Stock repurchase excise tax proposed regulations just released

In brief

What happened?

Treasury and the IRS on April 9 issued two sets of proposed regulations on the excise tax on certain repurchases of corporate stock (the Excise Tax). The first set of proposed regulations addresses the application of the Excise Tax, while the second set of proposed regulations provides rules on procedure and administration. The proposed regulations affect certain publicly traded corporations that repurchase their stock or whose stock is acquired by certain specified affiliates.

Why is it relevant?

Enacted as part of the Inflation Reduction Act of 2022, the Excise Tax is a nondeductible 1% tax imposed on the fair market value of any stock of publicly traded US corporations that is repurchased by the corporation or certain affiliates. There are limited exceptions provided where the Excise Tax does not apply. Repurchases occurring after December 31, 2022, generally would be subject to the proposed regulations, except with respect to certain repurchases and acquisitions of stock made after December 31, 2022, that were funded on or after December 27, 2022. If adopted, the proposed regulations would clarify the calculation of the Excise Tax, its application to certain transactions and other events, and the filing and payment requirements associated with the Excise Tax.

Action to consider:

Companies should consider whether to submit comments on these new proposed regulations. Comments on the application of the Excise Tax (the first set of proposed regulations) are due 60 days after the proposed regulations are published in the Federal Register. Comments on the procedure and administration of the Excise Tax (the second set of proposed regulations) are due 30 days after the proposed regulations are published in the Federal Register. The proposed regulations are scheduled to be published on April 12, 2024.

Applicability dates:

The IRS provided initial guidance on the Excise Tax in Notice 2023-2. Generally, if adopted, the proposed rules would apply to:

• Repurchases of stock of a covered corporation occurring after December 31, 2022, and during tax years ending after December 31, 2022, and
• Issuances and provisions of stock of a covered corporation occurring during tax years ending after December 31, 2022.

However, any new rules set forth in the proposed regulations that were not described in Notice 2023-2 would apply to repurchases, issuances, or provisions of stock of a covered corporation occurring after publication of the proposed regulations in the Federal Register, and during tax years ending after the date the proposed regulations are published in the Federal Register.

Filing and payment deadlines:

Notably, the proposed regulations include guidance on the due dates for the filing and payment of the Excise Tax. Under the proposed rules, stock repurchase excise tax returns for tax years ending after December 31, 2022, and on or before final regulations are published, are due with the Form 720 for the first full calendar quarter after the date the final regulations are published.

Observation: An example best illustrates the new rule. If a covered corporation has a tax year ending December 31, 2023, and if the date of publication of final regulations in the Federal Register were September 16, 2024, the covered corporation would be required to file the stock repurchase excise tax return for its 2023 tax year by January 31, 2025 (the due date of the Form 720 for the calendar quarter ending December 31, 2024).