June 17,2025

Wyden Unveils Bills Closing Loopholes Allowing Wealthy Investors and Mega-Corporations to Abuse Partnerships to Dodge Taxes

Washington, D.C. – Senate Finance Committee Ranking Member Ron Wyden, D-Ore., today introduced a pair of proposals, the Preventing Abusive Routine Tax Nonsense Enabled by Rip-offs, Shelters, and Havens and Instead Promoting Simplicity Act (PARTNERSHIPS Act) and the Basis Shifting is a Rip-off Act, to close loopholes that allow wealthy investors and mega-corporations to abuse pass-through entities, primarily partnerships, to avoid paying their fair share of taxes. This legislation updates Senator Wyden’s partnership discussion draft released in 2021.

“The tax rules around passthrough entities and partnerships are unbelievably complicated, and that’s what makes them the preferred tax avoidance strategy of highly profitable corporations and the rich. A middle class worker can’t slash their income tax rate by moving a big pile of cash from their living room to their garage, but that’s essentially what corporations and wealthy investors are able to do when they shift assets through tangled webs of partnerships. This loophole-closing proposal raises revenue without increasing any tax rates, and it makes our tax code simpler and more fair. You can bet we’ll have this on the shelf when it comes time for Democrats to pass an agenda that cleans up the harm Trump is doing to American families,” Senator Wyden said. “The Trump administration has already shut down an effort by the IRS to prevent partnership abuse, which is little surprise since the Treasury Secretary himself engaged in this kind of gaming for his own benefit. What they’ve done on basis shifting is welfare for the ultra-wealthy, plain and simple.”

A section-by-section summary of the proposals is available here. Legislative text of the PARTNERSHIPS Act is available here and of the Basis Shifting is a Rip-Off Act is available here. 

Nearly seventy percent of partnership income accrues to millionaires and billionaires. Current partnership tax rules are too complicated for the IRS to enforce, turning partnerships into a preferred tax avoidance strategy for wealthy investors and mega-corporations. Although computers can check a wage earner’s return, the IRS needs highly-skilled specialists to audit partnerships. While the number of large partnerships increased by almost 600 percent between 2002 and 2019, the audit rate of these large partnerships dropped to less than 0.5 percent.

Wyden’s bill would remove the flexibility in current partnership rules by closing loopholes that essentially allow wealthy partners to pick and choose how, and whether, to pay tax. 

The PARTNERSHIPS Act would raise more than $727 billion without raising tax rates. The Joint Committee on Tax (JCT) has provided a partial score of the new legislation. To account for the revenue impact of the provisions JCT had not yet scored at the time of introduction, the $727 billion estimate includes scores provided for the same policies when they were included in Senator Wyden’s 2021 discussion draft. 

“The introduction of these proposals is a huge advancement in partnership tax law reform and hopefully will lead to a serious debate on the merits of these proposals, ultimately leading to enactment into law,” stated Monte Jackel of Jackel Tax Law, an expert in partnership tax law with more than 40 years of experience in the private sector and federal service. “These proposals are directed to the major areas of abuse or ambiguity in the partnership tax law dealing with allocations by a partnership to a related partner, basis shifting, liabilities allocated to partners, the codification of the regulatory partnership anti-abuse rule, as well as other meaningful proposals and should greatly help the IRS in auditing more partnerships in an effective manner. The IRS is behind the curve in terms of auditing partnerships and applying the complex partnership tax law to them. This is particularly the case given the recent retraction of both additional personnel and funding for the tax agency. To address small business concerns about undue burden, certain of the legislative proposals requiring a significant level of partnership tax law expertise and administrative compliance are not applicable to those businesses. Regulatory authority is also granted to the Treasury and IRS in the proposals to help interpret and apply the new provisions in a fair and balanced manner." 

Examples of loophole closures in Wyden’s bill: 

  • Contributions and distributions of appreciated or depreciated property are generally tax free. Partnerships are supposed to allocate built-in gains and losses on contributed property in a way that limits abuse, but they get to choose among three or more allocation methods. Only one—the “remedial method”—actually prevents tax from being shifted between the partners. The bill would require partnerships to use the remedial method making sure gain, and the related tax liability, cannot be shifted.
  • Upon a change in the interests of the partners, a partnership can elect—but is not required—to revalue its assets to prevent the shifting of built-in gain and loss. The bill would require such revaluations.
  • The partnership tax rules afford tremendous flexibility in the allocation of partnership income and losses among partners. For certain related-party partnerships, the bill would require all income and loss to be allocated pro-rata.
  • The partnership tax rules currently allow sophisticated taxpayers in related-party partnerships to shift basis among assets in a series of mechanical steps that result in massive tax savings. For example, these loopholes are used by certain taxpayers to re-depreciate the same asset over and over again, allowing the taxpayer to offset ordinary income with depreciation deductions. 

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