United States

IRS tightens grip on partnership tax dodging tactics

Image Credits: UnsplashImage Credits: Unsplash
  • The IRS is targeting "basis shifting" transactions used by partnerships to reduce tax liabilities by transferring tax basis from non-depreciable to depreciable assets.
  • New guidance, increased audits, and specialized units within the IRS aim to identify and prevent these abusive tax practices, potentially generating over $50 billion in revenue over the next decade.
  • Tax professionals are advised to stop promoting these strategies as they will face heightened scrutiny and audits under the new IRS measures.

The Internal Revenue Service (IRS) is ramping up its efforts to combat tax evasion tactics employed by complex partnerships. In a significant move, the agency unveiled a fresh initiative aimed at curbing a practice known as "basis shifting" among related parties, which allows partnerships to exploit loopholes and minimize their tax liabilities.

Basis shifting refers to intricate maneuvers where high-income taxpayers and corporations transfer tax basis from assets with no tax benefits to assets generating tax benefits, without substantially altering the economic substance of their businesses. These transactions enable closely related parties to evade taxes by capitalizing on disparities in the tax treatment of different assets.

The IRS has identified tens of billions of dollars in deductions claimed through these transactions under audit, highlighting the magnitude of the problem. By shifting tax basis from non-depreciable assets, such as stocks and land, to assets that offer depreciation deductions, like machinery, partnerships can artificially reduce their overall tax burden.

The IRS's Multi-Pronged Approach

To combat these abusive transactions, the IRS is taking a multi-faceted approach. The agency has released new guidance classifying such transactions as "transactions of interest," making it easier to identify and audit them. Additionally, the IRS is increasing its audits of large complex partnerships and bringing in more tax experts from outside the agency to help spot tax avoidance strategies.

Furthermore, the IRS Office of Chief Counsel is establishing a new unit dedicated to developing guidance aimed at eliminating these tax loopholes. This new unit will collaborate with a new pass-through work group in the IRS Large and Business International division, which is being established this fall.

Projected Revenue Gains and Impact

The IRS estimates that these measures could generate over $50 billion in revenue over the next decade. By closing loopholes and ensuring partnerships pay their fair share of taxes, the agency aims to promote a more equitable tax system and level the playing field for businesses that operate within the bounds of the law.

However, the IRS has emphasized that these changes will not affect the vast majority of small businesses or family farms, as they are not the primary users of these tax avoidance strategies.

Advice for Tax Professionals

During the press conference announcing the crackdown, IRS Commissioner Danny Werfel and Deputy Secretary of the Treasury Wally Adeyemo urged tax professionals to cease promoting these strategies, as they are inappropriate and will be subject to increased scrutiny and audits.

"The IRS is now better equipped to address these complex partnership transactions due to the Inflation Reduction Act funding," said Werfel. "We will continue to focus on this area and bring more transparency to the process to make it easier to spot abusive transactions."

Public Comment Period and Implementation

The proposed regulations targeting basis shifting transactions will undergo a public comment period before being finalized and implemented. This process allows stakeholders to provide feedback and ensures transparency in the rulemaking process.

As the IRS intensifies its efforts to combat tax avoidance schemes, partnerships and their advisors should carefully review their tax strategies and ensure compliance with the evolving regulatory landscape.


Ad Banner
Advertisement by Open Privilege

Read More

Leadership United States
Image Credits: Unsplash
LeadershipJuly 3, 2025 at 12:30:00 PM

What a portfolio career leader really does

There’s a version of portfolio work that looks shiny from the outside. A founder-turned-investor advising five startups. A former COO taking fractional roles...

Economy United States
Image Credits: Unsplash
EconomyJuly 3, 2025 at 12:00:00 PM

Early signs US economy slowing down in 2025

At first glance, the US economy in mid-2025 still looks solid. Unemployment remains historically low, inflation has eased, and major indices haven’t collapsed....

Transport United States
Image Credits: Unsplash
TransportJuly 3, 2025 at 12:00:00 PM

Perodua positioned to launch Malaysia’s top-selling EV

For decades, Malaysia’s automotive ambitions were treated as a strategic extension of its industrial upgrade pathway—moving from resource extraction toward high-value manufacturing. But...

Careers United States
Image Credits: Unsplash
CareersJuly 3, 2025 at 12:00:00 PM

When the title goes up but the pay stays flat

Getting promoted is supposed to be a good thing. A higher title, more responsibility, and, crucially, better pay. But for one Reddit user...

Investing United States
Image Credits: Unsplash
InvestingJuly 3, 2025 at 11:30:00 AM

What to watch before the stock market opens

You don’t need to day-trade to care about what the markets are signaling. Even if your focus is long-term—retirement planning, monthly budgeting, portfolio...

Investing United States
Image Credits: Unsplash
InvestingJuly 3, 2025 at 11:00:00 AM

July 2025 Social Security payment dates you should know

If you’ve never had to time your grocery run, rent payment, or medical appointment around the arrival of a single government deposit, you’re...

Tax United States
Image Credits: Unsplash
TaxJuly 3, 2025 at 11:00:00 AM

Why Trump’s tax deductions for tips, car loans, and overtime may offer little value to low-income earners

For working Americans hoping for meaningful tax relief, the Senate’s approval of Trump’s 2025 tax package might sound like good news. After all,...

Economy United States
Image Credits: Unsplash
EconomyJuly 3, 2025 at 10:30:00 AM

UK launches 10-year strategy to overhaul struggling health service

The UK government’s announcement of a decade-long NHS reform plan is being framed as a health system rescue. It’s more than that. This...

Finance United States
Image Credits: Unsplash
FinanceJuly 3, 2025 at 10:30:00 AM

US trade pacts raise barriers to China’s offshore exports, pressuring Hong Kong stock

The Hang Seng Index dropped 1.2% on Thursday morning, erasing Wednesday’s gains, as investors responded to new trade agreements between the United States...

Politics United States
Image Credits: Unsplash
PoliticsJuly 3, 2025 at 10:30:00 AM

Ukraine presses for answers amid US reassessment of arms shipments

The Biden administration’s decision to delay certain U.S. weapons shipments to Ukraine was introduced as a discrete, situation-specific measure. Officials from the Department...

Tech United States
Image Credits: Unsplash
TechJuly 3, 2025 at 10:30:00 AM

Microsoft’s biggest layoff in years hits 9,000 amid AI strategy shift

Microsoft’s announcement of 9,000 job cuts—impacting less than 4% of its workforce—isn’t some surprise overcorrection. It’s a visible step in a quiet transformation:...

Economy United States
Image Credits: Unsplash
EconomyJuly 3, 2025 at 9:30:00 AM

Bursa dips at open amid mild profit taking

Bursa Malaysia slipped into the red in early trade on Thursday, tracking broadly positive regional sentiment but weighed down by profit-taking in selected...

Ad Banner
Advertisement by Open Privilege
Load More
Ad Banner
Advertisement by Open Privilege