U.S. Reps. Lloyd Smucker (R-PA) and Mike Kelly (R-PA) are urging Internal Revenue Services (IRS) Commissioner Billy Long to reconsider a rule that seeks to crack down on partnership “basis-shifting” transactions.
The ruling broadly applies the economic substance doctrine, an enforcement tool to the rule looks to combat tax avoidance and ensure that transactions are driven by legitimate business purposes, rather than simply reducing tax liability. The lawmakers say that by extending the scope of this enforcement tool beyond past precedent, the IRS overreached and cast doubt on the legality of routine partnership transactions.
“American taxpayers and businesses deserve clear and consistent tax rules that allow them to confidently comply with the law,” Smucker said. “Reconsidering this relic of the Biden administration’s IRS would remove a contradictory compliance burden and help instill a more predictable tax code. The Trump administration has secured historic tax reforms for the American people. We are hopeful that it will remain committed to restoring fairness. We respectfully urge the IRS to rescind this Biden-era regulation, eliminate uncertainty, and restore greater trust in the American tax code.”
Smucker and Kelly, along with 18 members of the House Ways and Means Committee, wrote a letter to the IRS commissioner urging him to rescind the rule, Revenue Ruling 2024-14.
“[T]he ruling assumes that related-party transactions inherently lack a legitimate business purpose,” the letter reads. “This assumption is at odds with long-established tax law and the reality of how businesses operate. Related-party transactions are routine in a variety of industries, including manufacturing, investment, and distribution, and are governed by provisions such as section 482 that are specifically designed to ensure fair treatment while recognizing their legitimacy. We believe that withdrawing Revenue Ruling 2024-14 and rejecting its flawed legal analysis would be an important next step toward restoring clarity and consistency in the tax code.”