Senate Passes Inflation Reduction Act: Exploring the Key Tax Issues
Contributors
On August 7, 2022, the U.S. Senate passed the $750 billion Inflation Reduction Act addressing health care, taxes and climate change. The bill includes legislation giving Medicare the power to negotiate prescription drug pricing, a 15% minimum tax on large corporations, a 1% tax on stock buybacks and government spending to reduce carbon emissions.
Included Tax Provisions
The three main provisions related to taxes in the Inflation Reduction Act are, the 15% minimum tax on large corporations, a 1% tax on stock buybacks and investments in the Internal Revenue Service (IRS) to increase tax enforcement. The 15% minimum tax rate applies to corporate book income, the GAAP income reported to shareholders, of corporations with $1 billion in profits or more. This new tax is projected to raise approximately $260 billion over the next ten years. The bill also includes a 1% excise tax on any stock repurchases by a corporation after December 31, 2022, resulting in a projected $74 billion of additional revenue. Finally, the act includes $80 billion in funding for the IRS. Most of these funds are intended to increase enforcement and audits of corporations and high-net-worth taxpayers. The actual effect of the increased enforcement effort, including who is audited, remains to be seen.
What This Means for Your Business
Stay tuned. With the Inflation Reduction Act expected to become law, the final details will dictate which taxpayers will be affected by the IRS increased enforcement effort, and how large corporations will shift their financial and tax policies around the new minimum tax on GAAP book net income. We will keep you posted as details emerge.
Inflation Reduction Act Next Steps
The U.S. House of Representatives is expected to vote on the legislation today, August 12, 2022. If passed, President Biden will sign it into law.
If you have any questions about how the included tax provisions could impact you or your business, the Moore Colson Tax Practice is here to help. Contact us for more information.
