S.2094 - Basis Shifting is a Rip-off Act (119th Congress)
Summary
S.2094, the "Basis Shifting is a Rip-off Act," aims to amend the Internal Revenue Code of 1986 to modify partnership rules concerning basis-shifting transactions involving related parties. The bill targets perceived tax loopholes where related parties manipulate partnership rules to shift tax basis and avoid paying appropriate taxes. It introduces stricter rules for distributions and transfers of partnership interests among related persons, including mandatory adjustments to partnership property and increased penalties for understatements related to these transactions.
The Act seeks to prevent tax avoidance by related parties using partnerships. It also aims to ensure that gains are appropriately recognized and taxed in such transactions.
The bill includes provisions for small business exceptions and grants the Secretary of the Treasury authority to issue regulations to prevent avoidance of the Act's purposes.
Expected Effects
The bill's enactment would likely result in increased tax revenue from partnership transactions involving related parties, as it closes loopholes that allow for basis shifting. It would also increase the complexity of partnership tax law, potentially requiring more sophisticated tax planning and compliance efforts.
Small businesses meeting certain gross receipts tests may be exempt. However, larger partnerships and those with complex related-party structures will face increased scrutiny and potential tax liabilities.
The Act could also deter certain partnership structures designed primarily for tax avoidance.
Potential Benefits
- Increased Tax Revenue: By closing loopholes, the government could collect more tax revenue from partnership transactions.
- Fairer Tax System: Prevents related parties from exploiting tax rules, promoting a more equitable tax system.
- Discourages Tax Avoidance: Deters the use of partnerships for aggressive tax avoidance strategies.
- Clarity in Tax Law: Aims to clarify complex areas of partnership taxation, although it also adds complexity.
- Level Playing Field: Reduces the advantage that related parties might have over unrelated parties in partnership transactions.
Most Benefited Areas:
Potential Disadvantages
- Increased Complexity: Adds complexity to partnership tax law, potentially increasing compliance costs for businesses.
- Potential for Unintended Consequences: The broad language could inadvertently affect legitimate business transactions.
- Compliance Burden: Requires businesses to carefully document and analyze related-party transactions to avoid penalties.
- Small Business Impact: Although there are exceptions, some small businesses may still be affected by the increased complexity.
- Potential for Litigation: The new rules could lead to disputes and litigation over interpretation and application.
Most Disadvantaged Areas:
Constitutional Alignment
The bill's constitutional alignment primarily relates to Congress's power to lay and collect taxes, as outlined in Article I, Section 8, Clause 1 of the Constitution. The Sixteenth Amendment grants Congress the power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several states, and without regard to any census or enumeration.
By modifying the Internal Revenue Code to prevent tax avoidance, the bill aims to ensure that income is taxed fairly and efficiently. There are no apparent constitutional conflicts related to individual rights or state powers.
However, the complexity of the legislation could raise concerns about due process if the rules are unclear or applied arbitrarily, potentially implicating the Fifth Amendment.
Impact Assessment: Things You Care About ⓘ
This action has been evaluated across 19 key areas that matter to you. Scores range from 1 (highly disadvantageous) to 5 (highly beneficial).