Treasury and IRS finalize proposed regulations concerning stock buyback excise tax

On June 28, 2024, the Treasury Department and the IRS finalized, with minor modifications, a set of proposed regulations concerning the excise tax on repurchases of corporate stock (the stock buyback excise tax) imposed by Section 4501 of the Internal Revenue Code (Code) for repurchases made after December 31, 2022. For more information on the proposed regulations, please see our previous alert.

The stock buyback excise tax was enacted as part of the Inflation Reduction Act. One set of regulations provided procedural rules applicable to the reporting and payment of the stock buyback excise tax (proposed procedural regulations), with the other providing the operating rules relating to the computation of the stock buyback excise tax (proposed substantive regulations).

The Treasury Department and the IRS did not finalize the proposed substantive regulations, as they are still considering comments received with respect to those proposed regulations.

Changes to the procedural regulations include the following:

REITs and RIC are generally exempt from the excise tax return filing requirement, but not from recordkeeping requirements. Some commenters to the proposed procedural regulations suggested that RICs and REITs should be exempt from filing the Form 7208, Excise Tax on Repurchase of Corporate Stock, provided all repurchases during the relevant reporting period are made by the RIC or the REIT and thereby qualify for the statutory exception from the stock buyback excise tax under Section 4501(e)(5). Agreeing with the comment, the final procedural regulations exempt RICs and REITs from the obligation to file a stock repurchase excise tax return. However, RICs and REITs would continue to be subject to applicable recordkeeping requirements, as records establishing a RIC’s or a REIT’s repurchases, adjustments, and exceptions under the stock buyback excise tax could become relevant in the event a covered corporation ceases to qualify as a RIC or a REIT for the taxable year, or if the corporation revokes its election to be a REIT for the taxable year.

Requirement of covered corporation to file excise tax return applies only in years during which stock buybacks are made (or treated as being made). The Treasury Department and the IRS clarified in the final procedural regulations that a covered corporation need only file a stock buyback excise tax return with respect to any taxable year in which the covered corporation or person treated as a covered corporation makes (or is treated as making) a stock buyback.

These final procedural regulations will apply to stock buyback excise tax returns required to be filed after the date these final regulations are filed with the Federal Register, and during taxable years ending after the date these final regulations are filed in the Federal Register.

For more information, please contact the authors.