IRS offers guidance on stock repurchase tax

The Internal Revenue Service provided transitional guidance Thursday on the new 1% excise tax on the value of corporate share repurchases that was included as part of last year's Inflation Reduction Act.

In Announcement 2023-18, the IRS said taxpayers will not be required to report the new excise tax imposed by section 4501 of the Tax Code on repurchases of corporate stock during a covered corporation's taxable year on any returns filed with the IRS, or to make any payments of such tax, before the time specified in forthcoming regulations.

The IRS said there will be no addition to tax under section 6651(a) of the Internal Revenue Code (or any other provision of the Tax Code) for failure to file a return reporting the stock repurchase excise tax, or for failure to pay the stock repurchase excise tax, before the time specified in the forthcoming regulations.

Samuel Corum/Bloomberg

The upcoming regulations from the IRS and the Treasury Department will require covered corporations to keep complete and detailed records to establish accurately any amount of stock repurchases (including repurchases made after Dec. 31, 2022, but before the regs are published) and to hold onto these records as long as their contents may become material.

The stock repurchase excise tax applies to repurchases made after Dec. 31, 2022, and aims to curb the use of share repurchases by companies to lift their stock prices. On Jan. 17 of this year, the Treasury and the IRS published Notice 2023-2 to provide initial guidance regarding the application of the stock repurchase excise tax. The notice announced that the Treasury and the IRS intend to issue forthcoming regulations addressing the application of the stock repurchase excise tax. The notice describes certain rules for determining the amount of stock repurchase excise tax owed that the Treasury and the IRS intend to include in the forthcoming regulations and provides that taxpayers may rely on these rules until the publication of the upcoming regulations. 

For corporate taxpayers with a tax year ending after Dec. 31, 2022, but before publication of the upcoming regulations, the regs are expected to say that any liability for the stock repurchase excise tax for such taxable year will be reported on the Form 720 that is due for the first full quarter after the date of publication of the forthcoming regulations, and that the deadline for payment of the stock repurchase excise tax is the same as the filing deadline.