IRS Proposes Detailed Regulations for 1% Stock Repurchase Excise Tax

The US Treasury Department and the Internal Revenue Service (IRS) have unveiled a set of proposed regulations aimed at providing comprehensive guidance on the newly implemented 1% excise tax on corporate stock repurchases. This tax, mandated through the 2023 Inflation Reduction Act, is applicable to repurchases made after December 31, 2022. The regulations, issued on April 9, 2024, seek to elucidate the intricate framework surrounding this excise tax, which is calculated based on stock repurchases amounting to 1% of the aggregate fair market value of stock repurchased by eligible corporations during the taxable year, subject to necessary adjustments.

In addition to outlining the mechanics of the excise tax, the proposed regulations also delve into the procedures for reporting and remitting the tax. Interested stakeholders and taxpayers have been invited to provide written comments on the draft rules, with respective deadlines set for May 13 and June 11, 2024. This collaborative approach underscores the IRS's commitment to transparency and responsiveness to industry feedback in shaping tax policy.

The regulatory ambit of these proposals extends beyond domestic corporations to encompass certain publicly traded foreign entities engaged in stock repurchases or whose stock is acquired by specified affiliates. Notably, the regulations incorporate provisions for a statutory netting rule, which allows for the offsetting of the fair market value of stock repurchases by the fair market value of stock issued during the same period. Furthermore, they introduce a statutory 'de minimis' exception, sparing taxpayers from the excise tax burden if the aggregate fair market value of repurchased stock in a taxable year does not exceed $1 million.

These regulatory initiatives represent a significant milestone in the ongoing efforts to streamline tax compliance and enforcement measures. They build upon a prior notice issued in January 2023, which offered interim guidelines for determining the amount of stock repurchase excise tax owed. Meanwhile, recent IRS actions, such as the pursuit of $2.7 billion in unpaid taxes from Walgreens Boots Alliance over alleged transfer pricing discrepancies, underscore the agency's intensified focus on bolstering tax enforcement and safeguarding revenue integrity. Against this backdrop, industry experts anticipate heightened scrutiny and compliance obligations in the realm of transfer pricing, signaling a proactive stance by the IRS in addressing potential tax evasion risks.

By fLEXI tEAM