U.S. Treasury, IRS To Close $50-B Tax Loophole On Partnerships

The US Treasury and Internal Revenue Service have announced that they will close a tax loophole exploited by large, complex partnerships, an action estimated to raise $50 billion in new revenue over 10 years, David Lawder reported for Reuters.

The Treasury said the IRS would no longer allow partnerships to shift tax liabilities to related parties or different legal entities to maximize tax deductions and minimize liability.

The Treasury said the IRS would no longer allow partnerships to shift tax liabilities to related parties or different legal entities to maximize tax deductions and minimize liability.

New guidance on the subject coincides with the IRS' stepped-up enforcement campaign to increase audits of large, complex partnerships, backed by some $60 billion in funding over 10 years for the agency approved by Congress in 2022.

The IRS is releasing proposed regulations related to the change, which would ban transactions that shift the tax basis of assets to reduce gains and taxable income.

"The proposed regulations, once finalized, would effectively eliminate inappropriate tax benefits created from these abusive transactions between related parties," the Treasury said.

The Treasury and IRS are also releasing a revenue ruling stating that certain related-party partnership transactions to shift tax basis "lack economic substance," which the Treasury said supports the IRS position in current and future audits.