Three key areas of Inflation Reduction Act for general counsel to examine
What’s the Inflation Reduction Act?
The Inflation Reduction Act (IRA or “Act”) is a massive piece of legislation that advances the Biden Administration’s energy, healthcare, and tax agendas. Its complexity has left many in-house attorneys wondering what is in the IRA and how it will affect their organizations.
The IRA includes drug pricing, climate, and IRS-related tax provisions. The Act also contains provisions affecting American employee benefits, including extensions of certain provisions regarding the availability of premium tax credits under the Affordable Care Act (ACA).
Tax-related provisions of the IRA
One of the main worries for many organizations is whether the IRA will raise taxes for their corporation. There is no simple answer; in-house attorneys and tax counsel will want to pay close attention to these tax-related provisions and subsidies of the Act:
- A 15% corporate alternative minimum tax (AMT) on the adjusted financial statement income of certain large corporations, effective for taxable years beginning after December 31, 2022.
- A 1% excise tax on certain stock buybacks by publicly traded corporations, applicable to buybacks after December 31, 2022.
- Extended limitation on excess business losses of noncorporate taxpayers for two years, to include taxable years beginning before January 1, 2029.
- Several new clean energy tax incentives that also extend and modify several existing energy tax credits.
There will be puts and takes for most corporations as they weigh the options for the AMT and examine how the clean energy tax incentives apply to them. In-house attorneys can help advise on how this affects tax strategy: Thomson Reuters Practical Law provides a legal update that can help you determine whether these taxes and incentives apply to your organization.
Opportunities in the new climate and energy provisions
Another area for general counsel to pay particular attention to is the new climate and energy provisions. The IRA includes a provision for the Greenhouse Gas Reduction Fund. This fund will deliver $27 billion in competitive grants to finance clean energy efficiency and climate change projects that reduce or avoid greenhouse gas emissions, especially in disadvantaged communities.
According to Michael S. Regan, the administrator of the Environmental Protection Agency, “The Greenhouse Gas Reduction Fund is an unprecedented opportunity to accelerate the adoption of greenhouse gas reducing technologies and position the United States to compete and win the 21st century economy.”
In addition to the Greenhouse Gas Reduction Fund, the act has the following impacts:
- Restores and expands several federal tax credits and other incentives for low-carbon energy resources
- Creates new credits and incentives for specific technologies, for example, clean hydrogen and standalone energy storage
- Incentivizes the creation of good-paying jobs in the low-carbon energy sector by increasing the amount of the available federal income tax credits if certain wage conditions are met
- Makes changes to the federal oil and gas leasing program, including increasing royalty rates and implementing policies to discourage venting and flaring
- Requires the Biden administration to hold several oil and gas lease auctions, including many that had been suspended or canceled
If you are an in-house attorney at a company that provides greenhouse gas emission solutions, consider whether your company or its projects are eligible for the grants. General counsel in all industries can consider the implications of your oil and gas leasing programs, if applicable, and advise on the risks and opportunities presented by the job creation and clean energy tax incentives.
Drug pricing provisions and their impact on corporations
The IRA made headlines by capping out-of-pocket expense for insulin at $35 per month for Medicare members — a new practice allowing Medicare to negotiate prescription drug prices. The Inflation Reduction Act also provides a safe harbor for high deductible health plans (HDHPs) regarding insulin.
Participants in HDHPs will now be able to be covered for insulin expenses before meeting their deductibles and still be considered part of an HDHP. This is important because many people rely on health savings accounts (HSAs) and participating in an HDHP is required to contribute to HSAs. Without the safe harbor, insulin users had to choose between paying significant monthly prescription fees out of pocket or missing the opportunity to participate in an HSA.
In-house attorneys will want to work with their benefits colleagues to determine how this new allowance affects employee health plans.
Every organization will experience a different impact from the Inflation Reduction Act. By proactively understanding the legislation, in-house attorneys can help the business limit risk and take advantage of opportunities. That means fully understanding the ins and outs of the Act and using your insight to advise the business.
Thomson Reuters Practical Law offers many legal updates to help you understand each element of the law. Learn more about how Practical Law can help you understand the IRA — and other significant legal or regulatory changes — with practical advice your company can use immediately.