On Aug. 16, 2022, President Biden signed into law H.R. 5376, the Inflation Reduction Act of 2022 (the Act). Within the Act are provisions adding a new corporate alternative minimum tax, revising and expanding energy incentives, imposing an excise tax on stock buy backs, and increasing Internal Revenue Service (IRS) funding, among other provisions.
This bulletin is only a summary of the Act and is the first in a series by Taft’s Tax practice covering various provisions. In this bulletin, we intend to provide a general road map of the changes implemented by the Act, with more in-depth analysis being released in the future and as IRS guidance is published.
Business and Corporate Taxes
- New Corporate AMT at 15%
- The Act imposes a new 15% corporate alternative minimum tax (AMT) on the adjusted financial statement income that averages more than $1 billion for the three preceding tax years.
- Excise Tax on Repurchase of Corporate Stock at 1%
- The Act imposes a 1% excise tax on the fair market value of stocks repurchased by certain covered corporations.
- New Drug Manufacturers Excise Tax
- The Act imposes a new excise tax on sales by drug manufacturers, producers, and importers of certain designated drugs during a period of noncompliance.
- Reinstatement of the Hazardous Substance Superfund Tax on Crude Oil and Petroleum Products
- The Act reinstates the hazardous substance superfund tax on crude oil and petroleum at a rate of 16.4 cents.
- Increase to the Qualified Small Business Payroll Tax Credit for Research Activities
- The Act increases the amount a taxpayer may elect to treat as a payroll tax credit from $250,000 to $500,000.
- Extension of Business Loss Limitation for Noncorporate Taxpayers
- The Act extends the limitation on excess business losses of noncorporate taxpayers under Internal Revenue Code (IRC) § 461 for two years through 2028.
Overarching Tax Credit Changes
- Prevailing Wage, Apprenticeship, Domestic Content, and Energy Community Credit Increases
- As a result of the Act, many credit and incentive provisions now contain a tiered credit structure that provides for a base credit amount and then “bonus” or increased credit amounts if taxpayers meet certain prevailing wage, apprenticeship, domestic content, and energy community requirements.
- Elective Direct Payments and Transferable Credits
- The Act creates two new code sections, IRC §§ 6417 and 6418. These new provisions allow certain tax-exempt entities to receive a direct payment rather than a credit and permit a one-time transfer of certain credits by a taxpayer to an unrelated eligible taxpayer, respectively.
Renewable Energy and Advanced Manufacturing
- Extension and Modification of Energy Production and Investment Credits (IRC §§ 45 and 48)
- The Act extends both the IRC § 45 Production Tax Credit (PTC) and the IRC § 48 Investment Tax Credit (ITC) through 2024 and the Act also expands the categories of qualifying technologies.
- Extension and Modification of Credit for Carbon Oxide Sequestration (IRC § 45Q)
- The Act makes several significant modifications to the existing credit by enhancing the credit for qualified industrial facilities and lowering the minimum carbon capture requirement.
- Extension of Qualifying Advanced Energy Project Credit (IRC § 48C)
- The Act reinstitutes the competitive investment tax credit for clean energy and energy efficient manufacturing projects and modifies the definition of qualified projects.
- New Clean Electricity Production and Investment Credits (IRC §§ 45Y and 48E)
- The Act creates two new credits in the IRC, § 45Y Clean Electricity Production Tax Credit (CEPTC) and IRC § 48E Clean Electricity Investment Tax Credit (CEITC). These new provisions are the updated versions of the PTC and ITC, but the credit amounts are emissions-based and they do not incentivize particular clean technologies.
- New Advanced Energy Manufacturing Production Credit (IRC § 45X)
- The Act provides a new credit for the production of eligible equipment and component parts manufactured in the United States.
- New Credit for Zero-Emission Nuclear Power Production (IRC § 45U)
- The Act creates a new business credit for the production of electricity by a taxpayer at a qualified nuclear power facility.
- New Credit for Clean Hydrogen Production (IRC § 45V)
- The Act creates another new business credit for the production of clean hydrogen during a 10-year period.
- Extension of Clean Fuel Related Incentives (IRC §§ 40A, 40, 6426)
- The Act extends these credit and refund provisions through 2024.
- New Credit for Sustainable Aviation Fuel (IRC §§ 40B and 6426(k))
- The Act creates a new income or excise tax credit for the sale or use of sustainable aviation fuel.
- New Credit for Clean Fuel Production (IRC § 45Z)
- The Act creates a new credit for the production of clean fuel at a qualifying facility for a qualified purpose.
Clean Vehicles and Refueling
- Clean Vehicle Credit (IRC §§ 30D and 30B)
- The Act replaces the qualified plug-in electric drive motor vehicle credit with the new clean vehicle credit. The new clean vehicle credit changes the credit calculation, credit requirements, and definition of a new clean vehicle.
- New Credit for Previously Owned Clean Vehicles (IRC § 25E)
- The Act creates a new personal tax credit for the purchase of qualified previously owned clean vehicles.
- New Credit for Qualified Commercial Clean Vehicles (IRC § 45W)
- The Act also creates a new business credit for the purchase of qualified commercial clean vehicles.
- Extension of Alternative Fuel Vehicle Refueling Property Credit (IRC § 30C)
- The Act modifies the equipment eligible for credit and the credit limit while also extending the credit through 2032.
Efficient Buildings and Homes
- Modifications to Accelerated Deduction for Energy Efficient Commercial Buildings (IRC § 179D)
- The Act modifies the computation for the maximum credit amount and provides an alternative deduction for energy efficient building retrofits.
- Extension and Modification of New Energy Efficient Home Credit (IRC § 45L)
- The Act extends the credit available to contractors who manufacture or construct energy-efficient homes, while also increasing the credit available and modifying the energy requirements.
- Extension and Modification of Nonbusiness Energy Property Credit (IRC § 25C)
- The Act also modifies the existing individual tax credit by increasing the credit amount, updating certain qualification requirements, and increasing the credit limitation.
- Extension and Modification of Residential Clean Energy Credit (IRC § 25D)
- The Act extends this existing credit and also adds qualified battery storage technology to the list of qualified expenditures.
As mentioned, this is a high-level overview of the Act and the provisions contained within it. Taft’s Tax practice will be issuing bulletins regularly to provide a more in-depth analysis of these code provisions and their impact to taxpayers. If you have questions regarding any of these provisions, please contact one of the listed attorneys or another member of Taft’s Tax practice.