Excise Tax on Repurchase of Corporate Stock-Procedure and Administration

AGENCY:

Internal Revenue Service (IRS), Treasury.

ACTION:

Final regulations.

SUMMARY:

This document contains final regulations that provide guidance regarding the reporting and payment of the excise tax on repurchases of corporate stock made after December 31, 2022. The regulations affect certain publicly traded corporations that repurchase their stock or whose stock is acquired by certain specified affiliates.

DATES:

Effective date: These final regulations are effective on June 28, 2024.

Applicability dates: For dates of applicability, see §§ 58.6001-(d), 58.6011-1(d), 58.6060-1(b), 58.6061-1(b), 58.6065-1(b), 58.6071-1(e), 58.6091-1(d), 58.6107-1(b), 58.6109-1(b), 58.6151-1(b), 58.6694-1(e), 58.6695-1(b), and 58.6696-1(b).

SUPPLEMENTARY INFORMATION:

Background

I. The Proposed Regulations

On April 12, 2024, the Department of the Treasury (Treasury Department) and the IRS published proposed regulations (REG-118499-23) in the Federal Register (89 FR 25829) that would provide rules on procedure and administration applicable to the reporting and payment of the excise tax on repurchases of corporate stock (stock repurchase excise tax) imposed by section 4501 of the Internal Revenue Code (Code) for repurchases made after December 31, 2022 (proposed procedural regulations). This Treasury decision finalizes the proposed procedural regulations (other than proposed § 58.6011-1(c)) after taking into account comments received, as described in the Summary of Comments and Explanation of Revisions section of this preamble. The final regulations are added as subpart B of new 26 CFR part 58 (Stock Repurchase Excise Tax Regulations), which is added to subchapter D of 26 CFR chapter I (Miscellaneous Excise Taxes).

On April 12, 2024, the Treasury Department and the IRS also published a separate notice of proposed rulemaking (REG-115710-22) in the same issue of the Federal Register (89 FR 25980) that would provide operating rules in proposed subpart A of part 58 relating to the computation of the stock repurchase excise tax (proposed computational regulations). This Treasury decision does not finalize the proposed computational regulations. The Treasury Department and the IRS intend to finalize the proposed computational regulations in a separate Treasury decision after considering comments received with respect to those proposed regulations.

II. Section 4501; Notice 2023-2

Section 4501 was added to a new chapter 37 of the Code by the enactment of section 10201 of Public Law 117-169, 136 Stat. 1818 (August 16, 2022), commonly referred to as the Inflation Reduction Act of 2022 (IRA). In general, section 4501 imposes the stock repurchase excise tax on each covered corporation (as defined in section 4501(b)) for repurchases made after December 31, 2022. See section 10201(d) of the IRA. The stock repurchase excise tax is equal to 1 percent of the fair market value of any stock of the covered corporation that is repurchased (as defined in section 4501(c)(1)) by the covered corporation, or treated as repurchased by the covered corporation, during the taxable year. Section 4501(a). The term “covered corporation” includes an entity treated as a covered corporation under section 4501(d)(1)(A) or (d)(2)(A).

Section 4501(f) authorizes the Secretary of the Treasury or her delegate (Secretary) to prescribe regulations and other guidance as are necessary or appropriate to carry out, and to prevent the avoidance of, the purposes of section 4501.

On January 17, 2023, the Treasury Department and the IRS published Notice 2023-2, 2023-3 I.R.B. 374, to provide initial guidance on the application of the stock repurchase excise tax. The notice described certain operating rules for purposes of the stock repurchase excise tax that the Treasury Department and the IRS intended to include in proposed regulations. In addition, section 4 of Notice 2023-2 described the anticipated rules for reporting and paying any liability for the stock repurchase excise tax. As described in Notice 2023-2, those anticipated rules would provide that (i) the stock repurchase excise tax must be reported on IRS Form 720, Quarterly Federal Excise Tax Return, (ii) taxpayers must attach an additional form to the Form 720 reflecting the computation of the stock repurchase excise tax, (iii) the stock repurchase excise tax must be reported once per taxable year on the Form 720 that is due for the first full quarter after the close of the taxpayer's taxable year, (iv) the deadline for payment of the stock repurchase excise tax is the same as the filing deadline, and (v) no extensions are permitted for reporting or paying the stock repurchase excise tax.

Consistent with Notice 2023-2, on April 12, 2024, the Treasury Department and the IRS published the proposed procedural regulations prescribing the manner and method of reporting and paying the stock repurchase excise tax in proposed subpart B of the proposed Stock Repurchase Excise Tax Regulations (26 CFR part 58) under sections 6001, 6011, 6060, 6061, 6065, 6071, 6091, 6107, 6109, 6151, 6694, 6695, and 6696 of the Code. As noted in the preamble to the proposed procedural regulations, to assist in the identification of transactions subject to the stock repurchase excise tax, the Treasury Department and the IRS have added items relevant to the stock repurchase excise tax to tax return forms other than Form 720. See Form 1120, U.S. Corporation Income Tax Return and Form 1065, U.S. Return of Partnership Income. The Treasury Department and the IRS continue to evaluate amending or developing other forms, including for information reporting with respect to foreign owners of domestic business entities and domestic owners of foreign business entities, to assist in the identification of transactions subject to the stock repurchase excise tax.

Summary of Comments and Explanation of Revisions

After consideration of the comments received in response to the proposed procedural regulations, this Treasury decision adopts those regulations (other than proposed § 58.6011-1(c)) with the revisions described in this Summary of Comments and Explanation of Revisions.

I. Combination of Proposed Procedural Regulations and Proposed Computational Regulations

One commenter suggested that the proposed computational regulations and the proposed procedural regulations should be combined into one proposal because they stem from the same piece of legislation, have the same goal, and employ the same methodology of achieving that goal. These final regulations do not adopt the commenter's suggestion. Although the proposed computational regulations and the proposed procedural regulations stem from, and facilitate the implementation of, the same piece of legislation, the Treasury Department and the IRS proposed these regulations in two separate notices of proposed rulemaking to facilitate the prompt finalization of the proposed procedural regulations, and to thereby provide taxpayers with certainty regarding the manner of reporting and paying the stock repurchase excise tax. Moreover, it is not uncommon for the Treasury Department and the IRS to issue separate tranches of regulatory guidance with respect to a single statutory provision.

II. Recordkeeping Requirement

Under proposed § 58.6001-1(a), any covered corporation, or any person treated as a covered corporation, that makes a repurchase or that is treated as making a repurchase is required to keep complete and detailed records sufficient to establish accurately the amount of repurchases, adjustments, or exceptions required to be shown on its stock repurchase excise tax return. Proposed § 58.6001-1(b) provides that the IRS may require any covered corporation or person treated as a covered corporation to make such returns, render such statements, or keep such specific records as to enable the IRS to determine whether the covered corporation or person treated as a covered corporation is liable for the stock repurchase excise tax. Proposed § 58.6001-1(c) provides that the records required to be maintained must be available for inspection by the IRS and retained for so long as their contents may become material.

One commenter suggested that a covered corporation should be required to keep only complete and detailed records sufficient to establish the amount of tax shown on its stock repurchase excise tax return, which is defined under proposed § 58.6011-1(b). For example, according to the commenter, if the covered corporation chooses one method for valuing the amount of the corporation's repurchases and issuances, and the IRS asserts that the covered corporation should have used a different method for valuing the amount of the corporation's repurchases and issuances, the covered corporation should not be required to maintain records sufficient to establish the amount of the corporation's repurchases and issuances under the IRS's preferred method of valuation.

The Treasury Department and the IRS disagree with the commenter. The recordkeeping requirements in proposed § 58.6001-1(a) are similar to the recordkeeping requirements under section 6001 for other excise taxes in subchapter D of 26 CFR chapter I (Miscellaneous Excise Taxes). See, for example, §§ 53.6001-1(a) (“Any person subject to tax under chapter 42 . . . shall keep records as are sufficient to enable the district director to determine accurately the amount of liability”); 55.6001-1(a) (similar with respect to tax under chapter 44); 56.6001-1(a) (similar with respect to tax under chapter 41); 156.6001-1(a) (similar with respect to tax under chapter 54); and 157.6001-1(a) (similar with respect to tax under chapter 55). Moreover, the valuation requirements in the proposed computational regulations would allow covered corporations to choose from one of four acceptable methods in determining the market price of publicly traded stock so long as the covered corporation consistently applies such method throughout the covered corporation's taxable year. See proposed §§ 58.4501-2(h) and -4(e). This recordkeeping requirement appropriately balances the need for covered corporations to keep records with the IRS's need to be able to establish accurately the amount of repurchases, adjustments, or exceptions required to be shown on a covered corporation's stock repurchase excise tax return. Accordingly, these final regulations do not adopt this comment.

III. Return Requirement

A. Overview

Proposed § 58.6011-1(a) would require a stock repurchase excise tax return to be filed by any covered corporation, or any person treated as a covered corporation, that makes a repurchase (as defined in section 4501(c)(1)), or that is treated as making a repurchase under section 4501(c)(2)(A), (d)(1)(B), or (d)(2)(B), after December 31, 2022. Under the proposed procedural regulations, any covered corporation, or any person treated as a covered corporation, that makes a repurchase, or that is treated as making a repurchase, is required to comply with these requirements, even if every repurchase is eligible for a statutory exception under section 4501(e) (for example, in the case of repurchases by a regulated investment company (RIC), as defined in section 851 of the Code, or a real estate investment trust (REIT), as defined in section 856(a) of the Code) or is offset by issuances or provisions of the covered corporation's stock under section 4501(c)(3).

B. Filing Obligations of Regulated Investment Companies and Real Estate Investment Trusts

One commenter recommended 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 under section 4501(e)(5). Alternatively, the commenter recommended that, in lieu of requiring RICs and REITs to file Form 7208 with respect to their repurchases, the IRS could add a “checkbox” to Form 1120-RIC, U.S. Income Tax Return for Regulated Investment Companies, and Form 1120-REIT, U.S. Income Tax Return for Real Estate Investment Trusts, pursuant to which RICs and REITs could certify that all stock repurchases made during the taxable year qualified for the statutory exception under section 4501(e)(5). According to the commenter, requiring RICs and REITs to file a Form 7208 in situations in which all their repurchases qualify for the statutory exception under section 4501(e)(5) would be unnecessary, burdensome, and duplicative of filings already required by the Securities and Exchange Commission (SEC), with no apparent benefit for tax compliance.

The Treasury Department and the IRS agree that, so long as a covered corporation qualifies as a RIC or a REIT for a taxable year, then all of such corporation's repurchases of its stock during that year would qualify for the statutory exception under section 4501(e)(5). Accordingly, the final regulations adopt the commenter's primary recommendation and exempt RICs and REITs from the obligation to file a stock repurchase excise tax return. See § 58.6011-1(a).

However, RICs and REITs would continue to be subject to the recordkeeping requirement in § 58.6001-1 under the final regulations. Records establishing a RIC's or a REIT's repurchases, adjustments, and exceptions under the stock repurchase 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. In such cases, the corporation's repurchases would not qualify for the exception under section 4501(e)(5), and the information required to be retained under § 58.6001-1 would be required to compute the corporation's stock repurchase excise tax liability.

C. Filing Obligation Only for Taxable Years in Which a Repurchase Is Made

Commenters have asked whether proposed § 58.6011-1(a) could be construed as mandating a continuing annual filing requirement for any covered corporation or any person treated as a covered corporation that has made a repurchase, or that is treated as having made a repurchase, in a previous taxable year. For example, commenters have suggested that the language of proposed § 58.6011-1(a) could be read as requiring a covered corporation to file a stock repurchase excise tax return even with respect to taxable years in which the covered corporation has not made a repurchase, because proposed § 58.6011-1(a) requires any covered corporation that makes a repurchase after December 31, 2022, to file a stock repurchase excise tax return, without specifying that a repurchase must occur within the period for which such return is filed.

The Treasury Department and the IRS intended a stock repurchase excise tax return to be filed only with respect to a taxable year in which a repurchase, or a transaction treated as a repurchase, is made. Accordingly, these final regulations revise § 58.6011-1(a) to clarify that a stock repurchase excise tax return must be filed with respect to any taxable year in which the covered corporation or person treated as a covered corporation makes a repurchase or is treated as making a repurchase.

D. Special Rules for Multiple Section 4501(d) Covered Corporations With Respect to a Covered Surrogate Foreign Corporation

Proposed § 58.6011-1(c) cross-references proposed § 58.4501-7(d)(2) for special rules applicable to persons treated as a covered corporation (as described in section 4501(d)(2)(A)) with respect to a covered surrogate foreign corporation (as defined in section 4501(d)(3)(B)). These final regulations reserve § 58.6011-1(c). The Treasury Department and the IRS intend to finalize proposed § 58.6011-1(c) when proposed § 58.4501-7(d)(2) is finalized.

IV. Signing of Stock Repurchase Excise Tax Return

Under proposed § 58.6061-1(a), any stock repurchase excise tax return, statement, or other document required to be made with respect to the stock repurchase excise tax would be required to be signed by the person required to file the return, statement, or other document, or by the persons required or duly authorized to sign in accordance with the regulations, forms, or instructions prescribed with respect to such return, statement, or document.

One commenter suggested that the signing requirement under proposed § 58.6061-1(a) should be coordinated with the signing requirement under section 6062 of the Code. Section 6062 provides that “[t]he return of a corporation with respect to income shall be signed by the president, vice-president, treasurer, assistant treasurer, chief accounting officer or any other officer duly authorized so to act” (emphasis added).

These final regulations do not adopt this comment. By its terms, section 6062 addresses corporate income tax returns and does not apply to excise tax returns, including the stock repurchase excise tax return. Accordingly, the appropriate party to sign the stock repurchase excise return must be designated under section 6061, rather than section 6062. Moreover, proposed § 58.6011-1(b) would provide that the stock repurchase excise tax return is the Form 720 with an attached Form 7208. The Form 7208 does not have a signature line, and the instructions to the Form 7208 require the form to be attached to a Form 720, which must be signed under penalties of perjury. See Instructions to Form 7208. As such, the appropriate party to sign the stock repurchase excise tax return is the party who signs the Form 720.

V. Example in Proposed § 58.6071-1(d)

The Treasury Department and the IRS have made non-substantive revisions to the Example in proposed § 58.6071-1(d) to align it with the effective date of these final regulations.

VI. Modification of Applicability Date

The rules described in the proposed procedural regulations generally were proposed to have applied to stock repurchase excise tax returns (and to the extent relevant, claims for refund) required to be filed after the date final regulations were published in the Federal Register , and during taxable years ending after the date final regulations were published in the Federal Register . These final regulations will apply to stock repurchase excise tax returns (and to the extent relevant, claims for refund) 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 . The Treasury Department and the IRS have made this slight adjustment to the applicability dates to facilitate the IRS's administration and enforcement of the stock repurchase excise tax and provide guidance to taxpayers as quickly as possible.

Statement of Availability for IRS Documents

Any IRS Revenue Procedure, Revenue Ruling, Notice, or other guidance cited in this preamble is published in the Internal Revenue Bulletin (or Cumulative Bulletin) and is available from the Superintendent of Documents, U.S. Government Publishing Office, Washington, DC 20402, or by visiting the IRS website at https://www.irs.gov.

Special Analyses

I. Regulatory Planning and Review—Economic Analysis

Pursuant to the Memorandum of Agreement, Review of Treasury Regulations under Executive Order 12866 (June 9, 2023), tax regulatory actions issued by the IRS are not subject to the requirements of section 6 of Executive Order 12866, as amended. Therefore, a regulatory impact assessment is not required.

II. Paperwork Reduction Act

The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) (PRA) requires that a Federal agency obtain the approval of Office of Management and Budget (OMB) before collecting information from the public, whether such collection of information is mandatory, voluntary, or required to obtain or retain a benefit. A Federal agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid control number.

The collections of information in these final regulations contain reporting and recordkeeping requirements in §§ 58.6001-1 and 58.6011-1 necessary for the IRS to accurately determine the stock repurchase excise tax due. The collection of information is required by law to comply with the provisions of section 4501 of the Code as enacted by section 10201 of the IRA.

The recordkeeping requirements mentioned within these final regulations are considered general tax records under section 6001. These records are required for the IRS to validate that taxpayers have met the regulatory requirements. The reporting requirements, including the written penalty of perjury statement, are covered within Form 7208 and its instructions. The IRS obtained OMB approval for Form 7208 and the associated collections under 1545-2323 in accordance with the procedures outlined in 5 CFR 1320.10.

These final regulations mention reporting and recordkeeping requirements for tax preparers. These final regulations are not changing the requirements contained within § 1.6107-1, which is included in 1545-1231.

III. Regulatory Flexibility Act

Pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6), it is hereby certified that these final regulations will not have a significant economic impact on a substantial number of small entities. This certification is based on the fact that these final regulations provide specific administrative, procedural, and recordkeeping rules that apply only to certain tax return preparers and to publicly traded corporations, which tend to consist of larger businesses. Specifically, based on data available to the IRS, for tax year 2021, 4,366 corporations reported publicly traded common stock. Of those corporations, 2,407 (over 55 percent) reported gross receipts over $100 million, and 3,272 (approximately 75 percent) reported gross receipts over $10 million. Meanwhile, for tax year 2021, the IRS received 7,464,790 Corporation Income Tax Returns and 4,710,457 U.S. Returns of Partnership Income. IRS Publication 6292, Fiscal Year Projections for the United States: 2022-2029, Fall 2022, Table 2. Of these corporation and partnership returns for tax year 2021, 11,685,207 reported total assets below $10 million. Thus, the number of corporations affected by these final regulations that reported total assets below $10 million is less than one hundredth of one percent of the total number of businesses that reported total assets below $10 million for tax year 2021. Therefore, these final regulations will not create additional obligations for, or impose an economic impact on, a substantial number of small entities. Accordingly, the Secretary certifies that the final regulations will not have a significant economic impact on a substantial number of small entities and a regulatory flexibility analysis under the Regulatory Flexibility Act is not required.

IV. Section 7805(f)

Pursuant to section 7805(f) of the Internal Revenue Code, the proposed procedural regulations (REG-118499-23) preceding these final regulations were submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on the impact on small business, and no comments were received.

V. Unfunded Mandates Reform Act

Section 202 of the Unfunded Mandates Reform Act of 1995 requires that agencies assess anticipated costs and benefits and take certain other actions before issuing a final rule that includes any Federal mandate that may result in expenditures in any one year by a State, local, or Tribal government, in the aggregate, or by the private sector, of $100 million in 1995 dollars, updated annually for inflation. These final regulations do not include any Federal mandate that may result in expenditures by State, local, or Tribal governments, or by the private sector in excess of that threshold.

VI. Executive Order 13132: Federalism

Executive Order 13132 (Federalism) prohibits an agency (to the extent practicable and permitted by law) from promulgating any regulation that has federalism implications, unless the agency meets the consultation and funding requirements of section 6 of the Executive order, if the rule either imposes substantial, direct compliance costs on State and local governments, and is not required by statute, or preempts State law. This final rule does not have federalism implications and does not impose substantial direct compliance costs on State and local governments or preempt State law within the meaning of the Executive order.

VII. Congressional Review Act

Pursuant to the Congressional Review Act (5 U.S.C. 801 et seq.), the Office of Information and Regulatory Affairs designated this rule as not a “major rule,” as defined by 5 U.S.C. 804(2).

Drafting Information

The principal authors of these regulations are Kailee H. Farrell and Samuel G. Trammell of the Office of Associate Chief Counsel (Corporate). However, other personnel from the Treasury Department and the IRS participated in their development.

List of Subjects in 26 CFR Part 58

• Excise taxes
• Stock repurchase excise tax
• Reporting and recordkeeping requirements

Adoption of Amendments to the Regulations

Accordingly, 26 CFR part 58 is added to read as follows:

PART 58—STOCK REPURCHASE EXCISE TAX

Section 58.6001-1 also issued under 26 U.S.C. 6001;

Section 58.6011-1 also issued under 26 U.S.C. 6011(a);

Section 58.6060-1 also issued under 26 U.S.C. 6060(a);

Section 58.6061-1 also issued under 26 U.S.C. 6061(a);

Section 58.6065-1 also issued under 26 U.S.C. 6065;

Section 58.6071-1 also issued under 26 U.S.C. 6071(a);

Section 58.6091-1 also issued under 26 U.S.C. 6091(a);

Section 58.6107-1 also issued under 26 U.S.C. 6107;

Section 58.6109-1 also issued under 26 U.S.C. 6109(a);

Section 58.6151-1 also issued under 26 U.S.C. 6151;

Section 58.6694-1 also issued under 26 U.S.C. 6694;

Section 58.6695-1 also issued under 26 U.S.C. 6695;

Section 58.6696-1 also issued under 26 U.S.C. 6696.

Subpart A—[Reserved]

Subpart B—Procedure and Administration