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Regulation and Compliance > Federal Regulation > IRS

New IRS Unit to Focus on Tax Dodging by Pass-Throughs

By Melanie Waddell

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The Internal Revenue Service said Wednesday it plans to set up a special area to focus on large or complex pass-through entities as part of its crackdown on wealthy tax dodgers.

The new work unit will be housed in the IRS Large Business and International (LB&I) division, with a new “pass-through area” that will include those joining the IRS as part of the agency’s recently announced plan to hire 3,700 compliance personnel to help crack down on complex partnerships and large corporations, as well as high-income and high-wealth individuals.

“We are honing-in on areas where we believe non-compliance among our wealthiest filers has proliferated over the last decade of IRS budget cuts, and pass-throughs are high on our list of concerns,” said IRS Commissioner Danny Werfel, in a statement.

The new unit will leverage Inflation Reduction Act funding “to disrupt efforts by certain large partnerships to use pass-throughs to intentionally shield income to avoid paying the taxes they owe,” Werfel said.

“These efforts are consistent with our broader commitment to use Inflation Reduction Act dollars to end the era of historically low error rates for wealthy and large entities, while making sure middle- and low-income filers continue to see no change in audit rates for years to come.”

Pass-through organizations include entities such as partnerships and S corporations.

“These groups are not subject to the corporate income tax; instead, income is ‘passed through’ onto the income tax returns of the individual or corporate owners and taxed at their income tax rates,” the IRS explained. “Pass-throughs are frequently used by higher-income groups and can be complex tax arrangements.”

The IRS said it will also be coordinating with the National Treasury Employees Union (NTEU) on the effort.

Melanie Waddell

@Think_MelanieW

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