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Treasury and IRS Issue Interim Guidance on Stock Buyback Excise Tax

S.J. Steinhardt
Published Date:
Apr 10, 2024

The U.S. Treasury Department and the IRS issued new interim guidance regarding the Inflation Reduction Act’s 1 percent excise tax owed on corporate stock repurchases or buybacks, CPA Practice Advisor reported.

The proposed regulations provide additional clarity to taxpayers and tax professionals on how to properly calculate and pay the new excise tax on corporate stock buybacks. They largely adopt the framework of  Notice 2023-2, which was published on Jan. 17, 2023. 

The Inflation Reduction Act of 2022 imposed the excise tax on corporate stock repurchases by covered corporations for transactions occurring after Dec. 31, 2022. The stock buyback excise tax applies at a rate of 1 percent of the fair market value of any stock of a covered corporation that’s repurchased by the corporation during its taxable year, minus the aggregate fair market value of stock issued by the taxpayer during that year.

“The proposed regulations would impact publicly traded domestic corporations that repurchase their stock or whose stock is acquired by certain affiliates,” the IRS said in its press release. “The regulations also would impact certain publicly traded foreign corporations that repurchase their stock or whose stock is acquired by certain affiliates.”

The proposed regulations would provide that the stock repurchase excise tax must be reported on IRS Form 720, Quarterly Federal Excise Tax Return, with Form 7208 attached. Form 7208 would be used to figure the amount of stock repurchase excise tax owed. A draft version of 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 the tax code has favored stock buybacks, many companies have failed to reinvest profits in their workers, growth, and innovation,” the Treasury Department said in a press release. “The stock buyback excise tax begins to change that.”

“President Biden’s Inflation Reduction Act helps ensure that large corporations pay their fair share, just as American families do,” said U.S. Secretary of the Treasury Janet L. Yellen in the press release. “This proposed rule is a key part of the Biden Administration’s efforts to improve tax fairness and reduce the deficit by closing loopholes and ensuring wealthy individuals, large corporations, and complex partnerships pay taxes owed.”

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