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Alternative Minimum Tax

Senate Democrats Announce Tax Bill Addressing Deficit, Environment

Inflation Reduction Act of 2022

Summary of the Inflation Reduction Act of 2022

Senate Democrats have announced a deal on a reconciliation bill, the Inflation Reduction Act of 2022, that would raise $450 billion to pay for deficit reduction, clean energy, and climate investments.

The bill’s two main tax components are:

  1. An investment of $80 billion over the next 10 years for IRS tax enforcement and compliance. The Congressional Budget Office estimates the IRS will collect $203 billion from this investment.
  2. The imposition of a 15% domestic tax, referred to as a corporate alternative minimum tax, on the approximately 200 largest corporations that currently pay less than that corporate tax rate. This will raise $313 billion. The tax would be on adjusted financial statement income for corporations with profits in excess of $1 billion. Corporations would generally be eligible to claim net operating losses and tax credits against the AMT, and would be eligible to claim a tax credit against the regular corporate tax for AMT paid in prior years, to the extent the regular tax liability in any year exceeds 15% of the corporation’s adjusted financial statement income. This provision would be effective for tax years beginning after December 31, 2022.

Environmental Credits. There are numerous provisions to address climate change, including tax credits for consumers and businesses.

For businesses, this includes:

  • an extension and modification of various credits for electricity produced from certain renewable resources;
  • an increase in energy credit for solar and wind facilities placed in service in connection with low-income communities; an extension and modification of credit for carbon oxide sequestration;
  • a zero-emission nuclear power production credit; an extension of incentives for biodiesel, renewable diesel, and alternative fuels;
  • an extension of second generation biofuel incentives;
  • a sustainable aviation fuel credit; and,
  • a credit for production of clean hydrogen.

For individuals, this includes:

  • an extension, increase, and modification of the nonbusiness energy property credit;
  • an extension of the residential clean energy credit;
  • an energy efficient commercial buildings deduction; and,
  • an extension, increase, and modification of the new energy efficient home credit.

Other environment-related credits include:

  • a clean vehicle credit;
  • a credit for previously-owned clean vehicles;
  • a credit for qualified commercial clean vehicles;
  • an alternative fuel refueling property credit;
  • an extension of the advanced energy project credit;
  • an advanced manufacturing production credit;
  • a clean electricity production credit;
  • a clean electricity investment credit;
  • special rules for the cost recovery for qualified facilities, qualified property, and energy storage technology; and,
  • a clean fuel production credit.

Other Provisions. Other provisions in the bill include:

  • Prescription drug pricing reform
  • Funds for the IRS to prepare and deliver a report to Congress on the cost of developing and running a free, direct efile tax return system
  • Closing the carried interest loophole
  • Affordable Care Act (ACA, or Obamacare) extension

According to the bill’s summary, there are no new taxes on families making $400,000 or less and no new taxes on small businesses.

Next Steps. The bill will be reviewed by the Senate parliamentarian for conformity with the Byrd rule, which restricts what type of provisions can be included in a reconciliation bill. Under reconciliation, the bill needs to meet a 51-vote threshold in the Senate and pass in the House. The current reconciliation process expires on September 30.

Checkpoint will provide ongoing coverage as this bill progresses through Congress.

This article originally appeared in the July 28, 2022, edition of Federal Tax Update, available on Checkpoint.

 

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