On August 16, President Joe Biden signed the Inflation Reduction Act of 2022 (the “Act”) into law.  The Act is comprised of several key sections which will both increase revenue and spending.

The spending aspects of the Act involve:

  • Prescription Drugs and Medicare
    • The Act expands eligibility for low-income Medicare programs, provides free vaccines, provides rebates and limits increases on costs for drug or medical care, and caps the out of pocket expenses of a Medicare recipient to $2000 annually.
  • Energy and Climate Change Investment
    • The Act provides rebates for energy efficient consumer products, provides money to improve clean energy infrastructure, grant tax credits for green industries to establish new manufacturing.
  • Environmental Justice
    • The Act reserves funds to address pollution in poor communities, improve access to clean water, improve public transportation, plant trees and expand urban parks, improve access to electricity for Native American Tribal governments and communities
  • Rural Community and Wilderness Environmental Support
    • The Act also aims to reduce risk of forest fires through better conservation practices, conserve and restore coastal habitats, support greener agricultural practices and grant tax credits for the domestic production of biofuels.

The revenue portions of the Act are claimed to fully offset the cost of these new initiatives by making some changes to the Tax Code, and providing funding to better enforce the Tax Code, specifically for the IRS to conduct audits of individual and corporate taxpayers earning greater than $400,000 per year.

The Act’s changes are focused primarily on the income taxes of corporations and top earners.

  • Perhaps the most significant change in the tax code which will yield the largest sum of revenue is the implementation of an Alternative Minimum Tax of 15% on corporations that make more than $1 billion per year in profit. If an affected corporation were to pay lower than 15% of its taxable income under existing law, it would now be charged a flat rate of 15%.
  • The Act also imposes of a 1% tax on the fair market value of any stock buy backs unless:
    • the buy back is part of a reorganization,
    • the buy back is used to contribute to an employer-sponsored retirement plan,
    • the buy back is under $1,000,000 in total value,
    • the repurchaser is a dealer in securities
    • the repurchaser is a regulated investment company or real estate investment trust
    • the buy back is treated as a dividend.
  • The limitation on the deductibility of taxes on an individual under 26 USC §164, which includes the $10,000 limit deduction on property taxes, which was set to expire at the end of 2025 under current law, has been extended for two additional years.

As always, the attorneys at Winne, Banta, Basralian & Kahn are here to serve you.

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