IRS Cracks Down On Major Tax Loophole

( – Since taking office, President Joe Biden has been working to make the tax system more fair by demanding that the wealthy pay their fair share. The richest Americans and large businesses typically use the current system to lessen their tax burden and exploit loopholes in the tax code to complete that task legally. The US Department of the Treasury and the IRS recently made a move to close those pathways.

On June 17, those government entities announced a new regulatory initiative to close what they called a major loophole used by complex partnerships. The current code reportedly allows these companies to use certain business structures to inflate tax deductions, thereby lowering or eliminating their taxes.

The technique involves partnerships that shift transactions to multiple legal entities to manipulate tax rules and minimize the entity’s liability to the government. The Treasury Department explained that the business might move a property that doesn’t supply a tax deduction to one that does, allowing the partnership to repeatedly depreciate the same asset — lowering the bottom-line tax liability.

Once the new guidance from the Treasury and the IRS is complete, they estimate it will generate over $50 billion in revenue for the government over a 10-year period. That’s good news for the country and bad news to those who’ve worked hard to circumvent the tax rules as they were intended when passed by Congress and signed into law.

The government intends to prevent complex partnerships from shifting the tax basis on assets and incorporate a reporting mechanism for reporting all such transactions to the IRS to ensure the rules are followed.

US Treasury Secretary Janet Yellen praised Biden’s Inflation Reduction Act for giving the department and the IRS the “tools to stop longstanding abuses” of the tax code. She said the new rules would “increase tax fairness and reduce the deficit.”

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