On July 27, 2022, Senate Democrats introduced the Inflation Reduction Act of 2022 (IRA), a $470 million reconciliation bill to address inflation, healthcare, certain tax matters and climate change. This bill includes the enactment of a 15-percent corporate minimum tax and a 1-percent excise tax on the repurchase of corporate stock. Other changes include expanded tax credits for renewable energy.
The Senate passed a somewhat compromised version of the IRA on August 7, 2022. Here is a succinct summary of some of the tax-related provisions in the IRA.
CORPORATE MINIMUM TAX
IRA section 10101 amends IRC section 55(b) to impose a corporate alternative minimum tax (AMT) at a rate of 15 percent on a corporation’s financial statement income. This new tax would apply to U.S. corporations with adjusted financial statement income exceeding $1 billion and U.S. corporations that are members of an international reporting group if the group’s financial statement income exceeds $1 billion and the U.S. corporation’s own financial statement income exceeds $100 million. The measurement period for the adjusted financial statement income is over a three-year period ending with the applicable tax year.
EXCISE TAX ON REPURCHASE OF CORPORATE STOCK
IRA section 10201 amends IRC section 4501 of Subtitle D by adding Chapter 37 to impose a 1-percent excise tax on each covered corporation equal to 1 percent of the fair market value of any corporate stock that is repurchased by such corporation during the taxable year. A covered corporation is defined as any domestic corporation whose stock is traded on an established securities market.
ENERGY TAX CREDITS
IRA Title I, Subtitle D extends and expands the production tax credit (PTC) under IRC section 45 (including the renewal of the PTC for solar, which had previously expired), the energy investment tax credit (ITC) under IRC section 48 and the section 45Q carbon capture credit.
The IRA also introduced new credits such as the Advanced Manufacturing Production Credit (AMPC), a PTC for clean hydrogen fuel production, a tax credit for zero-emissions nuclear power production and a tax credit for transportation fuels with lower emission rates.
At the time of this issuance, the IRA, in its current form, is expected to see pushback from the House, including Democrats, and is subject to further change, making the outlook on this bill far from certain.
The Inflation Reduction Act of 2022 is complex and nuanced. If you have any questions about the IRA, the proposed changes or their impact on you or your business, please contact GHJ’s Tax Services Team.