The U.S. Department of the Treasury and the IRS on Monday unveiled a plan to “close a major tax loophole” used by large, complex partnerships, which could raise more than an estimated $50 billion in tax revenue over the next 10 years.
The plan targets so-called “related party basis shifting,” where single businesses operating through different legal entities trade original purchase prices on assets to take more deductions or reduce future gains, according to the Treasury.
After a year of studying the basis-shifting issue, the agencies announced their intent to issue proposed regulations. They also released a revenue ruling on related-party partnership transactions involving basis shifting without “economic substance” for the parties or “substantial business purpose.”
Pass-through business filings with more than $10 million in assets increased 70% between 2010 and 2019, but the audit rate for these partnerships fell from 3.8% to 0.1% during that period, according to the Treasury.