US IRS, US Treasury issued notice re excise tax owed on corporate stock repurchases.
White House National Economic Advisor Lael Brainard issued statement of support, key step to implement president Biden tax fairness agenda and have firms pay fair share.
Executive Summary
Implement Inflation reduction act 1% excise on repurchase made after Dec. 31, 2022.
Issued two notices of proposed rulemaking, Excise tax on repurchase of corporate stock-procedure and administration and Excise tax on repurchase of corporate stock.
Proposals published separately in federal register, each with its own comment period.
Follows US IRS, Treasury issued initial guidance Notice 2023-2 in Jan. 2023, #157760.
Proposal Key Provisions
Inflation reduction act Sec 4501, Excise tax on repurchase of corporate stock imposes said tax on each covered corporation as defined, (Public Law 117-169, 26 USC 4501)
Certain publicly traded US corporations or certain publicly traded foreign corporations that repurchase their own stock or whose stock is acquired by certain affiliates.
Define stock broadly including convertible debt, trading stock, warrants but exclude additional tier 1 preferred stock, most cash settlements on options, other situations.
Apply one percent (1%) excise tax based on aggregate fair market value of the stock.
Implement netting requirement to reduce aggregate fair market value of the stock at time of repurchase by the fair market value of any issuances during the taxable year.
This reduction includes fair market value of stock issued to employees or to affiliates.
Tax applies to any transaction US Treasury deems economically similar to a traditional buyback or redemption of stock, i.e., corporate mergers, separations and acquisitions.
Prohibits applicable corporations from taking deduction on the tax, (26 USC 275(a)).
Report excise on IRS Form 720, Quarterly federal excise tax return, attach Form 7208.
Consultation
Comment on proposed rulemaking, Procedure and administration, by May 13, 2024.
Proposed rulemaking, Excise tax on repurchase of corporate stock, by Jun. 11, 2024.
Regulators
US IRS; US Treasury; White House
Entity Types
Corp
Reference
89 FR 25289, 89 FR 25980, 4/12/2024; PR, IR-2024-101, 4/9/2024; Nt 2023-2, 1/17/2023; White House: PR, 4/9/2024; US IRS Form 720; US IRS Form 7208; RIN 1545-BQ60; REG-115710-22; REG-118499-23; Citation: Public Law 117-169, *26 USC* 275(a), 4501;
