Corporate Stock Repurchase Excise Tax Prop Regs Issued

The IRS has issued proposed regs that would provide guidance concerning the 1% excise tax owed on corporate stock repurchases. (Preamble to Prop Reg REG-118499-23 Excise Tax on Repurchase of Corporate Stock — Procedure and Administration and Preamble to Prop Reg REG-115710-22 Excise Tax on Repurchase of Corporate Stock; IR 2024-101)

The Inflation Reduction Act, adding Code Sec. 4501, imposed a new excise tax on stock repurchases equal to 1% of the aggregate fair market value of stock repurchased by certain corporations during the tax year, subject to adjustments. The stock repurchase excise tax applies to repurchases after December 31, 2022.

The prop regs would impact publicly traded domestic corporations that repurchase their stock or whose stock is acquired by certain affiliates. The prop regs also would impact certain publicly traded foreign corporations that repurchase their stock or whose stock is acquired by certain affiliates.

The prop regs would implement the statutory netting rule that reduces the aggregate fair market value of stock repurchased by a taxpayer during a tax year by the aggregate fair market value of stock issued by the taxpayer during the tax year. Additionally, the prop regs would implement the statutory “de minimis” exception which provides that a taxpayer is not subject to the stock repurchase excise tax if the aggregate fair market value of the stock repurchased by the taxpayer during the tax year does not exceed $1,000,000.

These regulations follow Notice 2023-2, which provided initial guidance on the application of the stock repurchase excise tax. The Notice set forth certain interim operating rules for determining the amount of stock repurchase excise tax owed.

The regulations would provide that the stock repurchase excise tax must be reported on the Form 720, Quarterly Federal Excise Tax Return, with the Form 7208 attached. The Form 7208, Excise Tax on Repurchase of Corporate Stock, would be used to figure the amount of stock repurchase excise tax owed. A draft version of the Form 7208 is currently accessible, and the final version of the form will be released prior to the first due date on which the stock repurchase excise tax must be reported and paid.

As anticipated in Ann 2023-18, the prop regs would establish that, for taxpayers with a tax year ending after December 31, 2022, but before the publication of final regs, any liability for the stock repurchase excise tax for the tax year must be reported on the Form 720 that is due for the first full quarter after the date the final regs are published, and that the deadline for payment of the tax is the same as the filing deadline.

For more information regarding the stock repurchase excise tax, see Checkpoint’s Federal Tax Coordinator ¶F-11920.