IRS delays filing and payment obligations for excise tax: PwC

IRS delays filing and payment obligations for excise tax on stock repurchases

June 2023

In brief

The IRS, on June 29, issued Announcement 2023-18 (the Announcement), which provides transitional relief to taxpayers regarding the due dates for their filing and payment obligations related to the excise tax on repurchases of corporate stock under Section 4501 (the Excise Tax), which was enacted as part of the Inflation Reduction Act of 2022 (the IRA). The Announcement provides that for taxpayers with a tax year ending after December 31, 2022, but prior to publication of forthcoming regulations under Section 4501 (the Forthcoming Regulations), any payment liability for the Excise Tax for such tax year, and the corresponding Form 7208, will be delayed pending publication of the Forthcoming Regulations.

The Announcement is expected to provide welcome relief to some fiscal-year taxpayers. For example, prior to the Announcement, fiscal-year taxpayers subject to the Excise Tax with tax years ending on or before March 31, 2023, would have been required to report and pay the Excise Tax by July 31, 2023.

Actions to consider: Although the deadline for completing reporting and payment obligations related to the Excise Tax has been delayed, the Announcement provides that taxpayers still will be required to complete these obligations when the Forthcoming Regulations are published. That is, the Announcement does not alter the fundamental obligation to pay the Excise Tax with respect to any tax year ending after December 31, 2022, if and when due. In addition, the Announcement states that Treasury and the IRS expect the forthcoming regulations will require taxpayers to keep complete and detailed records to accurately establish the amount of their stock repurchases and to keep these records as long as their contents may become material. Accordingly, taxpayers should continue to remain diligent and monitor developments related to the Excise Tax.

Background

Treasury and the IRS issued interim guidance under Section 4501 on December 27, 2022, via Notice 2023-2 (the Notice). The Notice provided that the Excise Tax is anticipated to be reported on Form 720, with an additional form that must be attached to the Form 720 specific to this Excise Tax (Form 7208). The Notice stated that Treasury and the IRS expect the deadline for payment of the Excise Tax to be the same as the filing deadline and that extensions for payment of the tax will not be permitted.

Although Form 720 is filed quarterly, the Notice stated that Treasury and the IRS expect that forthcoming regulations will provide that the Excise Tax is to be reported once per tax year on the Form 720 that is due for the first full quarter after the close of the taxpayer’s tax year.

For calendar-year taxpayers, the initial reporting and payment deadline would be April 30, 2024 (as that would be the due date for the Form 720 for the first full quarter after December 31, 2023). However, under the Notice, fiscal-year taxpayers may need to report and pay their Excise Tax liability at an earlier date. For example, taxpayers with a tax year ending after December 31, 2022, and on or before March 31, 2023, would have been required to report the Excise Tax via the Form 720 due on July 31, 2023 (the due date for the second quarter 2023 Form 720); taxpayers with a tax year ending after March 31, 2023, and on or before June 30, 2023, would have been required to report the Excise Tax via the Form 720 due on October 31, 2023 (the due date for the third quarter 2023 Form 720); and taxpayers with a tax year ending after June 30, 2023, and on or before September 30, 2023, would have been required to report the Excise Tax via the Form 720 due on January 31, 2024 (the due date for the fourth quarter 2023 Form 720).

Thus, under the Notice, the date by which some taxpayers may be required to report and pay the Excise Tax is approaching. To date, Treasury and the IRS have not issued the Forthcoming Regulations, and accordingly, taxpayers are still expecting additional guidance from the Treasury and the IRS on how to compute their Excise Tax liability.

Observation: For example, in response to comments submitted to Treasury and the IRS, officials at Treasury and the IRS have publicly stated that they are considering changing a broad funding rule set forth in the Notice that would treat specified affiliates (i.e., certain domestic corporations, domestic partnerships, and foreign partnerships with direct or indirect domestic entity partners) of publicly traded foreign corporations as subject to the Excise Tax if that specified affiliate is treated as funding “by any means” the repurchase of stock by the foreign corporation. In addition, Treasury and the IRS requested and received comments on many other questions arising under Section 4501, and it is unclear how the Forthcoming Regulations will address those areas.

Transitional relief

The Announcement provides transitional relief for filing and payment obligations with respect to the Excise Tax. For taxpayers with a tax year ending after December 31, 2022, but prior to publication of the Forthcoming Regulations, the Forthcoming Regulations are expected to provide that any liability for the Excise Tax for such tax year will be reported on the Form 720 that is due for the first full quarter after the date of publication of the Forthcoming Regulations, and that the deadline for payment of the Excise Tax is the same as the filing deadline. In addition, the Announcement states that there will be no addition to tax imposed under Section 6651(a) (or any other provision of the Code) for failure to file a return reporting the Excise Tax, or for failure to pay the Excise Tax, before the time specified in the Forthcoming Regulations.

As a result, for those taxpayers described above that otherwise might have been required to complete their reporting and payment obligations with respect to the Excise Tax as early as July 31, 2023, these obligations no longer are due by such date. Because these obligations are delayed until after the publication of the Forthcoming Regulations (and because the Announcement just describes rules “expected” to be provided in the Forthcoming Regulations), the timing of the issuance of, and the content of, those regulations will provide more precise guidance on when these obligations will become due. The proposed regulations also may clarify whether the ‘Forthcoming Regulations’ in the Announcement refers to the publication of the proposed regulations or final regulations.

Observation: Given the open questions around the computation of the Excise Tax and the absence of a final Form 7208 and accompanying instructions, this Announcement provides welcome relief to taxpayers that might have been required to complete their reporting requirements, and pay the Excise Tax, prior to the publication of the Forthcoming Regulations, as such taxpayers might have needed to take positions in areas where the Forthcoming Regulations may provide more clarity. Instead, those taxpayers now can wait to complete their filing and payment obligations until the Forthcoming Regulations are issued, where additional guidance may provide more clarity on some open questions.