The regulations generally apply retroactively to stock repurchases after 31 December 2022, and to stock issuances for tax years ending after that date.
The US Treasury Department and IRS have issued final regulations (T.D. 10037) that clarify how the 1% excise tax on corporate stock repurchases applies to transactions occurring after December 31, 2022.
This tax was initially introduced in the Inflation Reduction Act of 2022, which created section 4501 to impose a 1% levy on stock buybacks by certain publicly traded corporations.
Released on 21 November 2025, the final regulations refine and update the rules outlined in the April 2024 proposed regulations. They provide more definitive guidance on how the tax should be calculated, which transactions fall within its scope, and how corporations should comply with the new requirements.
The finalised rules aim to give companies a clearer direction as they navigate the excise tax regime, which is now fully in effect.
Several commenters recommended excluding redemptions of all preferred stock from the application of the stock repurchase excise tax. The commenters contended that, although preferred stock is treated as “stock” for Federal tax purposes, applying the stock repurchase excise tax to repurchases of such stock would contravene congressional intent that the tax apply solely to repurchases of common stock.
The final regulations on the stock repurchase excise tax significantly expand the types of transactions eligible for relief and streamline prior proposals.
Key exemptions now apply to:
- Repurchases are linked to leveraged buyouts and take-private transactions, in which the company ceases to be publicly traded.
- Exchanges under acquisitive reorganisations governed by IRC section 368(a).
- Repurchases of section 1504(a)(4) “plain-vanilla” preferred stock.
- Certain older classes of stock issued before August 16, 2022, are mandatorily redeemable or subject to a unilateral put option.
- Certain non-RIC investment funds.
- Complete liquidations covered by sections 331 and 332.
- E and F reorganisations where shareholders receive only qualifying property.
- Redemptions in transactions where a corporation ceases to be a “covered corporation.”
A notable shift in the proposed regulations is the removal of the funding rule targeting repurchases executed through foreign affiliates.
Although the final regulations formally take effect upon publication in the Federal Register on 24 November 2025, they generally apply retroactively to stock repurchases occurring after 31 December 2022 and to stock issuances and related provisions for tax years ending after that date.
