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On 16 August 2022, President Joe Biden signed the Inflation
Reduction Act of 2022 into law. The roughly $437 billion bill
includes several provisions relating to federal taxation, clean
energy, and healthcare. Absent from the final bill, which passed
along narrow party lines, are certain provisions relating to paid
family and medical leave, an extension of the child tax credit, and
the taxation of private equity carried interests. This note
provides a very brief overview of some of the key provisions of the
Act.
The Act appropriates around $80 billion to the U.S. Internal
Revenue Service to add auditors, improve customer service, and
modernize technology. In a memorandum sent the day after the bill
passed, Secretary of the Treasury Janet Yellen set a six-month
timeframe for Commissioner of Internal Revenue Charles Rettig to
develop a plan for how the IRS will use the $80 billion.
Secretary Yellen informed Commissioner Rettig that the Service will
need to overhaul its outdated information-technology system, clear
a backlog of tax returns, and boost services for taxpayers. She
also stated that the funding should be used to
train IRS employees to identify the most complex evasion
schemes by “those at the top.” Secretary Yellen made
clear, however, that none of the money should be used to increase
enforcement activity tied to those earning less than $400,000 per
year.
Also in the domain of federal taxation, the Act introduces a 15%
corporate alternative minimum tax for C corporations with an annual
income of over $1 billion. It further imposes a 1% excise tax on
stock buybacks conducted by publicly traded corporations. The
Act’s language leaves open several substantial questions
regarding these corporate taxes, which are scheduled to take effect
beginning in 2023. Practitioners are eagerly awaiting further
guidance from the Treasury as to how the law applies.
With regard to clean energy, the Act introduces, extends,
reinstates, or modifies a multitude of tax credits intended to
encourage the production, storage, and use of renewable sources of
power. Such credits relate to: the production and sale of
alternative fuels and renewable energy; the construction and
improvement of energy-efficient buildings for both residential and
commercial use; and the purchase and use of electric vehicles for
both personal and commercial use.
Finally, in respect to healthcare, the Act includes certain
provisions intended to prevent an increase in health insurance
premiums and reduce the cost of certain pharmaceuticals. The Act
extends the federal subsidy of medical insurance premiums under the
Affordable Care Act, which was scheduled to expire at the end of
this year. Additionally, the Act enables Medicare to negotiate the
price of certain prescription drugs. Medicare recipients will have
a $2,000 cap on annual out-of-pocket prescription drug costs,
starting in 2025.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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