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Client Letter: Stock Repurchase Excise Tax

Thomson Reuters Tax & Accounting  

Thomson Reuters Tax & Accounting  

Dear Client:

I understand you have established (plan to establish) a stock repurchase program whereby your corporation is (will be) repurchasing a portion of its outstanding shares on the market. The Inflation Reduction Act of 2022 has added a 1% excise tax on the repurchase of stock of any domestic corporation whose stock is traded on an established securities market. Only repurchases that are treated as redemptions for tax purposes are subject to the tax. A $1 million exemption is provided, which is increased to the extent the corporation issues additional stock during the tax year, including stock issued or provided to employees of the corporation or employees of certain affiliates of the corporation.

There are questions regarding this tax that have yet to be addressed. For instance, it’s unclear how preferred stock would be treated for purposes of these rules. The IRS will likely issue regulations to clarify many of the outstanding questions.

If you would like to learn more about the effects of this tax on your corporation, please call so I can advise you as to the corporation’s exposure to this tax.

I look forward to hearing from you.

Very truly yours,

 

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