On 9 April 2024, the US Internal Revenue Service (IRS) released the proposed regulations offering guidance on the new excise tax on corporate stock repurchases made after 31 December 2022.

The Inflation Reduction Act 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 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.

Additionally, 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 $1,000,000.

These regulations follow Notice 2023-2, published on 17 January 2023, which 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 the 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 31 December 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.

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 13 May 2024.

For REG-115710-22, Excise Tax on Repurchase of Corporate Stock, written comments must be submitted by 11 June 2024.