Tax Byte

with Jessica L. Jeane, J.D.

Top Democratic Senators Reach Agreement on Corporate Tax Reform, Carried Interest

Jessica L. Jeane, J.D.

Jessica L. Jeane, J.D.

Sr. Director, Tax & Product Development


Senate Majority Leader Chuck Schumer, D-N.Y., and Sen. Joe Manchin III, D-W.Va., have reached an agreement on a corporate tax reform proposal that would impose a corporate minimum tax rate of 15 percent, narrow the carried interest tax break, and boost IRS funding.

The Inflation Reduction Act of 2022 (HR 5376) is expected to reach the Senate floor for a vote in the upper chamber by next week.  

Corporate Tax Reform

Under current law, the statutory corporate tax rate is 21 percent. Democrats’ corporate alternative minimum tax (AMT) proposal would impose a 15 percent minimum tax (also being called a “book tax”) on adjusted financial statement income for corporations with profits exceeding $1 billion.

Corporations would generally be eligible to claim net operating losses and tax credits against the AMT and would be eligible to claim a tax credit against the regular corporate tax for AMT paid in prior years, to the extent the regular tax liability in any year exceeds 15 percent of the corporation’s adjusted financial statement income, according to Senate Democrats. This provision would be effective for taxable years beginning after December 31, 2022.

Trouble Ahead?

Last November, 264 tax and accounting academics sent a letter to Congress outlining some potential consequences of including financial accounting in the tax base, such as politicization of the Financial Accounting Standards Board (FASB) and further complicating the tax code. “Rather than risking the degradation of the FASB, lower quality financial reporting by firms, less efficient capital markets, and a needlessly complicated tax system, it would be cleaner and simpler to just fix the tax code if there are perceived problems with the tax system,” the academics wrote.

As for the bill’s chances of success, it remains to be seen whether another key player, Sen. Kyrsten Sinema, D-Ariz., will support the measure, though she has expressed support for the corporate tax reform proposal in the past. Notably, however, Sinema previously opposed ending the carried interest tax break under Sec. 1061(a), which is also modified in the bill. Generally, the carried interest provision would extend the holding period for investors from three to five years before allowing the long-term capital gains rate of 20 percent rather than the ordinary income tax rates of up to 37 percent.

“One technical thing to note. The bill changes the holding period from three to five years. But it changes definitions in a way that really makes it more like eight or 10 years,” The Wall Street Journal’s Richard Rubin said in a July 28 tweet.

Additionally, the bill contains electric car and renewable energy tax credits and would extend to 2025 an expansion in Affordable Care Act premium subsidies set to expire at the end of the year.  

IRS Funding

And in order to boost taxpayer service and ramp up enforcement, the bill proposes 10-year funding for the IRS as follows:

  • $3,181,500,000 for taxpayer services,
  • $45,637,400,000 for enforcement,
  • $25,326,400,000 for operations support, and
  • $4,750,700,000 for business systems modernization.

Next Steps

Next, the bill is headed to the Senate parliamentarian to determine whether the provisions meet the strict budget rules that govern the reconciliation process. Democrats plan to use a Senate procedure known as budget reconciliation to pass the legislation with a simple majority, allowing them to bypass the 60-vote threshold.

President Biden released a statement on July 27 urging the Senate and House to move quickly on enacting the legislation.

A one-page summary of the tax provisions within the Inflation Reduction Act can be located HERE.

A one-page summary of the Inflation Reduction Act can be located HERE.


Meanwhile, the Congress-approved CHIPS and Science Act (HR 4346) is currently headed to President Biden’s desk where he is expected to sign it into law. The legislation includes close to $80 billion in grants and tax credits for the semiconductor industry. Most notably, a new tax credit, called the “advanced manufacturing investment credit,” would be created by adding a new Sec. 48D to the Internal Revenue Code. Generally, the credit for any taxable year is an amount equal to 25 percent of the qualified investment for such taxable year with respect to any advanced manufacturing facility of an eligible taxpayer.

A section-by-section of the CHIPS legislation can be located HERE.