On August 7, 2022, the Senate passed the Inflation Reduction Act of 2022 (IRA). The extensive bill, among other things, includes a new corporate minimum tax, and a new excise tax on stock repurchases.
The corporate minimum tax included in the bill imposes a 15% tax on corporations with financial statement income above $1 billion. Exclusions exist for S corporations, regulated investment companies, or real estate investment. For purposes of the income threshold, the financial statement income is averaged for the three taxable years ending with the current year. The minimum tax applies to taxable years beginning after December 31, 2022.
The IRA adds an excise tax of 1% on the fair market value of any stock repurchased by publicly traded corporations. The excise tax would also apply to repurchases by specified affiliates, defined as corporations and partnerships owned more than 50% by the corporation where the stock was repurchased. The excise tax applies to repurchases after December 31, 2022.
There are several exceptions to the excise tax for
1) stock acquired in a tax-free reorganization;
2) repurchased stock that is contributed to an employer-sponsored retirement plan;
3) repurchased stock that does not exceed $1 million in total value during the tax year;
4) stock repurchased by regulated investment companies or real estate investment trusts;
5) stock repurchased by dealers in securities; and
6) repurchases treated as dividends.
For help interpreting these changes, contact the tax professionals at Saggar & Rosenberg
