New legislation coming from the Biden Administration aims to put an end to the tax gap and high-wealth tax avoidance using off-shore tax practices.
What is The Proposed Legislation?
President Biden announced his plan in April 2021 to rebuild America's infrastructure and stimulate the suffering economy. Two pieces of the puzzle are the American Jobs Plan and the American Families Plan, designed to promote education, provide well-paying jobs for Americans, and inspire innovation.
Another significant change is that Biden plans to funnel a lot more money into the Internal Revenue Service (IRS) so the agency can pursue high-wealth taxpayers and companies who may be using off-shore practices to minimize their tax liability to avoid paying taxes. Biden aims to level the tax gap between the classes once and for all.
Biden's plan includes funding the IRS by boosting its budget by $80 billion over ten years. Currently, the IRS stands underfunded and understaffed, which means fewer audits and very few prosecutions for tax evaders. Without the money to perform audits and criminal investigations, it leaves a lot of uncollected money on the table.
The higher budget does come with some strings. Using part of the $80 billion, the IRS is also tasked with evaluating its outdated technology and upgrading its systems to make tax collection and monitoring more manageable and efficient. Over the past few years, the IRS' meager budget has prevented the agency from going after high-profile tax fraud cases. The influx of new cash should help recover a wealth of overlooked assets and allow the agency to pursue more criminal tax investigations.
The hope is that the increased budget will jumpstart the collection of missed tax-paying opportunities to fund the agency internally. In the process, tax fraud will also decrease.
One of the primary goals of this proposed legislation is to put a target firmly on the backs of high-wealth earners and companies who are avoiding paying taxes using off-shore assets or foreign bank accounts.
How Will This Change Affect You?
Using offshore accounts and other tax practices to increase and protect your wealth is not illegal. However, there is a fine line which many clients are not aware that they have crossed, putting them at risk of non-compliance and abuse. If you suspect your corporation may be at risk of non-compliance with the new law, now is the time to consult with your tax attorney to straighten things out.