U.S. Sen. Ron Wyden (D-OR) introduced two pieces of legislation that seek to close tax loopholes for investors and corporations.
One of the bills is the Preventing Abusive Routine Tax Nonsense Enabled by Rip-offs, Shelters, and Havens and Instead Promoting Simplicity Act (PARTNERSHIPS Act). The second is the Basis Shifting is a Rip-off Act.
Wyden said that current partnership tax rules are too complicated for the IRS to enforce, turning partnerships into a preferred tax avoidance strategy for wealthy investors and mega-corporations. While the number of large partnerships increased by almost 600 percent between 2002 and 2019, the audit rate of these large partnerships dropped to less than 0.5 percent.
Wyden’s PARTNERSHIPS Act would remove the flexibility in current partnership rules by closing loopholes that, according to Wyden, essentially allow sophisticated taxpayers in related-party partnerships to shift basis among assets in a series of mechanical steps that result in massive tax savings.
Wyden said the PARTNERSHIPS Act would raise more than $727 billion without raising tax rates.
“The tax rules around passthrough entities and partnerships are unbelievably complicated, and that’s what makes them the preferred tax avoidance strategy of highly profitable corporations and the rich. A middle class worker can’t slash their income tax rate by moving a big pile of cash from their living room to their garage, but that’s essentially what corporations and wealthy investors are able to do when they shift assets through tangled webs of partnerships. This loophole-closing proposal raises revenue without increasing any tax rates, and it makes our tax code simpler and more fair. You can bet we’ll have this on the shelf when it comes time for Democrats to pass an agenda that cleans up the harm Trump is doing to American families,” Wyden said. “The Trump administration has already shut down an effort by the IRS to prevent partnership abuse, which is little surprise since the Treasury Secretary himself engaged in this kind of gaming for his own benefit. What they’ve done on basis shifting is welfare for the ultra-wealthy, plain and simple.”
Partnership tax law expert Monte Jackel of Jackel Tax Law said these proposals are an advancement in partnership tax law reform.
“The IRS is behind the curve in terms of auditing partnerships and applying the complex partnership tax law to them. This is particularly the case given the recent retraction of both additional personnel and funding for the tax agency. To address small business concerns about undue burden, certain of the legislative proposals requiring a significant level of partnership tax law expertise and administrative compliance are not applicable to those businesses. Regulatory authority is also granted to the Treasury and IRS in the proposals to help interpret and apply the new provisions in a fair and balanced manner,” Jackel said.