New regs: Corporate Stock Repurchase Excise Tax

The U.S. Department of the Treasury and the IRS recently issued proposed regulations that would provide tax professionals and taxpayers with new guidance concerning the 1% excise tax owed on corporate stock repurchases.

The Inflation Reduction Act of 2022 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 taxable year, subject to adjustments. The stock repurchase excise tax applies to repurchases after Dec. 31, 2022.

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

The regulations would implement the statutory netting rule that reduces the aggregate fair market value of stock repurchased by a taxpayer during a taxable year by the aggregate fair market value of stock issued by the taxpayer during the taxable year. In addition, the regulations would implement the statutory de minimis exception which provides that a taxpayer is not subject to the stock repurchase excise tax with respect to a taxable year if the aggregate fair market value of the stock repurchased by the taxpayer during the taxable year does not exceed $1 million.

These regulations follow Notice 2023-2, published on Jan. 17, 2023 that 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 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 Announcement 2023-18, the proposed regulations would establish that, for taxpayers with a taxable year ending after Dec. 31, 2022, but before the publication of final regulations, any liability for the stock repurchase excise tax for the taxable year must be reported on Form 720 that is due for the first full quarter after the date the final regulations are published, and that the deadline for payment of the tax is the same as the filing deadline.

Written comments regarding the proposed regulations must be submitted by the following dates:

• For REG-118499-23, Excise Tax on Repurchase of Corporate Stock—Procedure and Administration, written comments must be submitted by May 13, 2024.
• For REG-115710-22, Excise Tax on Repurchase of Corporate Stock, written comments must be submitted by June 11, 2024.