The Internal Revenue Service announced Monday that it is cracking down on a complex maneuver that corporations and rich individuals use to avoid taxes, the agency’s latest enforcement action since receiving a badly needed infusion of funding from the Inflation Reduction Act.
The new IRS policy targets a tactic known as “basis shifting,” whereby business partners move “the tax basis of their assets amongst each other to take abusive deductions or reduce gains when the asset is sold, effectively making taxable income disappear,” the Treasury Department explained in a statement.
“This announcement signals the IRS is accelerating our work in the partnership arena, which has been overlooked for more than a decade and allowed tax abuse to go on for far too long,” said Danny Werfel, the commissioner of the IRS. “We are building teams and adding expertise inside the agency so we can reverse long-term compliance declines that have allowed high-income taxpayers and corporations to hide behind complexity to avoid paying taxes. Billions are at stake here.”
The Treasury Department estimates that the new IRS initiative could raise more than $50 billion in federal revenue over the next decade.
Sen. Elizabeth Warren (D-Mass.) applauded the IRS’ step, writing on social media that the Biden administration is “right to end these shell games.”
“The super-wealthy use complex tax schemes to avoid paying what they owe,” Warren wrote. “Thanks to President [Joe] Biden and Democrats in Congress, a well-funded IRS is closing a loophole to make the rich pay their taxes.”
IRS funding provided by the Inflation Reduction Act — a Democratic measure unanimously opposed by the congressional GOP — has allowed the agency to more aggressively pursue rich tax dodgers whose more complicated returns require greater resources to audit than those of working-class Americans, who were audited at a higher rate than millionaires under the Trump administration.
Republican lawmakers are currently trying to slash IRS funding and scrap a free online tax-filing system that the agency launched this year. As The Hill reported earlier this month, House Republicans have proposed cutting IRS funding for fiscal year 2025 by $2.2 billion, specifically targeting enforcement resources.
The IRS estimated earlier this year that if Republicans don’t succeed in rolling back funding increases, the agency could collect roughly $560 billion from big corporations and rich tax cheats over the next 10 years.
“This is why you fund the IRS,” said former U.S. Labor Secretary Robert Reich.