Biden IRS announces crackdown on complex partnerships, says it will raise $50 billion

The Treasury Department and IRS have announced a new crackdown on tax planning through complex partnerships, a move the Biden administration contends will raise $50 billion in tax revenue.

The initiative announced Monday will close a “major tax loophole” used by complex partnerships, the Treasury Department said. If the “loophole” is closed, it would raise an estimated $50 billion over the next decade.

The Treasury Department said in a press release it would target “related party basis shifting.” In such transactions, a single business operates through many different legal entities and “enters into a set of transactions that manipulate partnership tax rules to maximize tax deductions and minimize tax liability.”

The IRS said that businesses and the wealthy are using an army of well-paid lawyers and accountants to develop such transactions in order to save their clients money, and in turn, shortchange the federal government to the tune of billions of dollars every year.

Previously, the IRS was underfunded and audit rates on the complex structures fell, according to the administration. After studying the matter for a year, on Monday the Treasury and IRS announced they would propose regulations under current regulatory authority to stop such actions.

“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,” Treasury Secretary Janet Yellen said. “Thanks to resources from President Biden’s Inflation Reduction Act, Treasury and the IRS have the tools to stop longstanding abuses.”

Under President Joe Biden, the IRS has increased efforts to audit the wealthy in the hopes of reeling in more tax revenue. The IRS was infused with new funding by the Democratic-backed 2022 Inflation Reduction Act, which Biden and Democrats hope will help increase audits and tax receipts.

The Treasury Department and the IRS released a joint analysis earlier this year that examines the projected return on investment for the Inflation Reduction Act. The Treasury Department estimated that the controversial IRS funding will increase tax revenue by some $561 billion over the next decade.

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Republicans oppose the influx of IRS funding, arguing it would drive up audits on the middle class. Democrats meanwhile contend that the funding would be used to close the tax gap by going after wealthy tax cheats and would be focused on those earning in excess of $400,000, offering a significant return on investment.

Republicans have sought to claw back some of the $80 billion in IRS funding and were fiercely against that provision in the legislation. They have already succeeded in reducing some of the funding.