Estates and Trusts
Unified Credit: TCJA increased the unified credit applicable to estate and gift taxes after 2017, effectively doubling the amount exempted from estate and gift taxes. For 2022, this increase in the credit is projected to effectively shield $12,060,000 from estate and gift taxes.
Grantor Trusts: The proposed legislation would make the rules applicable to the taxation of grantor trusts more closely align with those applicable to income and transfer taxes. The changes applicable to grantor trusts would be effective upon enactment.
Retirement Plans
Contribution Limits for Higher-Income Taxpayers: The proposed legislation would cap the amount of allowable retirement account balances for high-income taxpayers at $10 million.
Rollovers to Roth IRAs: The proposed legislation would prohibit the rollover of traditional IRAs, as well as amounts in 401(k), 403(b), and 457(b) plans to Roth IRAs by high income taxpayers. “High income taxpayers,” for these purposes, are taxpayers subject to the new 39.6 percent income tax rate (or the 25 percent rate on long-term capital gains).
Additional Retirement Changes: Several other changes are proposed by the legislation. The below proposals would be effective after 2021:
• A prohibition on the investment of IRA funds in a security that required the purchaser to hold minimum assets, have a minimum level of education or hold a specific license or credential.
• The extension of the time to assess tax in the case of certain IRA-related prohibited transactions.
• A prohibition of the investment of IRA funds in a non publicly traded entity if the IRA owner has more than a ten-percent interest in the entity.
• Treatment of IRA owners as disqualified persons for purposes of the prohibited transaction rules.
• Makes the receipt of any commission or other payment from an entity any stock or interest in which is owned by the individual for whose benefit the IRA is maintained by an account that holds a DISC or FSC a prohibited transaction.
Compliance: For tax years beginning after 2017 and before 2026, taxpayers are allowed a 20 percent deduction on the qualified business income from an S Corporation, partnership, or sole proprietorship, subject to limitations based upon the taxpayer’s taxable income.
Compliance & IRS Enforcement
The tax gap is the difference between what should be collected by the IRS and what is actually collected by the IRS. The proposed legislation looks to close the tax gap by allocating an increased amount to the IRS to improve enforcement.
Green Energy
The bill proposes to promote investment in green energy through a mix of new tax credits and the extension and modification of existing credits.
New Green Energy Credits: The new credits to encourage the growth of the green energy industry proposed in the Build Back Better Act include the following:
• The energy credit is increased for solar facilities placed in service with low-income communities, through 2031.
• Taxpayers can elect to receive a direct payment rather than a tax credit for projects eligible for certain energy credits, including the alternative fuel refueling property credit, the renewable electricity production credit, and the qualifying advanced energy project credit.
• A six percent investment tax credit for investments in qualifying electric transmission property, through 2031.
• Many more
Extended and Modified Green Energy Credits: The Build Back Better Act also modifies existing energy credits while also extending them. The bill’s proposed changes include:
• The credit for the production of electricity using certain renewable resources, including solar, is generally extended through 2033.
• The energy investment tax credit is extended through 2033, with modifications expanding the scope of qualifying projects.
• The carbon oxide sequestration credit is modified and extended through 2031.
• Incentives for biodiesel, renewable diesel, alternative fuel, and alternative fuel mixtures are extended through 2031.
• The credit for second generation biofuels is extended through 2031
• Many more
