IRS and Treasury Propose Rules for Stock Buyback Tax

The Internal Revenue Service and the Treasury Department issued proposed rules for the stock buyback tax for large corporations. The two Notices of Proposed Rulemaking involve the stock buyback or "repurchase" excise tax that was included in the Inflation Reduction Act of 2022.

The stock buyback excise tax imposes a 1% tax on the fair market value of stocks repurchased by corporations within a taxable year, after accounting for the value of any stocks issued by the corporation in the same period. This tax targets "covered corporations," defined as corporations whose stock is publicly traded on an established securities market. "Repurchases" (or buybacks) include a corporation's acquisition of any of its stock from a shareholder for property that qualifies as a redemption of the stock as defined in the tax code.

The proposed 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.
• establish that, for taxpayers with a taxable year ending after December 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 the 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.
• pertain to publicly traded domestic corporations that repurchase their stock or whose stock is acquired by certain affiliates. The regulations also would affect certain publicly traded foreign corporations that repurchase their stock or whose stock is acquired by certain affiliates.
• 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.
• 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 tax year does not exceed $1,000,000.

Written comments on the proposed regulations need to 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.