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What’s new:  Corporate Stock Repurchase Excise Tax

Posted on May 18, 2024

Did you know that The Department of the Treasury and the IRS has issued proposed regulations that would provide taxpayers and tax professionals with new guidance concerning the one percent excise tax owed on corporate stock repurchases?

The CPAs at Teipen CPA Group are on it. That’s why we’re making sure you know that the Inflation Reduction Act has imposed a new excise tax on stock repurchases equal to one percent of the aggregate fair market value of stock repurchased by certain corporations during the taxable year, (subject to adjustments).

The stock repurchase excise tax applies to repurchases after Dec. 31, 2022. Proposed regulations also 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 (IRS Notice 2023-2), were published in January, 2023, and provide initial guidance on the application of the stock repurchase excise tax. They also 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 Dec. 31, 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.

If you have concerns or questions on how these proposed changes will affect your business bottom line, let’s talk. Our dedicated business professionals can help you strategize.