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Today, President Biden signed into law the Cutting Inflation Act of 2022 (the “Act”). The law ushers in, among other things, significant changes to the Internal Revenue Code and provides additional resources for the IRS, as noted below.
- Alternative minimum corporate tax. The law creates a corporate Alternative Minimum Tax (AMT) equal to 15% of financial statement income, less foreign tax credits, which applies to corporate taxpayers that meet an “adjusted average annual statement income” test. financial” – i.e. the average adjusted income of taxpaying companies. financial statement revenue for a three-year period exceeds $1 billion. The act also contains rules for calculating financial statement income for the purposes of that determination and authorizes the Secretary of the Treasury to promulgate additional regulations and directives relating to the effect of those rules.
- Taxation of share buybacks. The law introduces a new 1% excise tax on share buybacks effective January 1, 2023. The 1% excise tax would be levied on the value of company share buybacks and is expected to raise $74 billion dollars and offset the revenue that is expected to be realized from the removal of the deferred interest provision and changes to the law creating an exemption for depreciation tax deductions from the corporate minimum tax.
IRS Credits and Enforcement
- Taxpayer services. The law earmarks $3.18 billion for expenses necessary for the IRS to provide (1) taxpayer services, including pre-filing assistance and education; (2) custodial and accounting services; (3) taxpayer advocacy services; and (4) other services.
- Enforcement. The law allocates $45.6 billion for expenses necessary for the IRS to (1) determine and collect taxes, (2) provide legal and litigation support, (3) conduct criminal investigations (including technology for investigation), (4) providing digital asset monitoring and compliance activities, (5) enforcing criminal laws related to violations of the Tax Code and other financial crimes, (6) purchasing and leasing passenger motor vehicles and (7) provide other services.
- Operations support. The law earmarks $25.3 billion for necessary expenditures related to supporting IRS operations.
- Modernization of business systems. The law earmarks $4.75 billion for necessary spending related to modernizing the IRS, which includes the development of callback technology and other technologies for the purposes of providing more personalized customer service.
- Task force to design a free “Direct File” tax filing system run by the IRS. The law allocates $15 million to the IRS to provide Congress with a report detailing (1) the cost (including differential coverage options based on the taxpayer’s adjusted gross income and the complexity of the return) of the development and the management of a free and direct electronic tax declaration system. ; (2) taxpayers’ opinions, expectations and level of confidence in a direct and free electronic file system; and (3) the opinions of an independent third party on the overall feasibility and ability of the IRS to implement an electronic records system.
- United States Tax Court. The Act allocates $153 million to the Tax Court.
- No tax increase for certain taxpayers. The law states that none of the IRS credits listed above are intended to increase taxes for taxpayers or small businesses with taxable income of less than $400,000.
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.
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