H.R.5376, better known as the Inflation Reduction Act of 2022 (“Act”), was signed by President Biden on August 16, 2022, after narrowly passing in the House of Representatives on August 12, 2022 and in the Senate on August 7, 2022. [Congress.gov].
Although less than 6% of the Act’s text, the Act’s tax provisions will have a national impact equal in scope to the Act’s separate impact on the healthcare and energy industries for the next decade. There are three key tax components to the Act: The corporate minimum tax, the stock excise tax, and Internal Revenue Service (“IRS”) funding.
Corporate Minimum Tax
The Act provides a minimum corporate tax of 15% levied upon corporations with net income over $1 billion. This “Adjusted Financial Statement Income,” will begin with the net income reported to the Securities and Exchange Commission. As such, infamous corporations that avoided the federal income tax despite billions of dollars of income [e.g. CNBC], will collectively pay billions in taxes. The tax takes effect after December 31, 2022.
Stock Excise Tax
The Act also introduces an excise tax of 1% of the fair market value of stocks repurchased by corporations. Unlike the corporate minimum tax, there is no income threshold to incur this tax. The tax is applicable only to publicly traded corporations excluding contributions to retirement accounts, pensions, and employee-stock ownership plans (ESOPs). This tax takes effect after December 31, 2022.
Expected Internal Revenue Service Increased Funding
The Act also increases funding to the IRS by almost $80 billion. This is in addition to its ordinary budget ($14.1 billion was separately requested for the 2023 fiscal year). About $45.6 billion of this appropriation will be dedicated to tax enforcement. Taxpayers should be especially diligent for future filings. The remainder is largely for operational support at $25.3 billion, although significant amounts are reserved for taxpayer services ($3.2 billion) and business systems modernization ($4.8 billion). Certain ancillary expenses may still be of interest. For example, $15 million is allocated for a feasibility study of developing an official free efiling tax return system.