The significant areas where the Act seeks to raise taxes are as follows:
- Corporate Minimum Tax - The Act would impose a minimum tax of 15% on corporations that have more than $1 billion of book income – as determined by the corporation’s financial statement (not its tax return). The tax would not apply to S Corporations and real estate investment trusts.
- Expand the Carried Interest Rule – The Act would increase the holding period from three years to five years for taxpayers with adjusted gross income of $400,000 or more to receive long-term capital gains treatment. Long-term capital gains are taxed at a rate of 20%, while ordinary income is taxed at 37% .
It should be noted that when compared to the Build Back Better legislation, the Act does not increase individual tax rates, capital gains rates, eliminate the tax-free IRC § 1031 real property exchange or limit the tax benefit of IRC §1202 – the gain exclusion for owners of small businesses.
One area of the Act that will impact taxpayers is its allocation of revenue to IRS enforcement and administration. The Act appropriates $80 billion to the IRS over 10 years. The funds will be used by the IRS in the following areas:
- Taxpayer Services: Filing assistance, education, account services and taxpayer advocacy.
- Enforcement: Hiring additional IRS field agents, expansion of exam technology, and increasing the rate of audits and criminal investigations.
- Operations & Administration: This includes the improvement of offices, telecommunications, technical research, security, and information technology development.
While this legislation is not final and may be revised – RVG & Company will keep you informed of any developments.