Warren Slams Move to End IRS Partnership Oversight Rules (1)

Proposed IRS rules scrapping reporting requirements for complex partnerships will neutralize one of the few remaining tools the agency has to identify abusive partnership transactions, Senate Democrats are warning in a new missive to IRS and Treasury Department officials.

The letter, led by Sen. Elizabeth Warren (D-Mass.), pushed back on regulations proposed in March that rescind final rules requiring the reporting of partnerships’ basis-adjustment transactions to the IRS.

“This requirement effectively sent up a red flag for the IRS to examine, an especially important signal for an agency with limited resources,” Warren wrote to Treasury Secretary Scott Bessent and Assistant Secretary for Tax Policy Ken Kies.

Basis adjustments shift part of a partnership’s investment in another entity from one related party to another. That can generate tax deductions that the IRS under former President Joe Biden had said are artificial, enabling the partnership to improperly reduce its taxes.

Biden’s Treasury issued final rules requiring such transactions to be reported as potentially abusive “transactions of interest.” But under President Donald Trump, the agency indicated last year that it would withdraw those rules as part of a broader easing of the Biden administration’s crackdown on complex partnerships.

The shift away from the requirements was pushed by businesses and tax practitioners complaining about complex and burdensome new compliance obligations.

The lawmakers said the repeal moves the IRS in the wrong direction, noting a recent Treasury Inspector General for Tax Administration report that called for improving its procedures to identify the partnerships to be examined.

“Removing this reporting requirement will enable tax dodging by some of the wealthiest Americans, further tilting our tax code in favor of the rich and powerful,” Warren’s letter said.

Kies said last month that Treasury is still “actively pursuing” improper basis adjustments despite the rollback of the reporting rules.