Will the Inflation Reduction Act of 2022 Affect Me?
A SPECIAL REPORT by Tripp Scott's Tanya Bower and Christine Yates
The "Inflation Reduction Act," H.R. 5376, (the "Act") was signed into law on August 16, 2022. Despite the new title, the Act is essentially the scaled-down version of the previously proposed "Build Back Better Act." Any time legislation is passed, particularly legislation containing tax provisions, the first question clients ask is often the same, "What does this mean for me?" Below, please find our brief summary of the Act provisions. For a more detailed discussion, CLICK HERE to read the article. Should you have any questions, please contact us to further discuss how the Act affects your situation specifically.
Will the Act Raise my Taxes?
- No Additional Taxes this Year. The provisions of the Act which increase tax liability include a Corporate Alternative Minimum Tax ("Corporate AMT"), an excise tax on stock repurchases, and an extension of the excess business loss limitation. Their provisions are described below. The Corporate AMT and the excise tax on stock repurchases are not effective until 2023. The extension of the excess business loss limitation extends the limitation already set to expire in 2026 out until 2028.
- Additional Taxes on Large Corporations. Beginning in 2023, the Act creates a 15% minimum tax on corporations that, during a 3-year period, earn (after certain adjustments) an average of $1 Billion or greater.
- 1% Excise Tax on Corporate Stock Repurchases. Beginning in 2023, the Act establishes a 1% excise tax on certain large repurchases of the corporate stock. This tax is generally limited to stock repurchases which, cumulative during a year, are equal to or in excess of $1 Million. Additionally, this new provision does not apply to stock purchases made pursuant to a tax-free reorganization or where the repurchased stock is used for employee benefit plans.
- Loss Limitations Extended. As discussed above, the Act extends the loss limitations currently available to noncorporate taxpayers for an additional two years. The loss limitations are now set to expire in 2028 rather than 2026.
Do Other Provisions Affect Me?
- Additional IRS Enforcement Funding. The Act provides approximately $45.6 Billion to the IRS for purposes of enforcement. Treasury Secretary Yellen publicly stated that the focus of this additional budget will be enforcement against taxpayers with annual income over $400,000. Typically, audits of higher-income taxpayers require the use of higher trained "Revenue Agents," as opposed to the "Tax Examiners" who examine lower income returns. The number of Revenue Agents decreased by 41% from 2010–2021. We anticipate that the budget will largely be used for hiring and training new Revenue Agents to support increased audits of higher income returns.
- New Clean Vehicle Credit. The Act extends and modifies the existing $7,500 tax credit for new Clean Vehicles; however, the applicability of this credit may be limited in reality. The total potential credit amount remains $7,500, but the credit is limited to households with income under $300,000 ($150,000 for single taxpayers) on the purchase of new vehicles with MSRPs under $55,000 ($80,000 for vans, trucks, and suvs). Additionally, the purchased vehicle must have been assembled in North America and must use batteries that contain US-manufactured components and core materials extracted from the U.S. or its fair trade partners.