The IRS on Tuesday issued a pair of notices of proposed rulemaking providing guidance on the Sec. 4501 1% excise tax on corporate stock repurchases that was enacted by the Inflation Reduction Act of 2022, P.L. 117-169. The tax applies to repurchases after Dec. 31, 2022.

REG-115710-22 proposes regulations under Sec. 4501 that would implement the new excise tax and would amend regulations under Sec. 1275 to implement the provisions of Sec. 4501. REG-118499-23 proposes rules on procedure and administration applicable to the reporting and payment of the tax.

The proposed regulations would apply to both publicly traded domestic corporations and certain publicly traded foreign corporations that repurchase their stock or whose stock is acquired by certain affiliates.

The regulations would implement the Sec. 4501(c)(3) netting rule to reduce the aggregate fair market value (FMV) of stock repurchased by a taxpayer during a tax year by the aggregate FMV of stock issued by the taxpayer during the tax year. Additionally, the regulations would implement the Sec. 4501(e)(3) de minimis exception, which provides that a taxpayer is not subject to the stock repurchase excise tax for any tax year when the aggregate FMV of the stock repurchased by the taxpayer during the tax year does not exceed $1 million.

The stock repurchase excise tax would be reported on Form 720, Quarterly Federal Excise Tax Return, with Form 7208, Excise Tax on Repurchase of Corporate Stock, used to calculate the amount owed, attached. A draft version of Form 7208 is currently available, the IRS said in a news release.

The proposed regulations, as Announcement 2023-18 stated they would, establish that, for taxpayers with a tax year ending after Dec. 31, 2022, but before the publication of final regulations, any liability for the stock repurchase excise tax for the tax year must be reported on the Form 720 that is due for the first full quarter after the date the final regulations are published and that the deadline for payment of the tax is the same as the filing deadline.

The regulations obsolete interim guidance on the corporate stock excise tax issued in Notice 2023-2, published on Jan. 17, 2023, for repurchases, issuances, and provisions of stock of a covered corporation occurring after April 12, 2024.

Written comments must be submitted by May 13 for REG-118499-23 and by June 11 for REG-115710-22.

— To comment on this article or to suggest an idea for another article, contact Martha Waggoner at Martha.Waggoner@aicpa-cima.com.