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August 23, 2022

Inflation Reduction Act Introduces Corporate Revenue Provisions, Expanded Tax Credits and More

The Inflation Reduction Act of 2022 (IRA) was signed into law on August 16, 2022 by President Biden. This act aims to combat climate change, make health care and prescription drugs affordable and raise the tax on wealthy corporations. Below we cover a few important provisions for businesses and individuals.

REVENUE PROVISIONS

15% Corporate Alternative Minimum Tax

This provision is set to take effect for tax years beginning after 2022 and is similar to the provision that was proposed in the Build Back Better Act. The 15% corporate alternative minimum will apply to covered corporations, those that have stock traded on an established securities market, that have an average annual adjusted financial statement income (AFSI) exceeding $1 billion for any three taxable year periods ending in the current tax year. This provision does not apply to S-corporations, regulated investment companies or real estate investment trusts.

1% Excise Tax on Stock Repurchases

Under the new act, there will now be a 1% nondeductible excise tax based on the fair market value of all stock repurchases by U.S. public companies starting after December 31, 2022. Stock repurchase happens when a public company has enough excess cash that they buy their shares on the market or they make offers to current shareholders and buy it back from them. This provision will not only cover redemptions of stock but for any transaction that is seen by the Treasury to be economically similar to stock repurchase.

There are some exceptions, including:

  • A repurchase which is part of a nontaxable reorganization
  • Repurchased stock, or stock of equal value, which is contributed to an employer-sponsored retirement plan or ESOP
  • Where the total value of the stock repurchased in a tax year does not exceed $1 million
  • A transaction allowed under regulations for repurchases by a dealer in securities in the ordinary course of business
  • Repurchases by regulated investment companies or real estate investment trusts
  • Repurchases treated as a dividend for tax purposes

AFFORDABLE CARE ACT

Included in the new act is an extension of the Affordable Care Act provisions that were provided in the American Rescue Plan Act of 2021, which helped individuals in buying health coverage on the marketplace, which has now been extended through 2025. The extension of this act is meant to increase the financial support for individuals who already are eligible and also extend to middle-income taxpayers, most of whom were previously priced out of coverage.

RESEARCH CREDIT FOR SMALL BUSINESSES

Before the IRA, if small businesses did not have enough income tax liability to be able to take advantage of the $250,000 research and development credit, they were able to apply that amount toward their Social Security payroll tax liability. The small businesses that sought credit would need to 1) have less than $5 million of gross receipts and 2) be less than 5 years old. Under the new provision starting after 2022, there will now be an additional $250,000 credit that will be able to be applied to Medicare payroll taxes.

GREEN ENERGY

One of the key objectives of the Inflation Reduction Act is to reshape the energy industry and make green energy obtainable to more people. Offering more tax credits and extensions to many of the credits is one way that this initiative is going to be accomplished. Without going into detail, here is a list of those multiple credits:

  • Extension and Modification of Credit for Electricity Production from Certain Renewable Resources
  • Extension and Modification of the Section 48 Energy Credit
  • Increased Energy Credit for Solar and Wind Facilities in Certain Low-Income Communities
  • Extension and Modification of the Credit for Carbon Oxide Sequestration
  • New Credit for Zero-Emission Nuclear Power Production
  • Extension of Incentives for Biodiesel, Renewable Diesel and Alternative Fuels
  • Extension of Second-Generation Biofuel Producer Credit
  • New Income or Excise Tax Credit Allowed for Sustainable Aviation Fuel
  • Clean Hydrogen Production Credit
  • Extension, Increase and Modifications of Nonbusiness Energy Property Credit
  • Extension and Modification of Residential Clean Energy Credit
  • Accelerated Cost Recovery for Green Building Property
  • Extension, Increase and Modifications of New Energy Efficient Home Credit
  • New Clean Vehicle Credit
  • Credit for Previously-Owned Clean Vehicles
  • New Credit for Qualified Commercial Clean Vehicles
  • Alternative Fuel Vehicle Refueling Property Credit
  • Qualifying Advanced Energy Project Credit
  • Advanced Manufacturing Production Credit
  • Clean Energy Production Credit
  • Clean Energy Investment Credit
  • New Clean Fuel Production Credit

Our advisors are closely following legislation changes and will continue to publish insights to keep you informed. To discuss how we can best assist you and the associated fees, contact an Anders advisor below.

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