President Joe Biden signed the Inflation Reduction Act of 2022 (the “IRA”) into law on Aug. 16, 2022, resulting in significant changes to the Internal Revenue Code. An overview of a few of the changes is below.

15% Minimum Tax on Corporate Income

• Imposes a minimum tax on the excess of 15% of the adjusted financial statement income over the alternative minimum tax foreign tax credits for the taxable year.
• Applies to corporations that have an average annual financial statement income of $1 billion over a three-year period including the corporation’s current tax year.
• S corporations, regulated investment companies and real estate investment trusts are explicitly excluded.
• Special rules exist for corporations in existence for less than 3 years, foreign-parented multinationals, and foreign corporations engaged in a trade or business in the United States.
• The applicable financial statements are those that are prepared in accordance with GAAP or IFRS.
• The minimum tax applies to tax years beginning after Dec. 31, 2022.

Excise Tax on Stock Buybacks

• 1% excise tax on the fair market value of stock buybacks (or economically similar transactions).
• Applies to domestic corporations that are traded on an established securities market.
• The excise tax applies to stock buybacks after Dec. 31, 2022.

Business Losses

• Extended the limitation for excess business losses for noncorporate taxpayers to tax years beginning before Jan. 1, 2029.

Energy Tax Credits

• Tax credits to promote and facilitate green energy production, including tax credits for zero-emission nuclear power production, production of clean hydrogen, sustainable aviation fuel, clean electricity production, and clean fuel production.
• Tax credits to promote energy-efficient vehicles, including tax credits for the purchase of qualified commercial clean vehicles and previously owned clean vehicles (up to $4,000).
• Permits the transfer of certain energy tax credits in exchange for cash.

Internal Revenue Service (IRS)

• IRS funding was substantially increased, which may result in a rise in enforcement activities.

For more information about how the IRA may impact you, contact a member of the Taxation & Wealth Planning Department.