Today, President Biden signed into law the Inflation Reduction Act of 2022 (the "Act"). The Act ushers in, among other things, significant changes to the Internal Revenue Code and provides additional resources for the IRS, as outlined below.
KEY PROVISIONS
Corporate
- Corporate Alternative Minimum Tax. The Act
creates a corporate alternative minimum tax (AMT) equal to 15% of
financial statement income, less foreign-tax credits, that applies
to corporate taxpayers meeting an "average annual adjusted
financial statement income" test—i.e., the corporate
taxpayer's average adjusted financial statement income for a
three-year period exceeds $1 billion. The Act also contains rules
for the computation of financial statement income for the purposes
of this determination and authorizes the Secretary of the Treasury
to promulgate additional regulations and guidance relating to the
effect of these rules.
- Taxation of Stock Buybacks. The Act introduces a new 1% excise tax on stock buybacks effective January 1, 2023. The 1% excise tax would be levied on the value of corporate stock buybacks and is expected to raise $74 billion and offset the revenues projected to be realized from the removed carried-interest provision and from modifications to the Act creating an exemption for depreciation tax deductions from the corporate minimum tax.
IRS Appropriations and Enforcement
- Taxpayer Services. The Act appropriates $3.18
billion for necessary expenses for the IRS to provide (1) taxpayer
services, including prefiling assistance and education; (2) filing
and account services; (3) taxpayer advocacy services; and (4) other
services.
- Enforcement. The Act appropriates $45.6
billion for necessary expenses for the IRS to (1) determine and
collect taxes, (2) provide legal and litigation support, (3)
conduct criminal investigations (including investigative
technology), (4) provide digital-asset monitoring and compliance
activities, (5) enforce criminal statutes related to violations of
the Internal Revenue Code and other financial crimes, (6) purchase
and hire passenger motor vehicles, and (7) provide other
services.
- Operations Support. The Act appropriates $25.3
billion for necessary expenses relating to supporting IRS
operations.
- Business Systems Modernization. The Act
appropriates $4.75 billion for necessary expenses relating to the
modernization of the IRS, which includes the development of
callback technology and other technology for purposes of providing
a more personalized customer service.
- Task Force to Design an IRS-Run Free "Direct
File" Tax Return System. The Act appropriates $15
million for the IRS to deliver to Congress a report detailing (1)
the cost (including options for differential coverage based on
taxpayer adjusted gross income and return complexity) of developing
and running a free, direct e-file tax return system; (2) taxpayer
opinions, expectations, and level of trust for a free, direct
e-file system; and (3) the opinions of an independent third party
on the overall feasibility and capacity of the IRS to implement an
e-file system.
- United States Tax Court. The Act appropriates
$153 million for the Tax Court.
- No Tax Increases on Certain Taxpayers. The Act states that none of the IRS appropriations listed above are intended to increase taxes on any taxpayers or small business with taxable income below $400,000.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
