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Senate Passes Inflation Reduction Act

Below is a summary of the tax provisions in the Inflation Reduction Act of 2022 (the “IRA”), as passed by the Senate, that are likely to be of most interest to U.S. corporate taxpayers, financial institutions, hedge funds, private equity funds, and their investors. The IRA now heads to the House, where Democrats hold a narrow majority, for consideration. The IRA could become law as early as this week.


On August 7, 2022, the Senate passed the IRA. The new bill contains significantly fewer revenue-generating tax proposals than the House-passed Build Back Better Act (“BBBA”) in November 2021, which we summarized here.  

The IRA’s tax provisions include:

  • establishing a 15% corporate minimum tax based on book income;
  • imposing a 1% excise tax on stock buybacks;
  • extending the loss limitation rules for noncorporate taxpayers under Code section 461(l);
  • adding, expanding, and extending clean energy tax incentives; and
  • providing additional funding to the IRS.

Notably, the Senate bill does not include earlier proposals that would have:

  • modified the carried interest rules under Code section 1061;
  • modified several international provisions (e.g., global intangible low-taxed income (“GILTI”), base erosion and anti-abuse tax (“BEAT”), and interest limitation provisions);
  • increased the tax rates on individuals and corporations; and
  • repealed the limitations on state and local tax (“SALT”) deductions.

Key Tax Provisions

15% corporate minimum tax on adjusted book income. The IRA would impose a 15% minimum tax based on the financial statement (i.e., “book”) income of U.S. corporations with an average book income exceeding $1 billion (or $100 million for certain foreign-parented corporations) for any three consecutive tax years, beginning in 2023. The applicable financial statement for a corporation would generally be its audited financial statements used for SEC reporting or other nontax purposes. A corporation’s book income could be reduced by book loss carryovers (capped at 80%), general business credits, and accelerated tax depreciation, among other adjustments. The corporate minimum tax would apply if it exceeds the sum of the corporation’s regular tax (at the current corporate tax rate of 21%), base erosion, and anti-abuse tax. The IRA would permit taxpayers to carry forward credits for minimum tax paid indefinitely to reduce future regular tax. The proposed tax would not apply to S corporations, regulated investment companies (“RICs”), real estate investments trusts (“REITs”) and certain corporations whose income is combined with unrelated businesses under common ownership of an investment fund or partnership. The proposal narrows the scope of a similar tax proposed in the House BBBA by removing a book income aggregation rule that would have captured more affiliated corporations.

1% excise tax on stock buybacks. Publicly traded U.S. corporations would be liable for a non-deductible 1% tax on the fair market value of stock buybacks. The proposal would exempt certain repurchases in connection with tax-free reorganizations, repurchases treated as dividends, repurchases by a RIC or REIT, and repurchases for retirement or similar plans. This proposal would apply to repurchases of stock after December 31, 2022. A similar proposal was part of the BBBA.

Key Contacts

Adam Blakemore
T. +44 (0) 20 7170 8697

Linda Z. Swartz
T. +1 212 504 6062

Jon Brose
T. +1 212 504 6376

Andrew Carlon
T. +1 212 504 6378

Mark P. Howe
T. +1 202 862 2236

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