Tax

Article Dean Dorton

See updates for December 2024 here.

This article has been updated from the original version on September 17, 2024.

What is “Beneficial Ownership Information”? 

Beneficial Ownership Information (“BOI”) reporting is a federal law requirement that is estimated to impact more than 30 million businesses by December 31, 2024. In general, any entity, domestic or foreign, created by filing a document with a secretary of state (or equivalent state office) will be required to file a BOI report. Unlike many government requirements, BOI reporting targets small businesses.

If you are a small business owner, there is a significant likelihood that your business is subject to BOI reporting. BOI reports will not be filed with the IRS but with the Financial Crimes Enforcement Network (FinCEN), another agency of the Department of Treasury. Penalties for willful noncompliance may result in criminal and civil penalties of $500 per day, up to $10,000, and up to two years of jail time.

Entities subject to BOI reporting requirements called “reporting companies,” must file reports identifying (1) the beneficial owners of the entity and, in some instances, (2) the individuals who have applied with specified governmental authorities to form the entity or register it to do business (“company applicants”).

What is a “reporting company?”

“Reporting companies” are companies required to file BOI reports. There are two types of reporting companies:

  • Domestic reporting companies are corporations, limited liability companies, and any other entities created by the filing of a document with a secretary of state or any similar office in the United States.
  • Foreign reporting companies are entities (including corporations and limited liability companies) formed under the law of a foreign country that have registered to do business in the United States by the filing of a document with a secretary of state or any similar office.

Reporting companies can include S corporations, disregarded entities, or certain legal entities formed and registered with a Tribal office or similar agency under Tribal law.

Does a reporting company include an entity that is not created by the filing of a document with the secretary of state or similar office?

No, an entity must file a document with the secretary of state or a similar office to be considered a reporting company. Examples could include certain domestic corporations, LLCs, or Homeowners Associations.

Who is a beneficial owner?

A beneficial owner is an individual who either directly or indirectly: (1) exercises substantial control over the reporting company or (2) owns or controls at least 25% of the reporting company’s ownership interests. Beneficial owners may own or control a reporting company through trusts or through a trust arrangement with a corporate trustee. For more information on beneficial owners, including the meaning of “substantial control” and “ownership interest,” we recommend reviewing the Frequently Asked Questions (“FAQs”) posted by FinCEN.

Who is a company applicant?

As an initial matter, only reporting companies created or registered on or after January 1, 2024, will need to report their company applicants. Up to two individuals could qualify as a company applicant: (1) the individual who directly files the document that creates or registers the company, and (2) if more than one person is involved in the filing, the individual who is primarily responsible for directing or controlling the filing. Often, company applicants will be lawyers, law firms, or entity formation companies.

What type of information must be reported?

A reporting company will be required to report the following information about its beneficial owners and company applicants: the individual’s name, date of birth, address, and an identifying number from an acceptable identification document, such as a passport or U.S. driver’s license, as well as the name of the issuing state or jurisdiction. A copy of the identification document must also be provided.

Generally, BOI reports also must include the reporting company’s legal name, any trade names, the current street address of its principal place of business, its jurisdiction of formation or registration, and its tax identification number.

When do I have to report this information?

The deadlines for filing BOI reports depend on when the reporting company was created. The following chart illustrates the filing deadlines.

Creation or Registration Date of Company Filing Deadline
On or after January 1, 2024, but before January 1, 2025 Within 90 days of creation or registration
Before January 1, 2024 No later than January 1, 2025
On or after January 1, 2025 Within 30 days of creation or registration

What if there is a change in the information reported?

If there is any change to the information reported about the company or its beneficial owners, an updated report must be filed no later than 30 days after the date of the change. Likewise, if a BOI report is inaccurate, the company must correct it no later than 30 days after it becomes aware of the inaccuracy or has reason to know about it.

Is there an annual requirement to file a BOI report?

No. There is no annual reporting requirement. Reporting companies must file an initial BOI report and corrected or updated BOI reports as needed.

How will I file my BOI report?

BOI reports are filed electronically through this secure filing system on FinCEN’s website.

Does every company have to file, or are there exemptions?

There are 23 types of entities that are exempt from BOI reporting. Exempt entities include publicly traded companies meeting certain requirements, many nonprofits, and entities that qualify as a “large operating company.” Generally, a large operating company is an entity that employs more than 20 full-time employees in the U.S., has an operating presence at a physical office in the U.S., and filed a federal income tax or information return in the U.S. for the previous year showing more than $5,000,000 in gross receipts or sales. More information on exemptions is available in FinCEN’s FAQs.

What are the criteria for the subsidiary exemption from the beneficial ownership information reporting requirement?

The entity’s ownership interests must be controlled or wholly owned, directly or indirectly, by certain exempt entities, such as governmental authorities, banks, credit unions, brokers or dealers in securities, insurance companies, accounting firms, public utilities, tax-exempt entities, or large operating companies. FinCEN’s FAQs provide more information on exemptions.

Who will have access to the BOI reports filed with FinCEN?

Federal, state, local, and Tribe officials and certain foreign officials who submit requests through a U.S. government agency will be permitted to obtain BOI for authorized national security, intelligence, and law enforcement activities. Financial institutions may also access BOI in certain circumstances. BOI reported to FinCEN will be stored in a secure, non-public database.

Where can I get more information?

In addition to its FAQs, FinCEN has issued a “Small Entity Compliance Guide.” The compliance guide, other resources, and reference materials are available on FinCEN’s website. Also, FinCEN has stated it will continue to provide guidance, information, and updates related to the BOI reporting requirements. Subscribe here to receive updates via email from FinCEN.

You have sole responsibility for your compliance with the CTA, including its BOI reporting requirements and the collection of relevant ownership and other information. Consider consulting with legal counsel if you have questions regarding the applicability of the CTA’s reporting requirements or the collection of relevant information.

Article Dean Dorton

General Guidelines

  • In general, horses, cattle and other farm assets may be eligible to be depreciated once purchased and placed in service. Horse and farm owners may now use the 200% declining balance for qualifying assets. If the 150% declining balance is preferred, an irrevocable election may be made to utilize this.
  • Some examples of depreciable lives for common equine assets:
    • 3 years: Yearlings placed in service through 12/31/2021, racehorses over 2 years old, any horse other than a racehorse (i.e., breeding stock) which is more than 12 years old
    • 5 years: NEW (but not used) farm equipment, cattle
    • 7 years: Any horse other than a racehorse which is 12 years old or less, farm equipment not eligible for 5-year life, fencing, racing prospects 2 years old or less (yearlings) placed in service after 12/31/2021
    • 15 years: land improvements such as road
    • 20 years: barns
  • It is important to note that the depreciable life for horses depends on the actual age of the horse (based on foaling date versus the January 1 industry standard) when placed in service. Inventory items, such as weanlings or weanling to yearling pinhooks, are not eligible to be depreciated.
  • Assets used predominantly outside of the U.S. and electing farm businesses for purposes of the business interest limitation are required to use the alternative depreciation system (ADS) for certain assets which are also not eligible for the Federal bonus depreciation covered below.

Bonus Depreciation

  • Federal bonus depreciation has been significantly expanded, increasing the deduction in the first year and the type of qualifying property which is eligible for this first-year deduction.
  • Through 2023, 80% of the purchase price may be depreciated when the horse or other qualifying asset is placed in service.
  • After 12/31/2023, the bonus depreciation percentage decreases by 20% each year (so 60% in 2024, 40% in 2025, 20% in 2026 and zero thereafter).
  • In order to qualify, the property must not have been previously owned by the purchaser, must not have been acquired from a related party or via gift or inheritance, and must be predominately used in the United States.
  • Examples of potentially qualifying property are yearlings, racehorses, breeding stock, equipment, fencing, land improvements, and barns.
  • Bonus depreciation applies to large and small businesses – there are no sized-based limits and the deduction is allowed whether or not the business has taxable income. It is also not prorated based on the time of year that assets are placed in service.
  • An annual election out of this bonus depreciation is available on an asset class-by-class basis.

Section 179 Depreciation

  • The 2023 annual limit for Section 179 expense is $1,160,000 but this starts to phase-out dollar-for-dollar if qualifying property additions exceed $2,890,000 (adjusted annually for inflation). For 2024, the Section 179 limit is $1,220,000 on up to $3,050,000 of qualifying property.
  • Like bonus depreciation above, the deductible amount is not impacted by when during the year the property is placed in service – late year qualifying additions receive full benefit.
  • Property previously owned may also qualify for this deduction.
  • However, this deduction is available only to the extent of the taxpayer’s net business income.

Limitations

  • Excess Business Loss limitations (applicable through 2028) – may apply for individuals, trusts or estates. While not equine-specific, net business losses are subject to an annual limitation through 2028, adjusted annually for inflation, with the excess treated as a net operating loss carry-forward. In 2023, total net business losses – both equine and non-equine – are limited to $289,000 ($578,000 if filing a joint tax return). If net business losses exceed this limit, this results in a deferral of the excess loss subject to the net operating loss carry-forward rules (eligible to offset up to 80% of taxable income in subsequent years).
  • Hobby loss rules and – separately – the passive activity rules may either limit the deductibility or defer depreciation expense into future years.
  • Many states have decoupled from the accelerated depreciation provisions so the accelerated depreciation may be a Federal-only tax benefit (merely a timing difference).

Click here to download the summary.

The matters discussed above provide general information only. Industry participants should consult with their professional advisors about their specific situation before undertaking action based on such general information.

Article Dean Dorton

At the tail-end of this spring’s tax filing season, the Kentucky General Assembly passed House Bill (HB) 5, which included a retroactive pass-through entity (PTE) tax effective for taxable years beginning on or after January 1, 2022. The Governor signed HB 5 on March 31, making it the law effective immediately.

HB 5 was actually the second version of a PTE tax enacted this year. Exactly one week before the Governor signed HB 5, he signed HB 360, which also contained a provision creating a PTE tax. HB 5 substantially overhauled the PTE tax provisions in HB 360 and made several improvements beneficial to taxpayers.

Kentucky now joins a majority of states that have enacted PTE taxes as a workaround for the cap on the federal deduction for state and local taxes. Prior to the enactment of the Tax Cuts and Jobs Act (TCJA), individuals who itemized deductions on their federal income tax return were allowed an unlimited deduction for state and local taxes paid. The TCJA imposed a $10,000 cap on the deduction for tax years beginning after December 31, 2017, and before January 1, 2026. Because of this cap, some individuals are unable to deduct the full amount of state and local taxes they pay.

State PTE taxes allow (or in rare cases, require) owners of PTEs, such as partnerships and S corporations, to pay state tax at the entity-level. Because PTEs are not subject to the $10,000 cap, the entity can deduct the state taxes paid in full, reducing the taxable income passed through to its owners. State PTE tax structures then provide a full or partial credit to the individual owners of PTEs on their state personal income tax returns equal to their share of the tax paid by the pass-through entity.

On June 5, the Kentucky Department of Revenue (DOR) published forms and instructions related to the PTE tax on its website. Form 740-PTET is used to make the election, file the return, and pay the income tax due at the entity-level. Form PTET-CR is used to report the tax paid on each owner’s behalf to each owner of the PTE. Additional guidance on the tax and credit is expected.

The Basics of Kentucky’s PTE Tax

For taxable years beginning on or after January 1, 2022, an “authorized person” may elect annually, on behalf of an “electing entity,” to pay Kentucky income tax at the entity-level. An “authorized person” is any individual with the authority from the electing entity to bind the entity or sign returns on its behalf. An “electing entity” is a PTE that makes an election to pay Kentucky income tax at the entity level. Under existing law, a “pass-through entity” includes any partnership, S corporation, limited liability company, limited liability partnership, limited partnership, or similar entity recognized by the laws of Kentucky that is not taxed for federal purposes at the entity-level, but instead passes to its owners their proportionate share of income, deductions, gains, losses, credits, and similar attributes.

Although the election is optional, once it is made for a taxable year, it is irrevocable and binding on all entity owners. For taxable years beginning on or after January 1, 2023, the election must be made by the fifteenth day of the fourth month after the close of the taxable year or the fifteenth day of the tenth month after the close of the taxable year for returns filed on extension. Thus, for calendar year 2023, the election must be made by April 15, 2024, unless the entity’s tax return is extended.

For taxable years beginning on or after January 1, 2022, but before January 1, 2023, the election may be made after March 31, 2023, but before August 31, 2024. No late payment, late filing, or similar penalty may be imposed on an electing entity that makes the election before August 31, 2024, and no interest applies to the tax paid by the electing entity.

Estimated Tax Payments

For taxable years beginning before January 1, 2024, an electing entity is not required to make estimated income tax payments, and no estimated tax penalty will be assessed. However, for taxable years beginning on or after January 1, 2024, estimated income tax payments are required, and an electing entity may be subject to penalties if the estimated tax payments are not properly made.

Credits for Entity Owners

Owners of electing entities are entitled to a refundable credit against Kentucky’s individual income tax equal to 100% of their proportionate share of the tax paid by the electing entity. The entity must report to each owner the owner’s proportionate share of tax paid for the taxable year. This provision prevents double taxation at the entity and owner level.

In addition, Kentucky residents who are owners of electing entities doing business in another state in which tax is assessed and paid at the entity-level now are allowed a credit for taxes paid to the other state. The credit is based on the owner’s distributive share of the electing entity’s items of income, loss, deduction, and credit.

An Overly Simplistic Example

To understand the operation of the PTE tax credit an example may be helpful. Assume AB Partnership has two owners, A and B, each of whom own fifty percent (50%). Further assume that the partnership has pass-through income of $100,000. Kentucky income tax on the PTE income is $5,000 ($100,000 x 5%). A and B would each receive a PTE tax credit of $2,500 ($5,000 x 50%).

Because Kentucky income tax is not deductible when calculating Kentucky taxable income, A and B’s taxable share of income from the partnership is $50,000. Kentucky income tax at the rate of five percent (5%) will be $2,500 for each partner. However, each partner will receive the PTE tax credit of $2,500, which means $0 Kentucky income tax will be paid on A and B’s distributable share from the partnership by A and B. As a result, Kentucky income tax is paid only once on the income of the partnership, that is, at the entity-level.

The benefit of the PTE tax election is the reduction of A and B’s federal individual income tax. The federal pass-through income for AB Partnership is $95,000 ($100,000 – $5,000 Kentucky tax). A and B’s individual share of that income is $47,500. Assuming a federal tax rate for both partners of 37%, A and B’s federal income tax liability is $17,575 ($47,500 x 37%) each. Without the PTE tax, their tax liability would have been $18,500 ($50,000 x 37%). Thus, the PTE tax saved each partner $925 in federal individual income tax ($18,500 – $17,575). Please bear in mind that this example is overly simplistic, as noted in the next paragraph.

Other Considerations

PTEs and their owners will need to consider several factors when deciding whether to elect to pay tax at the entity-level, including the state of residence of the entity’s owners, whether the PTE does business in other states, whether nonresident owners are able to claim a credit for PTE taxes paid to Kentucky, and other credits available to the PTE or its owners.

If you have questions regarding Kentucky’s PTE tax and whether it could benefit you, contact your Dean Dorton tax advisor or other professional.

For questions regarding this article, please contact Erica Horn.

Article Dean Dorton

As part of the TCJA, the IRS imposed a State and Local Tax Deduction cap of $10,000. In total, more than 30 US states have responded to the limited deduction by enacting a pass-through entity (partnerships and S corporations) tax (“PTE Tax”). Each state has its own tax policies for pass-through entities – businesses that are typically not taxed at the entity level, but instead pass their income, deductions, and credits through to their owners, who report these amounts on their individual tax returns. Taxing the income at the entity level can create a deduction on the business’s Federal return. This enables the owners to effectively reduce their ordinary income instead of deducting the tax on their individual return, which is subject to the TJCA limitation. The IRS has acknowledged and blessed these types of “Workarounds” in Notice 2020-75.

Ohio Pass-Through Entity Tax Policy
Ohio allows pass-through entities to make an annual election (“PTE Election”) to pay a tax at the entity level on Form IT4738. This PTE Tax is based on Ohio taxable income, which is calculated by multiplying federal taxable income by an apportionment factor that incorporates the percentage of the entity’s sales, property, and payroll that are in Ohio. The PTE Tax rate is 5% for 2022 and drops to 3% in 2023. Taxpayers making the PTE Election for 2022 can claim credit for estimated payments for Non-Resident Withholding and Composite Tax on the IT4738. Unfortunately, estimated payments that were made at the individual level cannot be claimed.  Estimated payments are due for the IT 4738 on the 15th day of the month after the end of each quarter.

At the individual filing level, Ohio requires an add back modification of this deduction. Business income is still taxed at 3% for the individual on the owner’s individual return. Business owners who file Form IT1040 can claim their proportioned PTE Tax as a refundable credit on their individual return.

Kentucky Pass-Through Entity Tax Policy

On Friday March 24th, 2023, Kentucky Governor Andy Beshear signed HB360 into law. This bill is retroactive to January 1st, 2022, and allows for Kentucky pass-through entities to make an election to pay tax at the entity level (guidance on frequency has not yet been released). Due to the recency of the passing of this bill, the Kentucky Department of Revenue has yet to announce a form to file and make this election on. Similarly, there is the potential for legislative changes or additional guidance expected regarding estimated payments to come. Kentucky’s legislation also allows pass-through entity owners to claim a nonrefundable credit in the amount of their respective pro rata share on their Kentucky individual income tax return. It is expected to be late summer or early fall before Kentucky has more guidance and forms available from the Department of Revenue.  Due to the timing of this legislation, taxpayers considering this election could benefit from extending their federal and state returns.

Indiana Pass-Through Entity Tax Policy
On February 22, 2023, Indiana Governor, Eric Holcomb, signed Senate Bill 2 into law. This bill is retroactive to January 1st, 2022, and allows for Indiana pass-through entities to make an annual election to pay tax at the entity level. Taxpayers can make this election after March 31st, 2023, on Form IN PTET and file the entity’s Composite Schedule. The PTE Tax is based on Indiana taxable income, which is calculated by multiplying federal taxable income by an apportionment factor that takes into account the percentage of the entity’s sales in Indiana. The PTE Tax rate is the same as the Indiana individual tax rate – a flat 3.23% for 2022 and 3.15% for 2023. Indiana appears to allow credits against the PTE Tax for estimates paid towards composite filings. However, similar to Kentucky, guidance is unclear and currently limited due to the timing. If the tax year ends on or before June 30, 2023, no PTE Tax estimated payments will be required. If the tax year ends after June 30, 2023, or before December 31, 2024, a single estimated tax payment is required.

Indiana requires an add back modification of this deduction. Business owners who file IT-40 or IT-40PNR can claim their proportioned PTE Tax as a refundable credit on their individual return.

Each state is handling this “workaround” in a different manner, and some states have limitations on other credits. Although these new laws are often beneficial for taxpayers, they can present unique circumstances that need to be considered with caution. Making these elections will not necessarily make sense in every scenario.

Article Dean Dorton

A cost segregation study is an analysis performed by trained professionals to identify property that should be classified as tangible personal property or land improvements, rather than real property that is depreciated over 27.5 or 39 years. This allows the taxpayer to identify property that can be depreciated over 5, 7, or 15 years instead of the 27.5 or 39 years that typically apply to real estate. This acceleration of deductions results in substantial tax savings benefits.

Cost segregation studies apply to both newly acquired or constructed property, leasehold improvements/fit-ups, and property that was placed in service in prior years (post 1986). For property placed in service in prior years, the IRS allows a “catch up” deduction in year 1 for the additional depreciation deductions that are identified in a cost segregation study that you were entitled to but did not claim in previous years. This can generate substantial tax savings in the first year of the study.

There is no limitation on the cost of property that is eligible for a cost segregation study. The benefit of a study for a smaller building will be less than that of a larger property, but may still be beneficial. We have worked with several industries to provide cost segregation studies including auto dealerships, banks, commercial and residential property owners, medical facilities, and manufacturing facilities.

Bonus depreciation and Section 179 expense elections allow taxpayers to write off 100% of qualified tangible property with a recovery period of 20 years or less. Thus, the 5, 7, and 15 year property that is identified in a study may qualify for this additional depreciation deduction that wouldn’t normally be identified if the property was being depreciated over 27.5 or 39 years. These tax incentives for 2022 make cost segregation studies even more beneficial for the current tax year as it applies to both newly constructed and existing properties. Similar tax incentives are also available for property placed in service in tax years 2008-2021. After 2022, bonus depreciation begins to phase out, with qualifying property getting an 80% bonus deduction in 2023 and reducing by 20% each year following 2023 until it sunsets in 2027.

One of Dean Dorton’s most recent cost segregation studies was performed on a $13.5 million retail shopping center purchased in 2021. That study generated $1,168,876 of tax savings in the first year. The present value of accelerated deductions (discounted at 7%) exceeded $722,032. The return on investment for this study was 95.5 to 1.

Dean Dorton uses an Indianapolis-based engineering firm to provide cost segregation studies to our clients. This engineering firm conducts studies that conform to the Cost Segregation Audit Techniques Guide issued by the IRS. They have reviewed over $3.8B of assets and have increased cash flow of over $300M. They have successfully defended all challenges brought forth by the IRS.

We work in tandem with your CPA, whether you are served by a large international firm, a regional firm, or a local accountant, to serve your best interests and save you money.

Brandi Gillen, CPA
Tax Associate Director
bgillen@deandorton.com • 859.425.7678

Article Dean Dorton

Yesterday afternoon, President Biden signed into law the Inflation Reduction Act of 2022 (“IRA”). The IRA includes provisions intended to combat climate change, promote clean energy, and lower prescription drug and health care costs. To pay for its spending, the IRA contains several tax changes, although the tax provisions are much narrower than those proposed in the Build Back Better Act that failed to progress in Congress last fall.

Notably, the IRA extends, through 2028, the limit on excess business losses (“EBL”) that can be deducted by noncorporate taxpayers. It also appropriates $80 billion to the Internal Revenue Service for enforcement, taxpayer services, operations support, and modernization, which could lead to increased audit activity. On a positive note, the IRA contains several tax incentives for individuals and businesses related to clean energy. Other tax provisions include a new corporate alternative minimum tax, an excise tax on the repurchase of corporate stock by publicly-traded companies, an increase in the research credit against payroll taxes for small businesses, and changes to the premium tax credit.

Extension of Limit on Excess Business Losses

The Tax Cuts and Jobs Act (“TCJA”), enacted at the end of 2017, introduced a limit on business losses deductible by individuals and other noncorporate taxpayers (trusts and estates) against non-business income. Specifically, the TCJA disallowed 2018 net tax losses from active businesses in excess of $250,000 (for individual taxpayers) and $500,000 (for joint filers), adjusted annually for inflation. Disallowed losses are converted into a net operating loss (“NOL”) and carried over to the following tax year. Under the TCJA, the EBL limit was effective for tax years 2018 through 2025.

In March of 2020, the CARES Act retroactively postponed the effective date of the EBL limit until tax years beginning in 2021. The American Rescue Plan Act of 2021 (“ARP”) later extended the EBL limit for one year, through 2026.

The IRA provides for a two-year extension of the EBL limit, through 2028. To illustrate the impact of this limitation, consider the following example:

H and W are married taxpayers filing a joint return. In 2022, H generates a net tax loss from his business of $600,000 and W generates a net tax loss from her business of $240,000. Both H and W actively participate in their businesses. Their aggregated net tax loss from trades or businesses is $840,000. For tax year 2022, the EBL limit is $540,000 for joint filers. Thus, their EBL for 2022 is $300,000 ($840,000 – $540,000).

How does this limitation impact the taxable income of H and W?

Let’s assume that, in addition to the losses generated from their businesses, H and W have other investment income totaling $1,000,000. The following table illustrates how taxable income is calculated before and after the EBL limit:

<table style="border-collapse:collapse;border:none;">
    <tbody>
        <tr>
            <td style="width: 197.75pt;border: 1pt solid windowtext;padding: 0in 5.4pt;vertical-align: top;">
                <p style='margin-top:0in;margin-right:0in;margin-bottom:.0001pt;margin-left:0in;text-align:  justify;font-size:15px;font-family:"Arial",sans-serif;'>&nbsp;</p>
            </td>
            <td style="width: 134.85pt;border-top: 1pt solid windowtext;border-right: 1pt solid windowtext;border-bottom: 1pt solid windowtext;border-image: initial;border-left: none;padding: 0in 5.4pt;vertical-align: top;">
                <p style='margin-top:0in;margin-right:0in;margin-bottom:.0001pt;margin-left:0in;text-align:center;font-size:15px;font-family:"Arial",sans-serif;'><strong>Before EBL limit</strong></p>
            </td>
            <td style="width: 134.9pt;border-top: 1pt solid windowtext;border-right: 1pt solid windowtext;border-bottom: 1pt solid windowtext;border-image: initial;border-left: none;padding: 0in 5.4pt;vertical-align: top;">
                <p style='margin-top:0in;margin-right:0in;margin-bottom:.0001pt;margin-left:0in;text-align:center;font-size:15px;font-family:"Arial",sans-serif;'><strong>After EBL limit</strong></p>
            </td>
        </tr>
        <tr>
            <td style="width: 197.75pt;border-right: 1pt solid windowtext;border-bottom: 1pt solid windowtext;border-left: 1pt solid windowtext;border-image: initial;border-top: none;padding: 0in 5.4pt;vertical-align: top;">
                <p style='margin-top:0in;margin-right:0in;margin-bottom:.0001pt;margin-left:0in;text-align:  justify;font-size:15px;font-family:"Arial",sans-serif;'>Investment income</p>
            </td>
            <td style="width: 134.85pt;border-top: none;border-left: none;border-bottom: 1pt solid windowtext;border-right: 1pt solid windowtext;padding: 0in 5.4pt;vertical-align: top;">
                <p style='margin-top:0in;margin-right:0in;margin-bottom:.0001pt;margin-left:0in;text-align:center;font-size:15px;font-family:"Arial",sans-serif;'><span style="color:black;">$1,000,000</span></p>
            </td>
            <td style="width: 134.9pt;border-top: none;border-left: none;border-bottom: 1pt solid windowtext;border-right: 1pt solid windowtext;padding: 0in 5.4pt;vertical-align: top;">
                <p style='margin-top:0in;margin-right:0in;margin-bottom:.0001pt;margin-left:0in;text-align:center;font-size:15px;font-family:"Arial",sans-serif;'><span style="color:black;">$1,000,000</span></p>
            </td>
        </tr>
        <tr>
            <td style="width: 197.75pt;border-right: 1pt solid windowtext;border-bottom: 1pt solid windowtext;border-left: 1pt solid windowtext;border-image: initial;border-top: none;padding: 0in 5.4pt;vertical-align: top;">
                <p style='margin-top:0in;margin-right:0in;margin-bottom:.0001pt;margin-left:0in;text-align:  justify;font-size:15px;font-family:"Arial",sans-serif;'>H&rsquo;s active business loss</p>
            </td>
            <td style="width: 134.85pt;border-top: none;border-left: none;border-bottom: 1pt solid windowtext;border-right: 1pt solid windowtext;padding: 0in 5.4pt;vertical-align: top;">
                <p style='margin-top:0in;margin-right:0in;margin-bottom:.0001pt;margin-left:0in;text-align:center;font-size:15px;font-family:"Arial",sans-serif;'>($600,000)</p>
            </td>
            <td style="width: 134.9pt;border-top: none;border-left: none;border-bottom: 1pt solid windowtext;border-right: 1pt solid windowtext;padding: 0in 5.4pt;vertical-align: top;">
                <p style='margin-top:0in;margin-right:0in;margin-bottom:.0001pt;margin-left:0in;text-align:center;font-size:15px;font-family:"Arial",sans-serif;'>($600,000)</p>
            </td>
        </tr>
        <tr>
            <td style="width: 197.75pt;border-right: 1pt solid windowtext;border-bottom: 1pt solid windowtext;border-left: 1pt solid windowtext;border-image: initial;border-top: none;padding: 0in 5.4pt;vertical-align: top;">
                <p style='margin-top:0in;margin-right:0in;margin-bottom:.0001pt;margin-left:0in;text-align:  justify;font-size:15px;font-family:"Arial",sans-serif;'>W&rsquo;s active business loss</p>
            </td>
            <td style="width: 134.85pt;border-top: none;border-left: none;border-bottom: 1pt solid windowtext;border-right: 1pt solid windowtext;padding: 0in 5.4pt;vertical-align: top;">
                <p style='margin-top:0in;margin-right:0in;margin-bottom:.0001pt;margin-left:0in;text-align:center;font-size:15px;font-family:"Arial",sans-serif;'>($240,000)</p>
            </td>
            <td style="width: 134.9pt;border-top: none;border-left: none;border-bottom: 1pt solid windowtext;border-right: 1pt solid windowtext;padding: 0in 5.4pt;vertical-align: top;">
                <p style='margin-top:0in;margin-right:0in;margin-bottom:.0001pt;margin-left:0in;text-align:center;font-size:15px;font-family:"Arial",sans-serif;'>($240,000)</p>
            </td>
        </tr>
        <tr>
            <td style="width: 197.75pt;border-right: 1pt solid windowtext;border-bottom: 1pt solid windowtext;border-left: 1pt solid windowtext;border-image: initial;border-top: none;padding: 0in 5.4pt;vertical-align: top;">
                <p style='margin-top:0in;margin-right:0in;margin-bottom:.0001pt;margin-left:0in;text-align:  justify;font-size:15px;font-family:"Arial",sans-serif;'>Excess business loss (see above)</p>
            </td>
            <td style="width: 134.85pt;border-top: none;border-left: none;border-bottom: 1pt solid windowtext;border-right: 1pt solid windowtext;padding: 0in 5.4pt;vertical-align: top;">
                <p style='margin-top:0in;margin-right:0in;margin-bottom:.0001pt;margin-left:0in;text-align:center;font-size:15px;font-family:"Arial",sans-serif;'>$0</p>
            </td>
            <td style="width: 134.9pt;border-top: none;border-left: none;border-bottom: 1pt solid windowtext;border-right: 1pt solid windowtext;padding: 0in 5.4pt;vertical-align: top;">
                <p style='margin-top:0in;margin-right:0in;margin-bottom:.0001pt;margin-left:0in;text-align:center;font-size:15px;font-family:"Arial",sans-serif;'>$300,000</p>
            </td>
        </tr>
        <tr>
            <td style="width: 197.75pt;border-right: 1pt solid windowtext;border-bottom: 1pt solid windowtext;border-left: 1pt solid windowtext;border-image: initial;border-top: none;padding: 0in 5.4pt;vertical-align: top;">
                <p style='margin-top:0in;margin-right:0in;margin-bottom:.0001pt;margin-left:0in;text-align:  justify;font-size:15px;font-family:"Arial",sans-serif;'><strong>Net taxable income</strong></p>
            </td>
            <td style="width: 134.85pt;border-top: none;border-left: none;border-bottom: 1pt solid windowtext;border-right: 1pt solid windowtext;padding: 0in 5.4pt;vertical-align: top;">
                <p style='margin-top:0in;margin-right:0in;margin-bottom:.0001pt;margin-left:0in;text-align:center;font-size:15px;font-family:"Arial",sans-serif;'><strong>$160,000</strong></p>
            </td>
            <td style="width: 134.9pt;border-top: none;border-left: none;border-bottom: 1pt solid windowtext;border-right: 1pt solid windowtext;padding: 0in 5.4pt;vertical-align: top;">
                <p style='margin-top:0in;margin-right:0in;margin-bottom:.0001pt;margin-left:0in;text-align:center;font-size:15px;font-family:"Arial",sans-serif;'><strong>$460,000</strong></p>
            </td>
        </tr>
    </tbody>
</table>

While H and W cannot reduce their 2022 taxable income by the $300,000 EBL, this loss is converted to a NOL and carried over to the following year. H and W can use the NOL in 2023 to offset up to 80% of their taxable income. To illustrate, let’s assume that H and W have the exact same facts as above for 2023. Their 2023 taxable income would be calculated as follows:

<table style="border-collapse:collapse;border:none;">
    <tbody>
        <tr>
            <td style="width: 332.75pt;border: 1pt solid windowtext;padding: 0in 5.4pt;vertical-align: top;">
                <p style='margin-top:0in;margin-right:0in;margin-bottom:.0001pt;margin-left:0in;text-align:  justify;font-size:15px;font-family:"Arial",sans-serif;'>&nbsp;</p>
            </td>
            <td style="width: 134.75pt;border-top: 1pt solid windowtext;border-right: 1pt solid windowtext;border-bottom: 1pt solid windowtext;border-image: initial;border-left: none;padding: 0in 5.4pt;vertical-align: top;">
                <p style='margin-top:0in;margin-right:0in;margin-bottom:.0001pt;margin-left:0in;text-align:center;font-size:15px;font-family:"Arial",sans-serif;'><strong>2023</strong></p>
            </td>
        </tr>
        <tr>
            <td style="width: 332.75pt;border-right: 1pt solid windowtext;border-bottom: 1pt solid windowtext;border-left: 1pt solid windowtext;border-image: initial;border-top: none;padding: 0in 5.4pt;vertical-align: top;">
                <p style='margin-top:0in;margin-right:0in;margin-bottom:.0001pt;margin-left:0in;text-align:  justify;font-size:15px;font-family:"Arial",sans-serif;'>Investment income</p>
            </td>
            <td style="width: 134.75pt;border-top: none;border-left: none;border-bottom: 1pt solid windowtext;border-right: 1pt solid windowtext;padding: 0in 5.4pt;vertical-align: top;">
                <p style='margin-top:0in;margin-right:0in;margin-bottom:.0001pt;margin-left:0in;text-align:center;font-size:15px;font-family:"Arial",sans-serif;'>$1,000,000</p>
            </td>
        </tr>
        <tr>
            <td style="width: 332.75pt;border-right: 1pt solid windowtext;border-bottom: 1pt solid windowtext;border-left: 1pt solid windowtext;border-image: initial;border-top: none;padding: 0in 5.4pt;vertical-align: top;">
                <p style='margin-top:0in;margin-right:0in;margin-bottom:.0001pt;margin-left:0in;text-align:  justify;font-size:15px;font-family:"Arial",sans-serif;'>H&rsquo;s active business loss</p>
            </td>
            <td style="width: 134.75pt;border-top: none;border-left: none;border-bottom: 1pt solid windowtext;border-right: 1pt solid windowtext;padding: 0in 5.4pt;vertical-align: top;">
                <p style='margin-top:0in;margin-right:0in;margin-bottom:.0001pt;margin-left:0in;text-align:center;font-size:15px;font-family:"Arial",sans-serif;'>($600,000)</p>
            </td>
        </tr>
        <tr>
            <td style="width: 332.75pt;border-right: 1pt solid windowtext;border-bottom: 1pt solid windowtext;border-left: 1pt solid windowtext;border-image: initial;border-top: none;padding: 0in 5.4pt;vertical-align: top;">
                <p style='margin-top:0in;margin-right:0in;margin-bottom:.0001pt;margin-left:0in;text-align:  justify;font-size:15px;font-family:"Arial",sans-serif;'>W&rsquo;s active business loss</p>
            </td>
            <td style="width: 134.75pt;border-top: none;border-left: none;border-bottom: 1pt solid windowtext;border-right: 1pt solid windowtext;padding: 0in 5.4pt;vertical-align: top;">
                <p style='margin-top:0in;margin-right:0in;margin-bottom:.0001pt;margin-left:0in;text-align:center;font-size:15px;font-family:"Arial",sans-serif;'>($240,000)</p>
            </td>
        </tr>
        <tr>
            <td style="width: 332.75pt;border-right: 1pt solid windowtext;border-bottom: 1pt solid windowtext;border-left: 1pt solid windowtext;border-image: initial;border-top: none;padding: 0in 5.4pt;vertical-align: top;">
                <p style='margin-top:0in;margin-right:0in;margin-bottom:.0001pt;margin-left:0in;text-align:  justify;font-size:15px;font-family:"Arial",sans-serif;'>Excess business loss (see above)</p>
            </td>
            <td style="width: 134.75pt;border-top: none;border-left: none;border-bottom: 1pt solid windowtext;border-right: 1pt solid windowtext;padding: 0in 5.4pt;vertical-align: top;">
                <p style='margin-top:0in;margin-right:0in;margin-bottom:.0001pt;margin-left:0in;text-align:center;font-size:15px;font-family:"Arial",sans-serif;'>$300,000</p>
            </td>
        </tr>
        <tr>
            <td style="width: 332.75pt;border-right: 1pt solid windowtext;border-bottom: 1pt solid windowtext;border-left: 1pt solid windowtext;border-image: initial;border-top: none;padding: 0in 5.4pt;vertical-align: top;">
                <p style='margin-top:0in;margin-right:0in;margin-bottom:.0001pt;margin-left:0in;text-align:  justify;font-size:15px;font-family:"Arial",sans-serif;'>Net taxable income before NOL carryover</p>
            </td>
            <td style="width: 134.75pt;border-top: none;border-left: none;border-bottom: 1pt solid windowtext;border-right: 1pt solid windowtext;padding: 0in 5.4pt;vertical-align: top;">
                <p style='margin-top:0in;margin-right:0in;margin-bottom:.0001pt;margin-left:0in;text-align:center;font-size:15px;font-family:"Arial",sans-serif;'>$460,000</p>
            </td>
        </tr>
        <tr>
            <td style="width: 332.75pt;border-right: 1pt solid windowtext;border-bottom: 1pt solid windowtext;border-left: 1pt solid windowtext;border-image: initial;border-top: none;padding: 0in 5.4pt;vertical-align: top;">
                <p style='margin-top:0in;margin-right:0in;margin-bottom:.0001pt;margin-left:0in;text-align:  justify;font-size:15px;font-family:"Arial",sans-serif;'>NOL carryover from 2022 (lesser of NOL of $300,000 or 80% of taxable income before NOL ($368,000))</p>
            </td>
            <td style="width: 134.75pt;border-top: none;border-left: none;border-bottom: 1pt solid windowtext;border-right: 1pt solid windowtext;padding: 0in 5.4pt;vertical-align: top;">
                <p style='margin-top:0in;margin-right:0in;margin-bottom:.0001pt;margin-left:0in;text-align:center;font-size:15px;font-family:"Arial",sans-serif;'>($300,000)</p>
            </td>
        </tr>
        <tr>
            <td style="width: 332.75pt;border-right: 1pt solid windowtext;border-bottom: 1pt solid windowtext;border-left: 1pt solid windowtext;border-image: initial;border-top: none;padding: 0in 5.4pt;vertical-align: top;">
                <p style='margin-top:0in;margin-right:0in;margin-bottom:.0001pt;margin-left:0in;text-align:  justify;font-size:15px;font-family:"Arial",sans-serif;'><strong>Net taxable income after NOL</strong></p>
            </td>
            <td style="width: 134.75pt;border-top: none;border-left: none;border-bottom: 1pt solid windowtext;border-right: 1pt solid windowtext;padding: 0in 5.4pt;vertical-align: top;">
                <p style='margin-top:0in;margin-right:0in;margin-bottom:.0001pt;margin-left:0in;text-align:center;font-size:15px;font-family:"Arial",sans-serif;'><strong>$160,000</strong></p>
            </td>
        </tr>
    </tbody>
</table>

As illustrated above, the EBL limit is merely a timing issue. Fortunately, the IRA only extends the limit for two more years and does not make further changes to current law, such as the conversion of disallowed losses into a NOL.

Increased IRS Funding

As noted above, the IRA appropriates $80 billion to the IRS for enforcement and other activities. The $80 billion is appropriated over a ten-year period and approximately broken down as follows:

  • $3.2 billion for taxpayer services;
  • $45.6 billion for enforcement;
  • $25.3 billion for operations support; and
  • $4.8 billion for business systems modernization.

An additional $15 million is appropriated to the IRS with a directive to report to Congress on the potential development of an IRS-run e-file system.

The IRA does not instruct the IRS on how to spend this additional funding with respect to enforcement activities. However, in a letter Congress on August 4, the IRS Commissioner stated that the agency’s investment of these additional resources would follow the Department of Treasury’s directive that audit rates will not rise relative to recent years for households making less than $400,000. Instead, the letter stated that the IRS would “pursue meaningful, impactful examinations of large corporate and high-net-worth taxpayers to ensure they are paying their fair share.”

Clean Energy Incentives

Investment in clean energy is a focal point of the IRA, and the law contains several tax incentives for both businesses and individuals. Notable clean energy incentives include, but are not limited to, the following:

  • Modification and extension of the credit for nonbusiness energy property – This credit, which applies to energy-efficient windows and doors, in addition to certain HVAC systems and heat pumps, is extended through 2032. The $500 lifetime limit for the credit is replaced with an annual limit of $1,200.
  • Modification and extension of the credit for residential energy-efficient property – This credit is renamed the “residential clean energy credit” and extended through 2034. It applies to residential energy-efficient property installed in a dwelling unit used as a residence by the taxpayer, such as qualified solar electric property, solar water heating property, fuel cell property, small wind energy property, and geothermal heat pump property.
  • Modification and extension of the clean vehicle credit – The credit for the purchase of clean vehicles, such as plug-in electric vehicles, is extended through 2032. The IRA eliminates the current cap on the number of credit-eligible vehicles produced by a specific manufacturer. However, it also imposes sourcing requirements on a vehicle’s critical components and battery systems. For example, electric vehicles made with any battery components manufactured by “foreign entities of concern” would be ineligible to receive the credit after 2023. The IRA also imposes a new credit limit based on the taxpayer’s income. The credit is not allowed if a taxpayer’s modified adjusted gross income exceeds $150,000 (for individual taxpayers) or $300,000 (for joint filers). The maximum credit per vehicle remains at $7,500.
  • Credit for previously-owned clean vehicles – A new credit of up to $4,000 is created for the purchase of a previously-owned clean vehicle. The credit applies only to taxpayers whose modified adjusted gross income does not exceed $75,000 (for individual taxpayers) or $150,000 (for joint filers). The credit applies to vehicles acquired after 2022 and before 2033.
  • Credit for commercial clean vehicles – The IRA creates a new business credit for qualified commercial clean vehicles acquired after 2022 and before 2033. The maximum credit per vehicle is $7,500, or $40,000 for a vehicle with a gross vehicle weight rating of at least 14,000 pounds.

The IRA also appropriates funds for the establishment of state rebate programs geared towards low- and middle-income households that purchase energy-efficient appliances.

Other Provisions

  • Corporate Alternative Minimum Tax – Effective for taxable years beginning after 2022, the IRA imposes a new, 15% corporate alternative minimum tax on the adjusted financial statement income (“AFSI”) of large corporations. The minimum tax applies to C corporations which, for a three taxable year period, have average annual AFSI greater than $1 billion. A lower threshold applies to foreign-parented corporations that are members of an international financial reporting group. S corporations are not subject to the minimum tax.
  • Excise Tax on Repurchase of Corporate Stock – The IRA also establishes a new excise tax on the repurchase of certain corporate stock. An excise tax of 1% is imposed on the fair market value of stock repurchased by a publicly-traded U.S. corporation during the taxable year. Several exceptions apply, including an exception in any case in which the total value of the stock repurchased during the taxable year does not exceed $1 million. The excise tax applies to repurchases of stock after 2022.
  • Increase in Research Credit Against Payroll Taxes for Small Businesses – Under current law, taxpayers engaged in research and development activities may be eligible for a research credit against their income tax liability. Small businesses that meet certain requirements may elect to apply the credit against their payroll tax liability. The amount of the credit that can offset a taxpayer’s payroll tax liability currently is limited to $250,000. The IRA increases this amount to $500,000 for taxable years beginning after 2022.
  • Changes to Premium Tax Credit – Taxpayers who purchase health insurance through the Health Insurance Marketplace may be eligible for a premium tax credit under current law. Eligibility for the credit depends on various factors, including a taxpayer’s household income, family size, and the federal poverty line. For 2021 and 2022, the ARP expanded eligibility for the credit to individuals with household income in excess of 400% of the poverty line and increased the credit amount for qualifying taxpayers. The IRA extends these enhancements to the credit through 2025.