IRS Proposes Regulations for Excise Tax on Stock Repurchases

The Excise Tax on Corporate Stock Repurchases

The Treasury Department and the IRS have introduced proposed rules to offer clarity on the 1% excise tax imposed on corporate stock buybacks under the Inflation Reduction Act.

Guidance for Taxpayers and Professionals

The new regulations aim to assist taxpayers and tax professionals in correctly calculating and paying the excise tax on stock repurchases. In December 2022, interim guidance was released to address reporting and payment obligations related to the excise tax.

Janet Yellen’s Statement

Janet Yellen

Treasury Secretary Janet Yellen emphasized that the Inflation Reduction Act ensures large corporations pay their fair share through the excise tax on stock buybacks. The proposed rule is part of the Biden administration’s efforts to enhance tax fairness and close loopholes.

Key Provisions of the Inflation Reduction Act

The Act imposes a 1% excise tax on corporate stock repurchases by covered corporations. It applies to publicly traded domestic corporations, excluding certain entities like regulated investment companies. Transactions occurring after December 31, 2022, are subject to the tax.

Calculation of Excise Tax

The excise tax is levied at a rate of 1% of the fair market value of repurchased stock, minus the value of stock issued by the taxpayer in the same year. Repurchases include acquisitions of stock for redemption purposes as defined in the tax code.

Regulations on Economically Similar Transactions

Transactions deemed economically similar to stock redemption are also subject to the excise tax. This covers buybacks related to corporate mergers, separations, and other M&A activities. The regulations include anti-abuse measures for foreign-parented multinational corporations.

Reporting and Payment Obligations

Covered corporations must report the excise tax on Form 720, Quarterly Federal Excise Tax Return, with Form 7208, Excise Tax on Repurchase of Corporate Stock, attached. The IRS will provide a final version of the form before the tax’s due date.

Deadline for Public Comments

Interested parties have the opportunity to submit written comments on the proposed regulations by specific deadlines outlined in the announcement. Stay informed and engaged in the discussion surrounding the excise tax on corporate stock repurchases.

Read More of this Story at – 2024-04-09 22:50:15

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