"These transactions don't create any economic activity for the U.S. "Their sole purpose is to reduce tax bills," said Deputy Treasury Secretary Wally Adeyemo, adding that shutting down inappropriate basis shifting could increase tax collections from partnerships by at least $5 billion a year over the next decade.

Certain rules in the tax code allow partnerships to recalculate that basis when other assets move in or out of the business. The IRS asserts that partnerships are regularly manipulating the basis of assets to avoid taxes.

In some cases, the business might repeatedly depreciate the same asset.

"What you do is things like, you've depreciated the asset in one entity, so now the basis is zero," said Mark Luscombe, a Wolters Kluwer tax lawyer who serves on the American Bar Association's committee on partnerships. "If you sold it, you'd have a big gain and you don't have any more depreciation. You instead sell it to a related party so you can start the depreciation all over again."

An existing rule requires that transactions have "economic substance" rather than merely reducing tax bills. A top IRS official mentioned the economic substance rule as the root of the agency's belief that most of these closely related partnership transactions are illegal.

"It is possible that taxpayers believe their transactions meet the literal regulation," the official said, speaking on the condition of anonymity to discuss the new rule before specific regulations are announced. "However, they do not have economic substance. We believe they are illegal under current law."

The tax agency will publish guidance for accountants and lawyers meant to make clear that the federal government believes basis shifting purely to avoid taxes is illegal and will be subject to audits and it will create teams within the IRS's legal arm and its large-business auditing unit to focus on such partnerships, staffed by some of the hundreds of auditors the IRS has hired this year.

Those new employees have already turned up many basis-shifting transactions that they believe to be illegal, IRS Commissioner Danny Werfel said in a call with reporters. "In the audits we're doing today, we are seeing this systemic use of basis shifting where there is no economic basis to the transaction," Werfel said. "That is not allowed."

If Adeyemo's projection of $50 billion in additional tax collections over the next decade comes to pass, it would go a long way toward recouping the billions in additional funding that Congress allotted to the IRS at President Biden's urging. The Biden administration and others have argued that the investment would more than pay for itself as new auditors hired with the money crack down on wealthy tax evaders.

And this story confirms yet another lie spewed by GOPers trying to convince Joe Sixpack that more IRS agents were only being hired to go after him not the wealthy who've been stretching and bending the tax code with near impunity for years behind the GOP's deemphasis of the IRS' ability to uncover cheats and scoflaws.

Making the wealthy pay their fair share of our tax burden isn't going to plug every hole of deficit spending, but it will improve this nation's bottom line and make some borrowing unnecessary, so I call this a very good thing.

Danforth, if I buy a used tractor or a used backhoe or skid steer....how does depreciation work for that equipment?

Since he hasn't answered yet, I think the answer lies in how "economic substance" is quantified. IOW, your example would allow for further depreciation if you were using the equipment as it was intended.

What the above is related to would be you owning the equipment and then selling it to a shell company you also own/control simply so that you could re-deduct what you already deducted. The sale wasn't about repurposing the equipment, it was only about creating another "legal" re-deduction of the equipment for tax purposes only.