On June 28, 2024, the Department of the Treasury (“Treasury”) and the Internal Revenue Service (the “IRS”) released final regulations (T.D. 10002) (the “Final Regulations”) that provide guidance applicable to the reporting and payment of the excise tax under section 4501 of the Internal Revenue Code of 1986, as amended (the “Code”), on repurchases of corporate stock after December 31, 2022 (the “Excise Tax”)

The Final Regulations adopt, without significant modification, one set of proposed regulations (REG-118499-23) (the “Proposed Procedural Regulations”) published in the Federal Register on April 12, 2024. By contrast, the second set of proposed regulations (REG-115710-22­) (the “Proposed Computation Regulations”), also published in the Federal Register on April 12, 2024, which provide operational rules on the application and computation of the Excise Tax, were not finalized as part of this Treasury decision.

  • For a further discussion of the Notice, see “Notice 2023-2: Proposed Guidance on the Stock Buyback Excise Tax” posted on December 29, 2022, and for a further discussion of the Proposed Regulations, see “Here We Go – Excise Tax Proposed Regulations Largely ‘NSYNC’ with Notice 2023-2” posted on April 23, 2024.

The Proposed Procedural Regulations were proposed to apply to Excise Tax returns required to be filed after the date of publication in the Federal Register, but the Final Regulations will apply to Excise Tax returns required to be filed after June 28, 2024, to facilitate the IRS’s administration and enforcement of the Excise Tax and provide guidance to taxpayers.

Provided below is a summary of the other key changes made to the Proposed Procedural Regulations.

  • RICs and REITs Exempt from Filing Obligations. The Proposed Procedural Regulations required that a stock repurchase Excise Tax return (i.e., Form 7208, Excise Tax On Repurchase of Corporate Stock) be filed by any covered corporation (or person treated as a covered corporation) that makes a repurchase, even if every repurchase was eligible for a statutory exception under section 4501(e) (such as those provided in respect of repurchases made by a regulated investment company (“RIC”) or real estate investment trust (“REIT”)). Given the statutory exemption provided to RICs and REITs, commentators recommended that RICs and REITs be exempt from the general Excise Tax return filing requirements. The Final Regulations adopt that recommendation and exempts RICs and REITs from the obligation to file a stock repurchase Excise Tax return. However, the Final Regulations continue to subject RICs and REITs to the general recordkeeping requirements.
  • Filing Obligations Limited to Taxable Years in which a Repurchase is Made. The Final Regulations clarify that a stock repurchase Excise Tax return must be filed with respect to any taxable year in which the covered corporation or person treated as a covered corporation makes a repurchase or engages in a transaction treated as a repurchase.
  • Special Rules for Multiple Covered Corporations with respect to a Covered Surrogate Foreign Corporation Reserved. The Final Regulations reserve proposed §58.6011-1(c), which cross-references proposed §58.4501-7(d)(2), for special rules applicable to persons treated as a covered corporation with respect to a covered surrogate foreign corporation. Treasury and the IRS stated that they intend to finalize proposed §58.6011-1(c) when proposed § 58.4501-7(d)(2) is finalized.