Excise Tax on Repurchase of Corporate Stock-Procedure and Administration

<RULE> DEPARTMENT OF THE TREASURY <SUBAGY>Internal Revenue Service</SUBAGY> <CFR>26 CFR Part 58</CFR> <DEPDOC>[TD 10002]</DEPDOC> <RIN>RIN 1545-BQ60</RIN> <SUBJECT>Excise Tax on Repurchase of Corporate Stock—Procedure and Administration</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Internal Revenue Service (IRS), Treasury. <HD SOURCE="HED">ACTION:</HD> Final regulations. <SUM> <HD SOURCE="HED">SUMMARY:</HD> 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. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> <E T="03">Effective date:</E> These final regulations are effective on June 28, 2024. <E T="03">Applicability dates:</E> For dates of applicability, <E T="03">see</E> §§ 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). </EFFDATE> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">Background</HD> <HD SOURCE="HD2">I. The Proposed Regulations</HD> On April 12, 2024, the Department of the Treasury (Treasury Department) and the IRS published proposed regulations (REG-118499-23) in the <E T="04">Federal Register</E> (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 <E T="04">Federal Register</E> (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. <HD SOURCE="HD2">II. Section 4501; Notice 2023-2</HD> 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. <E T="03">See</E> 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, <E T="03">Quarterly Federal Excise Tax Return,</E> (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. <E T="03">See</E> Form 1120, <E T="03">U.S. Corporation Income Tax Return</E> and Form 1065, <E T="03">U.S. Return of Partnership Income.</E> 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. <HD SOURCE="HD1">Summary of Comments and Explanation of Revisions</HD> 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. <HD SOURCE="HD2">I. Combination of Proposed Procedural Regulations and Proposed Computational Regulations</HD> 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. <HD SOURCE="HD2">II. Recordkeeping Requirement</HD> 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). <E T="03 ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 46k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━