The U.S. Department of the Treasury and Internal Revenue Service (IRS) have proposed regulations on the stock buyback or “repurchase” excise tax.
This is a key provision included in the Inflation Reduction Act that seeks to ensure that large corporations pay more of their fair share in taxes. The Biden administration argues that many companies have failed to reinvest stock buyback profits in their workers, growth, and innovation, but this proposed stock buyback excise tax would change that.
“President Biden’s Inflation Reduction Act helps ensure that large corporations pay their fair share, just as American families do,” U.S. Secretary of the Treasury Janet Yellen said. “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.”
The stock buyback excise tax applies at a rate of one percent of the fair market value (FMV) of any stock of a covered corporation that is repurchased by the corporation during its taxable year, minus the aggregate FMV of stock issued by the taxpayer during that year.
Repurchases, or buybacks, include a corporation’s acquisition of any of its stock from a shareholder for property that qualifies as a redemption of the stock as defined in the tax code. A “covered corporation” is defined as a domestic corporation whose stock is publicly traded on an established securities market.
The proposed regulations also provide a targeted anti-abuse rule to foreign-parented multinational corporations pay their fair share of the stock buyback excise tax.
The proposed regulations would also provide that the stock repurchase excise tax must be reported on the IRS Form 720, Quarterly Federal Excise Tax Return, with the Form 7208 attached.