Since the enactment of landmark legislation last summer packed with tax provisions intended to incentivize green energy project development or raise revenues by targeting large corporations, the tax community has been digesting new or modified areas of the Code while the IRS continues to chip away at its long to-do list of guidance projects.
Implementing the Inflation Reduction Act (PL 117-169) is still very much a work in progress at the IRS as the agency unravels complex aspects of the bill’s over 30 tax provisions. This article, the first in a two-part series, serves to round up guidance that has been released to this point and review administrative work going on in the background to help facilitate claims. Part 2 explores insights from tax professionals on how they have been navigating the over-one-year-old law and the law’s impact on the market.
Background. A scaled down version of the then-titled Build Back Better Act that passed the House in November 2021 (HR 5376), the Inflation Reduction Act narrowly squeaked through the Senate in December 2022 after Democrats made last-minute concessions to secure pivotal votes from centrists Joe Manchin (W.Va.) and Kyrsten Sinema (I-Ariz.), bringing the margin to 50-50. Vice President Kamala Harris issued the tiebreaking vote to send the bill to President Biden’s desk.
Designed to reduce healthcare costs through extensions to the Affordable Care Act and combat climate change by reducing carbon emissions, the Inflation Reduction Act was projected by the Joint Committee on Taxation and Congressional Budget Office to raise roughly $740 billion — as cited in a one-pager released by Senate Democrats — offset by investments totaling $433 billion. The federal budget deficit was expected to be reduced by roughly $300 billion.
Chief among the revenue raisers is a new 15% corporate alternative minimum tax (CAMT) that went into effect January 1, 2023, to be paid by applicable corporations with average annual adjusted financial statement income exceeding $1 billion over a three-year period. Seen as a complicated tax to calculate by many in the tax space because it is based on “book income,” the CAMT was estimated by the Congressional Research Service (CRS) in January to raise $222 billion over ten years. Senate Democrats had this figure at $313 billion.
To get Sinema on board, the tax hike on carried-interest income (to address a tax break enjoyed by hedge fund managers) was ditched in favor of a 1% excise tax on corporate stock buybacks. Originally part of the Build Back Better framework, the surcharge on stock repurchases applies to U.S. “covered corporations” and is based on the value of the stock repurchased in a tax year. Covered corporations include a “domestic corporation the stock of which is traded on an established securities market,” and a “repurchase” means a “redemption within the meaning” of Code Sec. 317(b). The CRS estimated revenue totals through fiscal year 2031 to total $74 billion.
Energy credits and deductions enacted by the bill include additions to the Tax Code or enhancements to existing programs, from business incentives for new green energy facilities to clean-energy vehicle credits. Several provisions went live for 2023, some kick in next year. For a full breakdown, see Checkpoint’s exclusive summary of the Inflation Reduction Act.
Guidance so far & priority projects. Below is a timeline of guidance released by the IRS on Inflation Reduction Act provisions at the time of writing:
- August 16, 2022 – Electric vehicle tax credit initial information
- November 29, 2022 – Prevailing wage/apprenticeship initial “60-day clock” guidance (Notice 2022-61)
- December 22, 2022 – Sustainable aviation fuel credit (Notice 2023-6)
- December 22, 2022 – Energy efficient home improvement credit and residential clean energy property credit FAQs (FS 2022-40)
- December 27, 2022 – Interim CAMT guidance (Notice 2023-7)
- February 3, 2023 – Interim guidance on excise tax on repurchases of corporate stock (Notice 2023-2)
- February 3, 2023 – Updated vehicle classification standard for clean vehicle tax credits for purposes of determining applicable MSRP (Notice 2023-16)
- February 13, 2023 – Qualifying advanced energy project credit allocation program initial guidance (Notice 2023-18)
- February 13, 2023 – Low-income communities bonus credit program initial guidance (Notice 2023-17)
- February 17, 2023 – CAMT interim guidance regarding insurance (Notice 2023-20)
- March 31, 2023 – New clean vehicle credit proposed regs
- April 4, 2023 – Energy Community Bonus Credit amounts intention to propose regs (Notice 2023-29)
- May 12, 2023 – Domestic content bonus credit guidance/intention to propose regs (Notice 2023-38)
- May 31, 2023 – Additional guidance for qualifying advanced energy project credit allocation clarifying and modifying Notice 2023-18 (Notice 2023-38)
- June 14, 2023 – Elective payment of applicable credits/transfer of certain credits proposed regs
- June 15, 2023 – Updated clean energy investment tax credit and production tax credit guidance to clarify eligibility June 15 (Notice 2023-47) and provide technical corrections (Notice 2023-45)
- June 29, 2023 – Announcement clarifying excise tax on corporate stock buybacks (Announcement 2023-18)
- August 4, 2023 – Guidance on home energy audits for energy efficient home improvement credit (Notice 2023-59)
- August 7, 2023 – Information on how builders of qualified new energy efficient homes may qualify for expanded tax credit under Code Sec. 45L (IR 2023-142)
- August 10, 2023 – Low-income communities bonus credit program final regs and Rev Proc 2023-27
- August 29, 2023 – Prevailing wage/apprenticeship increased credit or deduction amounts proposed rules
- September 12, 2023 – Additional interim CAMT (Notice 2023-64)
- October 6, 2023 – Transfer of clean vehicle credits under Code Sec. 25E and Code Sec. 30D Rev Proc 2023-33 and updates to FAQs (IR 2023-186)
On September 29, the IRS released the 2023-2024 Priority Guidance Plan detailing the top guidance projects it hopes to get through by June 30, 2024. Inflation Reduction Act provisions marked as priorities for either initial or further guidance include:
- CAMT regarding Code Sec. 55, Code Sec. 56A, and Code Sec. 59
- Alternative fuel vehicle refueling property credit under Code Sec. 30C
- Sustainable aviation fuel credit under Code Sec. 40B
- Domestic content bonus credit under Code Sec. 45(b)(9)
- New energy efficient home credit under Code Sec. 45L
- Carbon oxide sequestration credit under Code Sec. 45Q
- Zero-emission nuclear power production credit under Code Sec. 45U
- Clean hydrogen credit production credit under Code Sec. 45V
- Qualified commercial clean vehicles credit under Code Sec. 45W
- Advanced manufacturing production credit under Code Sec. 45X
- Clean energy production credit under Code Sec. 45Y
- Clean fuel production credit under Code Sec. 45Z
- Clean energy credit under Code Sec. 48
- Qualifying advanced energy project credit under Code Sec. 48C
- Clean energy investment credit under Code Sec. 48E
- Low-income communities bonus credit Code Sec. 48(e)
- Energy efficient commercial buildings deduction under Code Sec. 179D
Non-guidance actions taken by IRS. Beyond issuing guidance, the IRS has taken other steps to prepare for taxpayers taking advantage of the tax benefits in the Inflation Reduction Act. According to a report released October 3 by the Treasury Inspector General for Tax Administration (TIGTA), the IRS as of May 12 had created or revised 34 tax forms, 34 sets of instructions, and three informational publications. For processing year 2023, the IRS created or modified 78 e-file business rules after identifying 20 information technology systems in need of updating.
“As part of its communication and outreach plan, the IRS participated in roundtables, national webinars, conventions, and Tax Forums focused on educating taxpayers and tax professionals, read the report, breaking down steps taken towards implementing the inflation bill. “The IRS also created landing pages on its website dedicated to providing guidance to taxpayers on taxes, credits, and deductions, and issued news releases and updates on social media regarding the IRA.”
The Strategic Operating Plan released in April detailing the IRS’ goals for spending its funding received in the bill emphasizes a shift towards digitalization, meaning more online forms and better access to accounts. Among these efforts is a prefiling process allowing taxpayers to register whether they intend to receive an elective payment for any of the 12 applicable green energy credits under the Inflation Reduction Act or transfer to another entity. Additionally, a digital portal has been in development to facilitate credit registration that is expected to go live sometime this fall.
“Although the IRS has made significant progress implementing the clean vehicle credits and elective payment election provisions, it still has additional tasks to address prior to the start of the 2024 Filing Season,” TIGTA concluded.
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