Important tax provisions in the Senate Transition Act
The US Senate passed a budget consolidation bill on Sunday by a vote of 51 to 50. HR 5376now known as the Inflation Reduction Act of 2022. The bill contains numerous tax provisions, including a minimum corporate tax of 15%, expanded eligibility for premium tax credits and numerous clean energy credits.
The Senate vote, with no Republicans joining the Senate’s 48 Democrats and two Independents and the resulting tie broken by Vice President Kamala Harris, caps more than a year of searching for an elusive consensus among Democrats on the bill, which originally known as the “Build Back Better” law. The bill now goes to the House of Representatives, where it is expected to pass on Friday.
The smaller bill omits a few items from a long list of new and expanded and/or amended existing energy-related tax credits and other climate change mitigation provisions. But enough of that remains in the final bill to represent America’s largest climate and energy investment to date, valued at an estimated $370 billion and capable of reducing greenhouse gas emissions by 40% by the end of this decade.
The bill also addresses healthcare and boosts revenue, the latter primarily through a new minimum tax of 15% on annual accounts, or “book” income, which was modified slightly before the bill went to the Senate. It would also increase IRS funding, particularly for enforcement.
The Senate-passed version also includes a 1% nondeductible excise tax on corporate stock repurchases (as a new Section 37) that would apply to stock repurchases after December 31, 2022 and is expected to generate $73 billion in revenue .
These were added to replace income that would have been generated by extending the holding period from three to five years for the long-term capital gains treatment of partnership interests held in connection with the provision of services, commonly known as carried interests. The carried interests clause was removed from the bill at the behest of Sen. Kyrsten Sinema, D-Ariz.
The corporate minimum tax would generally be applied to the excess of 15% of C corporations’ adjusted year-end income over any alternative minimum corporate tax minimum tax credit for the tax year for corporations with average adjusted annual income for the three consecutive tax years ending with a tax year greater than $1 billion. Dollar. A threshold of US$100 million would apply to certain “foreign parent” companies. The provision, which is estimated to apply to up to 200 companies, would apply to tax years beginning after 2022.
Prior to passage of the bill, the Senate passed an amendment by Senator John Thune, RS.D., to determine the Section 52 applicability threshold of $1 billion of a single employer without reference to members of a Section 52 controlled group. 1563(b)(2).
President Joe Biden and others have advocated the corporate minimum tax, but the AICPA and others have pointed to likely difficulties it poses.
The AICPA has repeatedly written to heads of Congressional tax committees since October 2021 raising concerns about the tax, most recently in one Letter of August 4th.
The AICPA letter echoed previous concerns about basing tax liability on the non-tax criterion of accounting income. The two have several distinct “key conceptual differences…including the concept of materiality,” the letter reads. “Public policy tax objectives should not play a role in influencing accounting standards or the resulting financial reporting. Independence and objectivity from accounting standards are the backbone of our capital markets system.”
In addition, the AICPA said the provision will introduce new and significant complexities to tax law that “could lead to uncertain outcomes for taxpayers and a costly compliance requirement.”
If Congress enacts the minimum tax, it should go into effect beginning in the later tax year beginning after December 31, 2023, or when the Treasury Department and IRS issue proposed regulations, to give affected taxpayers ample time to fully comply understand and apply the letter recommended.
The letter also raises concerns about the relative amount of the bill’s additional funding for IRS enforcement — $45.6 billion over 10 years — compared to $3.18 billion for taxpayer services.
“We are concerned about a possible imbalance between the funding of taxpayer services and enforcement,” said the letter, signed by Jan Lewis, CPA, chair of the AICPA Tax Executive Committee, and addressed to the heads of tax committees in the House of Representatives and Senate.
Title I, subtitle C (§12001) of the bill would amend Sec. 36B extends through 2025 extended eligibility for health premium tax credits for taxpayers whose household income exceeds 400% of the poverty line and calculation of applicable percentage of premium support amount, both temporarily provided under the American Rescue Plan Act, PL 117-2.
Additionally, Title IX, Section 13902 would increase the Sec. 41 research loan against income tax for small businesses.
The following is a list of the energy and climate protection titles of the bill, Title I, Subtitle D, Tax Credit and other items at a glance:
Clean power and reducing carbon emissions (Part 1)
- Expands and modifies the Sec. 45 Credit for electricity from certain renewable resources (§13101);
- Expands and modifies the Sec. 48 Energy credit (§13102);
- Change sec. 48 Increase in Energy Credit for Commissioned Solar and Wind Turbines Associated with Low-Income Communities (§13103);
- Expands and modifies the Sec. 45Q carbon sequestration credit (§13104); and
- Adds a new sec. 45U Zero Emission Nuclear Power Production Certificate (§13105).
Clean Fuels (Part 2)
- Extends Sec. 40A Credit for Biodiesel and Renewable Diesel (§13201);
- Extends Sec. 40 funding for qualified second-generation biofuel funding (§13202);
- Adds a new sec. 40B Sustainable Aviation Fuel Credit (§13203); and
- Adds a new sec. 45V credit for clean hydrogen production (§13204).
Clean Energy and Efficiency Incentives for Individuals (Part 3)
- Expands, increases and modifies the Sec. 25C Non-Commercial Energy Real Estate Credit (§13301);
- Extends Sec. 25D Clean Energy Credit for Residential Buildings (§13302);
- Amends Sec. 179D Deduction for Energy Efficient Commercial Buildings (§13303); and
- Expands, increases and modifies the Sec. 45L new loan for energy efficient housing (§13304).
Clean Vehicles (Part 4)
- Changes the sec 30D credits for clean vehicles (§13401);
- Adds new sec. 25E, which allows credit for previously owned clean vehicles (§13402);
- Adds a new sec. 45W Qualifying Commercial Clean Vehicle Credit (§13403); and
- Expands and modifies the Sec. 30C Fueling Credits for Alternative Fuels (§13404).
Investing in Clean Energy Generation and Energy Security (Part 5)
- Extends Sec. 48C Advanced Energy Project Credit (§13501); and
- Adds a new sec. 45x Advanced Manufacturing Production Credit (§13502).
Super Fund (Part 6)
- Changes and adjusts Sec inflation. 4611(c)(2)(A) Hazardous Substance Superfund Funding Rate (§13601).
Incentives for Clean Power and Transport (Part 7)
- Adds a new sec. 45-year Clean Energy Production Credit (§13701);
- Adds a new sec. 48E Clean Power Investment Loan (§13702);
- Change sec. 168 cost recovery for qualifying facilities, qualifying property, and energy storage technology (§13703); and
- Adds a new sec. 45Z Clean Fuel Production Credit (§13704).
Loan Monetization (Part 8)
- Adds a new sec. 6417 allows for optional payment of applicable credits for energy property and electricity from certain renewable resources (§13801).
— To comment on this article or suggest an idea for another article, contact Paul Bonner at [email protected].