Written by Alan Cox, Director of Estate/Trust Planning and Estate Settlement, and Mike Bleck, Senior Estate Planning Specialist
On Tuesday, August 16, 2022, President Biden signed the Inflation Reduction Act (IRA) (the “Bill”) which was passed by the House and Senate earlier this month. The Bill has been pushed by President Biden and the democrats in Congress to allegedly help curb the country’s crippling inflation. As you may be aware, this Bill is a smaller version of the Build Back Better legislation which was not able to be passed when Senator Manchin indicated he could not vote for legislation of that scale amidst increasing inflation. The IRA is an approximately $740 billion package that primarily consists of a slimmed-down version of President Biden’s tax, climate, and drug price agenda and the Build Back Better legislation. Below are some highlighted provisions from the Bill:
- A 15% minimum tax on corporations with over $1 billion in revenue starting in 2023
- A 1% excise tax on stock buybacks, effective January 1, 2023
- An extension of business loss limitation
- New Superfund taxes on oil companies
- Energy and climate-related provisions, including tax incentives for green energy projects, a $7,500 tax credit for purchasing new electric vehicles, and a $4,000 credit for used EVs
- A three-year extension of subsidies for Obamacare premiums, preventing the expiration of subsidies in 2023
A few of these provisions may have some impact on individuals and business owners. The first is the excise tax on stock buybacks by U.S. corporations. This excise tax imposes a 1% tax on the fair market value of stock repurchased by a publicly traded U.S. corporation during the taxable year reduced for stock issuances during the taxable year. Secondly, the business loss limitations have been extended for an additional two years limiting the amount of business losses that can be used to offset nonbusiness income. This provision now applies through 2028 and was previously applicable through 2026. The Bill also permanently reinstates the Superfund excise tax on crude oil and imported petroleum products beginning in 2023, increasing the tax rate to 16.4 cents per barrel, and annually adjusting the rate for inflation.
Perhaps the most discussed provision in the Bill is an increase of $80 billion to boost the Internal Revenue Service budget to hire more agents and upgrade technology in order to increase revenue collection. The administration estimated last year that an $80 billion IRS funding increase could allow the agency to hire about 87,000 additional employees over the next decade, doubling the size of its workforce. With this increased enforcement, there should be a heightened commitment to diligently maintain records substantiating the tax returns filed, including but not limited to tax deductions such as a charitable deduction in the event of an audit.
We will continue to monitor additional legislative developments.
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