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A Deeper Look at the Major Tax Provisions of the 2022 Inflation Reduction Act

Ruth Singleton
Published Date:
Aug 1, 2022

Late last week, Sen. Joe Manchin (D-W.Va.) announced that he would support a climate and tax bill known as the Inflation Reduction Act of 2022, which includes several provisions of the Build Back Better legislation that failed to pass the Senate last year. According to CPA Practice Advisor, the new bill includes significant tax changes, although a more stringent international tax regime and a controversial “millionaire’s tax” are not included in the final version. 

The legislation, which would promote climate control initiatives and domestic manufacturing efforts, would also extend health insurance subsidiaries under the Affordable Care Act (ACA) and allow Medicare to negotiate drug prices. 

If passed, the legislation would represent a significant move toward countering the effects of climate change. “By a wide margin, this legislation will be the greatest pro-climate legislation that has ever been passed by Congress,” Senate Majority Leader. Schumer said in a statement, the New York Times reported

The most notable tax provisions, according to CPA Practice Advisor, are the following: 

Corporate minimum tax: The corporate tax rate is currently a flat 21 percent, but many large corporations are able to effectively avoid the tax. Beginning in 2023, the act would create a 15 percent “alternative minimum tax” for corporations with average annual adjusted financial statement income exceeding $1 billion for three consecutive tax years. In addition, a $100 million threshold would apply to certain foreign-backed corporations. The legislation also contains rules for computing “financial statement income” for this purpose. 

Carried interest rules: The legislation would close the “carried interest” tax loophole. Under current “carried interest” rules, compensation paid to managers of certain investment entities is taxed at favorable long-term capital gain rates instead of high-taxed ordinary income rates, after a three-year holding period is met. Generally, these managers would have to meet a five-year holding period to qualify for long-term capital gain. This is a provision that Sen. Kyrsten Sinema (D-Ariz.), a holdout on previous policy measures supported by Democrats, has opposed in the past,  Bloomberg reported. It’s not clear whether she will support it this time around.

Energy credits: The legislation would extend or expand a wide range of energy credits for the business sector. In addition, buyers of new electric vehicles would be eligible for a $7,500 credit for such vehicles placed in service before 2033, while the manufacturer’s limit is eliminated for electric vehicles sold after 2022.  Also, a credit of up to $$4,000 would be available on purchases of previously owned electric vehicles. Finally, the residential energy property credit for homeowners would be extended until it begins to phase out in 2033. 

IRS enforcement and administration: The legislation would appropriate $3.18 billion for the IRS to provide taxpayer and other services. It would also appropriate $45.6 billion to the IRS for necessary expenses, as a means of closing an estimated $441 billion tax gap. This latter appropriation would expand the IRS's ability to determine and collect taxes; provide legal and litigation support; conduct criminal investigations (including investigative technology); provide digital asset monitoring and compliance activities; enforce criminal statutes related to violations of the Internal Revenue Code and other financial crimes; purchase and hire passenger motor vehicles; and provide other services. 

CPA Practice Advisor noted that the legislation would back up President’s Joe Biden’s pledge that none of the IRS appropriations will result in tax increase to taxpayers with taxable income below $400,000. 



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