For CFOs, the full impact of the Inflation Reduction Act is still coming into focus

Introduction

Some groups know exactly what they like or dislike about the Inflation Reduction Act (IRA), which was passed by Congress on August 12 and signed into law by President Biden four days later. But the shape it takes for CFOs may still be somewhat blurry, given the complexity of some of its relevant provisions.

For example, environmentalists applaud the legislation’s commitment to sustainability—offering consumers tax credits for purchasing electric cars, solar panels, biomass heaters, and other clean-energy technologies for the home and encouraging more production of renewable sources of energy.¹ CFOs, however, are probably more focused on the complex new corporate taxes, notably a new 15% minimum tax on certain companies’ book income and 1% excise tax on stock buybacks, as well as on an array of new and expanded tax credits, for which their companies may qualify.

For the finance function, the indirect impacts of the new law may prove almost as important as the direct ones. For example, the new 1% excise tax on stock buybacks for some companies may prove to be a nuisance, given that companies still need to account for the excise tax in their financial reports.² Similarly, even if relatively few companies wind up paying the new corporate alternative minimum tax (AMT)—the Joint Committee on Taxation estimates there will be only 150 who do³ —large public companies will still have to devote substantial time and resources to determining whether they’re required to pay it. Moreover, the new law ties the corporate AMT to adjusted financial statement income (AFSI)—that is, income based on generally accepted accounting principles or GAAP—thereby adding another complication.

In this edition of CFO Insights, we examine the provisions of the IRA likely to be most important to CFOs. (For more on what Congress may still consider this year, tax-wise, see accompanying Q&A in the PDF, “A lame duck preview—plus what to expect on taxes in 2023"). Keep in mind, though, that the IRA is a 730-page document loaded with new taxes and new tax credits, and many of the provisions still need to be clarified via regulations and other guidance from the IRS and the Treasury Department. On October 5th, for instance, Treasury issued six notices for one-month public comment periods on just some of the climate and clean-energy tax incentives in the IRA.⁴ While key features of the IRA take effect, it could be well into next year or beyond before Treasury and the IRS issue final guidance on IRA provisions.