TAX TAKE: Don't Stop Thinking About Tomorrow: What's Next After the Inflation Reduction Act is Signed Into Law?
On Friday, after almost a year of consideration, the House of Representatives finally passed the Inflation Reduction Act of 2022 (IRA, originally known as the Build Back Better Act or BBBA), sending it to President Biden for his signature. With the IRA soon to become the law of the land, we turn to what's next on the horizon.
Need for Quick Regulatory Guidance on the 15 Percent Corporate Book Income Minimum Tax. Although the IRA made a number of substantive changes to the version of the 15 percent corporate book income minimum tax that passed the House of Representatives in 2021 as part of the BBBA, it retained the same effective date – for taxable years beginning after December 31, 2022. Thus, while the House-passed BBBA would have provided over a year for implementing regulatory guidance to be issued, Treasury and the IRS will now need to scramble to provide guidance in a much shorter time frame. We anticipate that interim guidance, in the form of notices, will be issued first to instruct taxpayers (perhaps with accompanying penalty relief) on computing and complying with the new tax, particularly for purposes of their first quarter estimated tax payments in 2023. Such notices will then lead to what we suspect will be a lengthy and complicated regulatory process given the broad grant of regulatory authority provided by the statute, the complexity of the new tax, and its interaction with existing provisions throughout the code.
Consideration of Share Repurchases Before the End of the Year. The new one percent stock buyback excise tax on publicly traded U.S. corporations applies to stock repurchases after December 31, 2022. This prospective effective date provides an opportunity for taxpayers to consider implementing new or enhanced stock buyback programs before 2023 to avoid the excise tax.
Attention Will Quickly Turn to a Lame Duck Bill. We anticipate that policymakers and their staff will take a well-deserved break from tax legislating during the remainder of the August Congressional recess, and the prospects for any new legislation being considered before the November mid-term elections are slim. Attention will quickly turn to the prospects of a tax title on a post-election lame duck bill. Although the likelihood and scope of a tax title are highly dependent on election results, there is the potential for a significant tax title to be added to a year-end FY2023 appropriations bill. There is a long list of potential tax items with bipartisan support that will be considered for inclusion, such as:
- Tax relief included in the House-passed BBBA but not included in IRA (such as state and local tax (SALT) deduction cap relief and the Section 174 research and development (R&D) amortization fix)
- Retirement legislation
- 2021 and 2022 tax extenders
- Tax Cuts and Jobs Act-related items (such as the section 163(j) EBITDA fix and the pending phase-out of 100 percent bonus depreciation)
- Russia tax sanctions legislation
- Technical corrections
Although the tax title is unlikely to be "paid for," it is important to note that Democrats have insisted that any discussions of business-friendly tax provisions move in tandem with extensions and/or expansions of the child tax credit and the earned income tax credit, which may dramatically increase the cost and partisanship of the negotiations.
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