Tobias Salinger
5 min read
In This Article:
An IRS proposal to drop a Biden administration rule targeting basis-shifting strategies by complex partnerships is getting support from key stakeholders, as well as calls for further relief.
But critics argue that dropping the regulation would let wealthy tax cheats off the hook. Even those who advocate getting rid of the rule say the IRS must take more action to remove enforcement risks around partnership basis-shifting strategies.
The regulatory proposal last month to withdraw the Jan. 14 regulation cited President Donald Trump's executive order that created the Department of Government Efficiency. It also mentioned the concerns of "taxpayers and their material advisors" about "imposing complex, burdensome, and retroactive disclosure obligations on many ordinary-course and tax-compliant business activities, creating costly compliance obligations and uncertainty for businesses."
These transactions enable businesses to transfer tax basis out of assets where it was not generating savings to affiliated entities where it could gain benefits, such as moving it from stock or land holdings to the partnership's equipment infrastructure and its depreciation capabilities. In its final days, the Biden administration issued a rule classifying them as "transactions of interest" (TOI) subject to increased scrutiny of the so-called "economic substance" of the basis-shift beyond simply tax savings. That followed an IRS memo from last June warning taxpayers, professionals and financial advisors that some common partnership basis-shifting transactions do not have the required economic substance.
The fact that the Trump administration's proposal wouldn't also cancel the revenue ruling memo caught the attention of some antitax advocacy groups and industry professionals.
"Given that Revenue Ruling 2024-14 was not withdrawn, continued diligence is required in identifying any transactions that may fall within the scope of the revenue ruling or otherwise be subject to potential challenges under the economic substance doctrine, or other common law principles such as the substance-over-form doctrine or step transaction doctrine," according to a blog on the rule proposal last month by accounting firm Grant Thornton. Nevertheless, the firm described the IRS proposal as "welcome relief for taxpayers and material advisors as the basis shifting TOI regulations would have imposed complex, burdensome and retroactive disclosure obligations on transactions that may have not been entered into with a tax avoidance purpose."
