After a long period of negotiation, and many changes to the framework, the White House’s reduced Build Back Better Act is closer to passing than ever before. Nancy Pelosi was questioned recently and asked on the probability of passing the Bill within the promised time frame, to which she replied, “Yes, we intend — that is our plan to pass the bill the week of Nov. 15, as is indicated in our statements that were made at the time of passing the infrastructure bill, and we’re very proud of that.” Let’s recap the framework of the proposed deal as we approach Pelosi’s expected date of passage.

Business Provisions

As the budget and framework were reduced from the Build Back Better Act, many of the proposals impacting non-foreign business survived. Taking the place of these, are some newer proposals, purposed to stop large corporations from avoiding paying any tax at all and raising additional revenue.

Corporate Alternative Minimum Tax

The proposed Build Back Better Act resurrects the corporate alternative minimum tax (AMT) that was eliminated by the Tax Cuts and Jobs Act. The AMT, however, is coming back in a slightly altered form beginning in 2022. This tax would equal 15% of the corporation’s “adjusted financial statement income” reduced by a corporate AMT tax credit. The tax would also only apply to corporations with an average annual adjusted financial statement income above $1 billion for the prior three tax years, with a reduced threshold for certain foreign-parented companies of $100 million.

Stock Repurchases

Within the proposed framework a 1% excise tax on company stock repurchases coming from domestic corporations whose stock trades on an established securities market. A repurchase is described as a redemption, or any transaction economically similar to a redemption, and is also commonly known as a “buyback”. This tax would also apply to the purchase of a stock of a specified affiliate corporation, which is a corporation more than 50 percent owned by the purchasing corporation. Additionally partnerships in which the purchasing corporation holds more than 50% of the capital or profits interest.

Business Interest Expense

There will also be a limit placed on the net interest expense that is allowed as a deduction by a specified domestic corporation. A specified domestic corporation must be a part of a multinational group that prepares consolidated financial statements and has an average interest expense of over $12 million per year for the past three years. The deduction for these corporations’ interest expenses are limited to 110% of the groups’ net interest expense and is set to start in the 2022 tax year.

More to Come

These provisions from the Build Back Better act strictly relate to businesses, however, there are other areas that will be impacted including international taxes, individual taxes, compliance and enforcement, and green energy which we will detail in coming articles. To view that information now, please see the Build Back Better Framework.

Wondering how these changes will affect you? Give us a call at 516-541-6549!

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