Live After Quit

“Revolutionizing the US Tax System? Key Disputes Put it to the Test!

Many taxpayers in the United States may soon have a major surprise in store for them if an ongoing lawsuit proves to be successful. The lawsuit is based around a group of taxpayers arguing that they have the right to a special tax rate that could virtually eliminate their tax obligation. While the lawsuit could potentially reshape the U.S. tax system, there are some key facts that remain in dispute. At the center of the lawsuit is the group of taxpayers who are arguing that they should have the right to claim the “Pass-Thru Entity” rate as their applicable tax rate. Their argument is that the this rate, which currently applies to corporate entities and not individual taxpayers, should also apply to them. If they succeed, it would consist of a dramatic reduction in their total taxable income. The plaintiffs in the lawsuit point to Internal Revenue Service (IRS) rules that dictate that taxpayers must receive at least some form of income aggregating to 80 percent of the activity for them to claim pass-thru entity status. They further allege that the IRS improperly disallowed pass-thru entity status in numerous circumstances. At the same time, the IRS argues that the taxpayers cannot legally receive a pass-thru entity rate, arguing that they lack the necessary activity to qualify. Further, the IRS has argued that the taxpayers have misused certain aspects of the system related to creating and maintaining their pass-thru entities. The stakes are quite high with this lawsuit as the outcome could significantly disrupt the current U.S. tax system. If the lawsuit is successful and the taxpayers are allowed to claim pass-thru entity status, other taxpayers may follow their lead and flood the U.S. tax system with pass-thru entity claims. This, in turn, could alter the amount of revenue that is collected by the federal government from income tax payments due to the reduced taxable income. The outcome of the case will ultimately be determined based on the evidence presented by both sides. It is unclear at this point how the court will decide, but it is clear that their decision could significantly shape the future of the U.S. tax system. Preparing for an eventual decision is likely difficult given the many details that remain in dispute and the uncertain outcome.