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  5. United States: Proposed regulations on stock buyback excise tax provide guidance for M&A transactions

United States: Proposed regulations on stock buyback excise tax provide guidance for M&A transactions

24 May 2024    1 minute read
Inflation Reduction Act Stock Buyback Excise Tax

In brief

On 12 April 2024, Treasury and the IRS published new proposed regulations on the stock buyback excise tax ("Proposed Regulations") under section 4501. The Proposed Regulations build on interim guidance published by Treasury in Notice 2023-2 ("Notice") and provide taxpayers with further guidance on the application of the 1% excise tax on repurchases of corporate stock made after 31 December 2022 and the procedures for reporting (and remitting payment of) that excise tax. Please see our previous client alerts for additional background on the Notice and on implications of the Proposed Regulations for non-US parented groups.

Contents

Key takeaways

Applicability of the excise tax

  • Any transaction where stock of a US publicly traded corporation ("covered corporation") is redeemed or purchased by an affiliate of the public corporation, or where a redemption or purchase of a non-US publicly traded corporation's stock is funded by an affiliate, should be carefully reviewed. 
  • Taxpayers should review the risk of excise tax exposure when structuring acquisitive reorganizations with cash or other property as consideration, especially if the cash originates from a target company or if debt used to finance the acquisition is assumed by the target company, given the potential excise tax implications.
  • While the Proposed Regulations limit the rules treating the funding of the purchase of stock of a foreign publicly traded corporation as a repurchase, many types of funding transactions remain potentially subject to the excise tax.

Compliance considerations

  • The excise tax is reported on IRS Form 720, Quarterly Federal Excise Tax Return, along with a newly introduced Form 7208. Form 7208 is used to determine the amount of excise tax owed under section 4501.
  • Any covered corporation treated as repurchasing stock is required to comply with the excise tax reporting and compliance requirements notwithstanding that such repurchase may be exempt from the tax pursuant to a statutory exclusion.

Click here to access the full alert.

Related content: United States: Proposed regulations under the stock repurchase excise tax - Key Considerations for inbound companies

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Moe Worsley
Partner
San Francisco
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moe.worsley@bakermckenzie.com
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Partner
Dallas
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lane.morgan@bakermckenzie.com

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