It’s been a while since we’ve reported news from Washington as things have been a little slow on the tax front. All that changed this week when it was announced Senator Joe Manchin had reached an agreement with Senate Majority Leader Chuck Schumer on tax, climate change, energy and healthcare provisions to be included in the Inflation Reduction Act of 2022.
The deal is expected to raise an estimated $739 billion in revenue, spend $433 billion, and reduce the deficit by $300 billion. The increased revenue would come from a domestic 15% book minimum tax on large corporations, modifying the carried interest rules, and increased tax enforcement by boosting funding for the IRS. The deal does not include an expansion of the state and local tax deduction most House Democrats have been pushing for.
In general, a large corporation is one in which the 3-year average modified book income exceeds $1 billion. Controlled group rules are applicable and will include foreign related parties, therefore it is possible the tax would be applicable to U.S. foreign-owned businesses due to income earned in foreign jurisdictions, including by the parent company. The tax would begin after the 2022 tax year.
The agreement includes $369 billion for energy security and climate change working to lower carbon emissions by 40% by 2030. It includes various credits for clean energy sources, including a new tax credit of $4,500 to buy used electric vehicles and $7,500 for new electric vehicles, depending on income level.
The bill is expected to be considered under the rules of budget reconciliation. Majority Leader Schumer is aiming to have the bill considered before the Senate leaves for its recess August 5 and will need support from all 50 Democrats and passage in the House before it becomes law.
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We will continue to provide updates as they become available. Contact us if you have any questions on this news and how it could impact you or your business.