By a vote of 51 to 50, the U.S. Senate on Sunday passed a budget
reconciliation bill, H.R. 5376, now known as the Inflation Reduction
Act of 2022. The bill contains numerous tax provisions, including a
15% corporate minimum tax, expanded eligibility for premium tax
credits, and numerous clean energy credits.
The Senate vote, in which no Republicans joined the Senate’s 48
Democrats and two Independents and with the resulting tie broken by
Vice President Kamala Harris, caps over a year of seeking an elusive
consensus among Democrats on the bill, originally styled as the Build
Back Better Act. The bill now goes to the House, where it is expected
to pass on Friday.
The smaller bill leaves out some items in a long list of new and
extended and/or modified existing energy-related tax credits and other
climate-change-combating provisions. But enough of them remain in the
final bill to represent what has been called America’s biggest
investment in climate and energy to date, worth an estimated $370
billion and capable of reducing greenhouse gas emissions by 40% by the
end of this decade.
The bill also addresses health care and raises revenue, the latter
most prominently by a new 15% corporate minimum tax on financial
statement, or “book,” income, which was slightly modified before the
bill came to the Senate floor. It would also increase IRS funding,
particularly for enforcement.
The Senate-passed version also includes a nondeductible 1% excise tax
on corporate stock repurchases (as new Sec. 37), which would be
effective for stock buybacks after Dec. 31, 2022, and is expected to
raise $73 billion in revenue.
This was added to substitute for revenue that would have been raised
by lengthening from three to five years the holding period for
long-term-capital-gain treatment of partnership interests held in
connection with the performance of services, commonly known as carried
interests. The carried-interests provision was dropped from the bill
at the behest of Sen. Kyrsten Sinema, D-Ariz.
The corporate minimum tax would apply generally to the excess of 15%
of C corporations’ adjusted financial statement income over any
corporate alternative minimum tax foreign tax credit for the tax year,
for corporations with average annual adjusted financial statement
income for the three consecutive tax years ending with the tax year
exceeding $1 billion. A $100 million threshold would apply to certain
“foreign-parented” corporations. The provision, which would apply by
some estimates to as many as 200 companies, would be effective for tax
years beginning after 2022.
Before passage of the bill, the Senate adopted an amendment by Sen.
John Thune, R-S.D., that would allow the $1 billion applicability
threshold of a single employer under Sec. 52 to be determined without
reference to component members of a controlled group under Sec.
President Joe Biden and others have endorsed the corporate minimum
tax, but the AICPA and others have pointed to likely quandaries it
The AICPA has repeatedly written to congressional tax-writing
committee leaders since October 2021 expressing concerns about the
tax, most recently in an Aug. 4 letter.
The AICPA’s letter reiterated prior concerns about basing tax
liability on the nontax criterion of book income. The two have several
distinct “key conceptual differences … including the concept of
materiality,” the letter stated. “Public policy taxation goals should
not have a role in influencing accounting standards or the resulting
financial reporting. Independence and objectivity of accounting
standards are the backbones of our capital markets system.”
In addition, the AICPA said, the provision will introduce new and
substantial complexities to tax law that “could result in uncertain
results to taxpayers and a costly compliance requirement.”
If Congress does enact the minimum tax, it should be made effective
beginning in the later tax years beginning after Dec. 31, 2023, or
when Treasury and the IRS issue proposed regulations, to give affected
taxpayers sufficient time to fully understand and apply it, the letter
The letter also conveys concerns about the relative size of the bill’s
additional funding for IRS enforcement — $45.6 billion over 10 years —
versus that for taxpayer services, $3.18 billion.
“We are concerned about a possible imbalance between the funding for
taxpayer services and enforcement,” said the letter, which was signed
by Jan Lewis, CPA, chair of the AICPA Tax Executive Committee, and
addressed to tax-writing committee leaders in the House and Senate.
The bill’s Title I, Subtitle C (§12001), would amend Sec. 36B to
extend through 2025 widened eligibility for health care premium tax
credits for taxpayers whose household income exceeds 400% of the
poverty line and the calculation of the applicable percentage of
premium assistance amount, both of which were temporarily provided
under the American Rescue Plan Act, P.L. 117-2.
In addition, Title IX, Section 13902, would increase the Sec. 41
research credit against payroll tax for small businesses.
Following is an at-a-glance list of the bill’s energy and climate
Title I, Subtitle D, tax credit, and other items:
Clean electricity and reducing carbon emissions (Part 1)
Extends and modifies the Sec. 45 credit for electricity produced from
specified renewable resources (§13101);
Extends and modifies the Sec. 48 energy credit (§13102);
Amends Sec. 48 to increase the energy credit for solar and wind
facilities placed in service in connection with low-income communities
Extends and modifies the Sec. 45Q credit for carbon oxide
sequestration (§13104); and
Adds a new Sec. 45U zero-emission nuclear power production credit (§13105).
Clean fuels (Part 2)
Extends the Sec. 40A biodiesel and renewable diesel credit (§13201);
Extends the Sec. 40 incentive for qualified second-generation biofuel
Adds a new Sec. 40B sustainable aviation fuel credit (§13203); and
Adds a new Sec. 45V credit for the production of clean hydrogen (§13204).
Clean energy and efficiency incentives for individuals (Part 3)
Extends increases and modifies the Sec. 25C credit for nonbusiness
energy property (§13301);
Extends the Sec. 25D residential clean energy credit (§13302);
Modifies the Sec. 179D energy-efficient commercial buildings deduction
Extends increases and modifies the Sec. 45L new energy-efficient home
Clean vehicles (Part 4)
Modifies the Sec. 30D clean vehicle credit (§13401);
Adds new Sec. 25E allowing a credit for previously owned clean
Adds a new Sec. 45W credit for qualified commercial clean vehicles (§13403); and
Extends and modifies the Sec. 30C alternative fuel refueling property
Investment in clean energy manufacturing and energy security (Part 5)
Extends the Sec. 48C advanced energy project credit (§13501); and
Adds a new Sec. 45X advanced manufacturing production credit (§13502).
Superfund (Part 6)
Modifies and adjusts for inflation the Sec. 4611(c)(2)(A) hazardous
substance Superfund financing rate (§13601).
Incentives for clean electricity and clean transportation (Part 7)
Adds a new Sec. 45Y clean energy production credit (§13701);
Adds a new Sec. 48E clean electricity investment credit (§13702);
Amends Sec. 168 cost recovery for qualified facilities, qualified
property, and energy storage technology (§13703); and
Adds a new Sec. 45Z clean fuel production credit (§13704).
Credit monetization (Part 8)
Adds a new Sec. 6417 allows elective payment of applicable credits for
energy property and electricity produced from certain renewable