tax code or simply neglect to pay their dues.
In his last State of the Union address, President Joe Biden pledged not to raise federal taxes on individuals earning less than $400,000 a year. Yet, the expiration of Donald Trump’s 2017 tax cuts next year could see income tax brackets rise by almost 3 percent unless Biden takes action.
Trump’s Tax Strategy
Meanwhile, Donald Trump continues to push his own tax agenda, proposing to abolish taxes on tips to appeal to service workers. He’s even floated the idea of replacing income tax with tariffs on imported goods, a move that could dramatically reshape the tax landscape.
IRS Initiatives and Enforcement
The IRS’s recent initiatives have included cracking down on individuals and businesses that improperly deduct personal flights on corporate jets and pursuing delinquent millionaires for back taxes. Data shows that ultra-wealthy taxpayers with annual incomes exceeding $10 million are currently the most likely to face IRS scrutiny.
Interestingly, the second most likely group to be audited are low and moderate-income taxpayers who claim the Earned Income Tax Credit (EITC). This tax break, intended for those earning below a certain threshold, has led to higher audit rates for EITC recipients compared to other taxpayers.
Future Audit Plans
Looking ahead, the IRS plans to double the audit rate for the wealthiest Americans earning more than $10 million annually over the next three years. Large corporations with assets exceeding $250 million will see a threefold increase in audit rates, and large complex partnerships with assets over $10 million will face a tenfold increase in scrutiny.
Conclusion
As the IRS tightens its grip, America’s wealthiest citizens and most complex businesses are on notice. With enhanced funding and a renewed mandate, the IRS is poised to reclaim billions in unpaid taxes, signaling a new era of tax enforcement aimed squarely at the top echelons of society. The message is clear: The days of playing the tax shell game are numbered.
