President Joe Biden signed the Inflation Reduction Act of 2022 (the “IRA”) into law on Aug. 16, 2022, resulting in significant changes to the Internal Revenue Code. An overview of a few of the changes is below.
15% Minimum Tax on Corporate Income
- Imposes a minimum tax on the excess of 15% of the adjusted financial statement income over the alternative minimum tax foreign tax credits for the taxable year.
- Applies to corporations that have an average annual financial statement income of $1 billion over a three-year period including the corporation’s current tax year.
- S corporations, regulated investment companies and real estate investment trusts are explicitly excluded.
- Special rules exist for corporations in existence for less than 3 years, foreign-parented multinationals, and foreign corporations engaged in a trade or business in the United States.
- The applicable financial statements are those that are prepared in accordance with GAAP or IFRS.
- The minimum tax applies to tax years beginning after Dec. 31, 2022.
Excise Tax on Stock Buybacks
- 1% excise tax on the fair market value of stock buybacks (or economically similar transactions).
- Applies to domestic corporations that are traded on an established securities market.
- The excise tax applies to stock buybacks after Dec. 31, 2022.
Business Losses
- Extended the limitation for excess business losses for noncorporate taxpayers to tax years beginning before Jan. 1, 2029.
Energy Tax Credits
- Tax credits to promote and facilitate green energy production, including tax credits for zero-emission nuclear power production, production of clean hydrogen, sustainable aviation fuel, clean electricity production, and clean fuel production.
- Tax credits to promote energy-efficient vehicles, including tax credits for the purchase of qualified commercial clean vehicles and previously owned clean vehicles (up to $4,000).
- Permits the transfer of certain energy tax credits in exchange for cash.
Internal Revenue Service (IRS)
- IRS funding was substantially increased, which may result in a rise in enforcement activities.
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