WASHINGTON – The U.S. Department of the Treasury and the Internal Revenue Service have released proposed regulations providing guidance on the implementation of the one percent excise tax on corporate stock repurchases. This tax was introduced by the Inflation Reduction Act and applies to stock buybacks exceeding the fair market value of $1 million by certain corporations, effective for repurchases after December 31, 2022.
The proposed regulations are particularly relevant for publicly traded domestic and certain foreign corporations engaged in stock repurchase activities. They aim to clarify the statutory netting rule, which allows corporations to offset the fair market value of repurchased stock against the value of issued stock within the same taxable year. This could reduce the tax burden for companies that are also issuing new shares.
Additionally, the regulations address the "de minimis" exception, confirming that repurchases not exceeding an aggregate fair market value of $1 million within a taxable year are exempt from the excise tax. This provides a clear threshold for corporations to assess their tax liability.
Taxpayers and tax professionals must report the stock repurchase excise tax on Form 720, the Quarterly Federal Excise Tax Return, and calculate the tax due using Form 7208, Excise Tax on Repurchase of Corporate Stock. Although a draft version of Form 7208 is currently available, the final version will be released before the first reporting and payment deadline.
The IRS has also outlined that for taxpayers with a taxable year ending after December 31, 2022, but before the final regulations are published, the liability for the excise tax must be reported on the Form 720 due for the first full quarter following the final regulations' publication. The payment deadline coincides with the filing deadline.
The Treasury and IRS are accepting written comments on the proposed regulations until May 13, 2024, for procedural and administrative aspects, and until June 11, 2024, for other aspects of the excise tax. These developments follow the initial guidance provided in Notice 2023-2, published on January 17, 2023.
This announcement is based on a press release statement and aims to assist taxpayers and professionals in understanding and preparing for the new excise tax requirements.
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