August 9, 2022
By the narrowest of margins, the Senate on Sunday passed a budget reconciliation bill, HR 5376, which now moves on to the House. The bill is known as the Inflation Reduction Act of 2022, although the precise way that it might effect inflation is debatable. This bill is the remnant of what was originally known as the Build Back Better Act, which failed to get consensus shortly after President Biden's election. While the bill is pared back from its earliest version, it is still touted as America's biggest investment in clean energy and climate change to date, coming in at about $370 billion and supposedly capable of reducing greenhouse gas emissions by 40% by the end of the 2020's.
There are several tax provisions in the bill. Most of them will have no impact on the smallest of businesses in the US, but some will still impact larger privately-held businesses, with most of the impact directed at larger publicly-held companies. The one tax-related feature that will touch all businesses is the increase in funding for the IRS. Because larger companies have the advantage of hiring or employing legions of CPAs and tax attorneys to defend their positions, the brunt of the IRS efforts, despite what they might say, are often by default directed at smaller privately-held businesses. Enforcement disproportionately applied to small businesses is where the IRS can often get a bigger return on their investment, as those businesses do not have the resources to put up limitless defenses against the IRS.
Among the other key provisions is the 15% corporate minimum tax. This tax would apply to financial statement income (or "book income") and again will tend to impact larger privately-held companies and public companies. The corporate minimum tax would be determined by taking 15% of a C corporation's adjusted financial statement income and then subtracting out the alternative minimum foreign tax credit, and would apply to corporations with adjusted financial statement income for the 3 consecutive years ending with the tax year exceeding $1 billion. It is estimated that this provision will only apply to about 200 companies, and it is effective for tax years beginning after 2022.
Another provision is a 1% excise tax on stock buybacks, effective after December 31, 2022. The 1% stock buyback tax was added as an offset to the attempt to stretch the carried interest holding period from 3 to 5 years for long-term gain treatment. "Carried interest" relates to partnership interests that are held in connection with the performance of services.
The bill also extends through 2025 the broader eligibility for health care premium tax credits for taxpayers whose household income exceeds 400% of the poverty line and the calculation of the premium assistance amount.
Other provisions of the bill provide tax credits for the following:
It is anticipated that this bill could pass the House and make it's way to the President by Friday of this week.
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