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INFLATION REDUCTION ACT OF 2022 (IRA):

INFLATION REDUCTION ACT OF 2022 (IRA):

On August 12, the House passed H.R. 5376, the Inflation Reduction Act of 2022 (IRA), and President Biden is expected to sign it in the coming days. This is the final chapter for legislation that was proposed in early 2021, evolved into the Build Back Better Act (BBBA) before being sidelined in late 2021, and was subsequently revived two weeks ago in significantly modified form. The final bill ultimately contains far fewer tax changes than originally proposed in 2021, but key tax changes were retained.

Key effects in the bill include:

  • A 15% minimum tax on corporations with over $1 billion in revenue, with exceptions made for accelerated depreciation and for subsidiaries of private equity staring in 2023. Raises $222 billion.
  • A 1% excise tax on stock buybacks, effective January 1, to raise $74 billion.
  • An $80 billion boost to the Internal Revenue Service budget to hire more agents, and upgrade technology in order to boost revenue collection. The IRA responds to many of those concerns through the deployment of the following new funding primarily consisting of:
    • $45.64 billion for tax enforcement
    • $25.33 billion for IRS operations support
    • $4.75 billion for system modernization
    • $3.18 billion for taxpayer services

The focus on increased tax enforcement is supported by the allocation of over 57% of the total funding to such activities. Some of this funding will be made immediately available, but the Treasury Department and IRS will have up to 10 years to fully utilize such funds. This signals a future of increased audits and enforcement actions in the years to come. To address certain public concerns, Treasury Secretary Yellen sent a letter to the IRS Commissioner Rettig on August 11 directing that none of the additional funding shall be used to increase audit rates beyond historic levels for any small businesses or households making less than $400,000 annually.

  • An extension of loan loss limitation tax breaks from the Tax Cuts and Jobs Act through 2028. At its core, the rule allows an individual, estate, or trust to offset business losses against business income, but limits the annual deductibility of any resulting net business loss to $250,000 (or, $500,000 in the case of married taxpayers filing jointly).
  • New Superfund taxes on oil companies
  • Drug prices negotiated by Medicare for the first time, with tax penalty imposed on drug companies failing to abide by new price. Price negotiations begin in 2026 with 10 high priced drugs. Penalties imposed for price increases in sales to Medicare.
  • A $2,000 per year cap on out-of-pocket costs for seniors enrolled in a Medicare drug plan
  • Approximately $374 billion in energy and climate-related provisions including tax incentives for green energy projects, a $7,500 tax credit for purchasing new electric vehicles and $4,000 credit for used EVs. Limits imposed on supply chain sourcing for EVs that qualify
  • A three-year extension of subsidies for the Affordable Care Act premiums, preventing expiration of subsidies in 2023.