IRS finalizes rules regulations on stock repurchase tax

The Internal Revenue Service and the Treasury Department released final regulations on how companies and tax professionals should report and pay the 1% excise tax on corporate stock repurchases under the Inflation Reduction Act.

The 2022 law imposed a new excise tax on stock repurchases equal to 1% of the aggregate fair market value of stock repurchased by certain corporations during the taxable year, subject to adjustments. The stock repurchase excise tax applies to repurchases after Dec. 31, 2022.

The final rules, issued Friday, require the stock repurchase excise tax to be reported on Form 720, Quarterly Federal Excise Tax Return, due for the first full calendar quarter after the end of the corporation’s taxable year, with the Form 7208, Excise Tax on Repurchase of Corporate Stock, attached. Form 7208 is used to calculate the amount of stock repurchase excise tax owed.

Forms 720 and 7208 that are due for taxable years ending after Dec. 31, 2022, and on or before June 30, 2024, must be filed by the third quarter due date for Form 720, which is Oct. 31, 2024.

If a corporation has more than one tax year ending after Dec. 31, 2022, and on or before June 30, 2024, it should file a single Form 720 with two separate Forms 7208 (one for each taxable year) attached by Oct. 31, 2024.

The final regs impact publicly traded domestic corporations that repurchase their stock or whose stock is acquired by certain affiliates after Dec. 31, 2022. The regs also affect certain publicly traded foreign corporations that repurchase their stock or whose stock is acquired by certain affiliates after Dec. 31, 2022.