With much fanfare, this act was pushed through under the reconciliation provisions and signed by the President.
A few of the hyped provisions (sound and fury signifying nothing):
A 15% corporate minimum tax on Net Book Income – applicable only to corporations issuing financial statements (a fairly wide field) with average net book income over a rolling three year average of at least $ 1,000,000,000 (billion) (that narrows the field substantially). This threshold is reduced to $ 100,000,000 (million) for U.S. based subsidiaries of foreign corporations. Of course, the $ 1B threshold is not adjusted for inflation, so more corporations could become subject to this provision. Expected number of corporations in the U.S. exposed to this tax – approx. 150.
A 1% tax on stock buy backs. This only applies to publicly traded corporations (traded on listed exchanges). While this is a much broader population, it likely inhibits plans for stock buy backs and may force consideration of increased or special dividends to avoid this tax. It is anticipated that KNS clients will not be affected by this provision.
Clean Energy Credits – a cornucopia of benefits is available, if you qualify. Some are enhanced, if prevailing wages (union scale) are paid and if apprenticeship programs are supported (usually only found in unions). It all depends on the particular credit involved. Both commercial and residential credits are expanded, as are those for electric vehicles. Clients may want to consult with engineers for significant rehabilitation projects to make sure that no credits are missed that can be claimed for such work.
Finally, the IRS’ “cash dump”. Currently, the staff at the IRS has shrunk, due to funding constraints and wage inflation. In addition, fully 65% of employees have met the requirements to retire at will. Reports of hiring thousands of new employees face several limitations: the IRS will be bidding against public employers for the same “pool of talent” to get commitments from them; the IRS’ pay scale has always fared poorly in comparison to public employers, further narrowing the quality of hires that it attracts; once hired, they must be trained for a minimum of about 1 year before they’re ready to engage on their own and it is likely 3 – 5 years before they are seasoned enough to be fully effective; the loss of institutional memory and time available to conduct audits for the more experienced staff as they are diverted to training the new hires will likely constrain audit activity, while this is going on. Bottom line, it may be several years, if ever, before the “audit onslaught” actually materializes.
Treasury Secretary Yellen has directed that the “audit guns” not be directed to those with incomes below $ 400,000, but the IRS has merely committed to not INCREASE the PROPORTION of audits of these lower tier taxpayers. Reports have surfaced that give statistics from the IRS’ own Congressional testimony that about 93% of current audit activity concentrates on those with incomes of no more than $ 200,000. All the IRS has committed to is to “hold the line” at these percentages. If that is the case and they vastly expand their audit workforce, the majority of the increased audit activity may be expected to fall on the lower and middle class, rather than the desired target group – “the rich”.
Perhaps this evaluation is too cynical – however, with history as a precursor of future results, it is more likely than not that this will be the outcome of the enhanced funding the IRS will receive.
Mark H. Misselbeck, C.P.A., M.S.T. is a Tax Principal at Katz, Nannis + Solomon, P.C. If you have any questions or would like to speak with one of our tax professionals, please contact our office at 781-453-8700.