Stock buyback tax - Final procedural regulations released

Introduction

On June 28, 2024, the IRS finalized regulations governing the reporting and payment of the IRC section 4501 excise tax on repurchased corporate stock by publicly traded corporations. The final regulations apply to stock repurchase excise tax returns required to be filed after June 28, 2024, and during taxable years ending after that date.

Background

The IRS recently finalized a set of proposed regulations that were part of a larger package that was issued on April 12, 2024. The package also included regulations (Reg. 115710-22) that contain operative rules for reporting and calculating the excised tax on repurchased corporate stock by publicly traded corporations, which still remain in proposed form. The IRS will finalize the proposed operative regulations in a separate Treasury decision after considering public comments.

The final regulations largely adopt the proposed regulations. The IRS anticipates finalizing the proposed regulation concerning the stock of certain foreign corporations when the other operative regulations are completed. The final regulations clarify that a stock repurchase excise tax return should be filed only in a tax year during which a taxable stock repurchase is made. The final regulations exempt regulate investment companies (RICs) and real estate investment trusts (REITs) from the obligation to file stock repurchase excise tax returns. However, RICs and REITs would continue to be subject to the recordkeeping requirement set forth in the regulations.

The final regulations apply to stock repurchase excise tax returns required to be filed after June 28, 2024, and during taxable years ending after that date. The regulations require that a stock repurchase excise tax return be filed by the due date of the Form 720 (Quarterly Federal Excise Tax Return) for the first full calendar quarter after the end of the taxable year of the covered corporation. The regulations contain the following example:

Corporation X is a covered corporation with a taxable year that ends on Dec. 31. During its 2024 taxable year, Corporation X makes a taxable repurchase of stock. Because Corporation X's taxable year ends in the fourth quarter of the calendar year, Corporation X must file Form 720 reporting its tax liability by the due date for a first-quarter Form 720, which is, April 30, 2025.

With respect to a covered corporation (or person treated as a covered corporation) with a taxable year ending after Dec. 31, 2022, and on or before June 28, 2024, Form 720 for such taxable year must be filed by the due date of the Form 720 for the first full calendar quarter after June 28, 2024. The regulations contain the following example:

Corporation Y is a covered corporation with a taxable year ending Dec. 31, 2023. During its 2023 taxable year, Corporation Y makes a taxable repurchase of stock. Corporation Y is required to file Form 720 for its 2023 taxable year by the due date of the Form 720 for the first full calendar quarter after June 28, 2024. The due date for Form 720 for the first full calendar quarter after June 28, 2024 (that is, the third quarter Form 720) is Oct. 31, 2024.

The final regulations also require that Form 7208 be attached to Form 720 to properly report the excise tax.

If you have questions or need further clarification on how this impacts your tax situation, please reach out to your Baker Tilly advisor.

The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments