Inside The IRS Plan To Raise Billions By Cracking Down On ‘Pass-Through Businesses’

For most taxpayers, the IRS is a necessary evil at best. The taxman takes a significant portion of your earnings and distributes it in ways that you might not approve of or even fully understand.

But there’s one aspect that millions of Americans find particularly frustrating — loopholes that are exploited by the wealthiest among us. In an announcement this week, the IRS confirmed that it would be tackling this issue head-on over the next decade.

Assessing the situation

Treasury Department officials laid out various parts of a strategy designed to crack down on the use of pass-through businesses created by wealthy taxpayers in order to avoid paying all the taxes they would otherwise owe.

Estimates from the agency reveal how much revenue the federal government has lost as a result of this tactic.

• The number of pass-through businesses increased by 70% during the 2010s
• During that decade, wealthy taxpayers avoided paying about $160 billion in taxes
• Enhanced enforcement should bring in more than $50 billion by the mid-2030s

While establishing these tax shelters isn’t necessarily illegal, Deputy Treasury Secretary Wally Adeyemo explained that many of the wealthiest Americans use them like a “shell game” to move money around and avoid tax liability.

Digging into the plan

According to Treasury Secretary Janet Yellen, new rules being proposed by the department “are focused on addressing high-end tax abuse from all angles” and seek to “increase tax fairness and reduce the deficit.”

Part of the recommended approach involves subjecting wealthy individuals (as well as many businesses) to a higher number of audits.

But not everyone is on board. A number of Republican lawmakers think the Biden administration has spent too much on the IRS already and House Speaker Mike Johnson wants to cut another $10 billion from the agency in next year’s budget.

Chris Agee June 19th, 2024

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