On April 12, 2024, the US Department of the Treasury and the IRS published proposed regulations (89 FR 25980 and 89 FR 25829, the “Proposed Regulations”) on the application of Section 4501,1 which imposes a 1% excise tax2 on certain repurchases of stock of publicly traded US corporations (the “Excise Tax”). The Proposed Regulations generally follow the same approach as the interim guidance under Notice 2023-2 (the “Notice”), which was summarized in this January 2023 Cooley M&A publication.3 Like the Notice, the Proposed Regulations generally would apply to stock repurchases occurring after December 31, 2022, and stock issuances during taxable years ending after December 31, 2022, except that certain specific rules not addressed in prior guidance would be effective only for transactions after April 12, 2024, the publication date of the Proposed Regulations.
The Proposed Regulations adopt a broad approach to application of the Excise Tax, with limited exceptions. As a result, the Excise Tax applies to transactions that are not conventionally regarded as stock buybacks, and companies may have Excise Tax liability or tax return filing obligations in myriad circumstances. This client alert summarizes the basic framework of the Excise Tax, as implemented by the Proposed Regulations, and discusses key implications in a variety of contexts.
Read more about the proposed regulations by checking out Cooley’s recent client alert.
