IRS sets Oct. 31 deadline for stock buyback tax

The IRS on the June 28 released final regulations (T.D. 10002) on the procedural rules for the new excise tax on corporate stock repurchases that set an initial deadline of Oct. 31 for reporting and paying the tax.

The new excise tax on repurchases of corporate stock under Section 4501 (the stock repurchase excise tax) was created by the Inflation Reduction Act and generally applies to stock repurchases after Dec. 31, 2022. The IRS had previously postponed the deadlines for reporting and paying the tax while it worked to finalize guidance.

The IRS issued two sets of proposed regulations on April 12, 2024, one (REG-118499-23) dealing with certain procedural requirements of the stock repurchase excise tax (the procedural regulations) while the other set of proposed regulations (REG 116710-22) addressed various substantive and operational rules related to such tax (the substantive regulations).

These final regulations finalize the procedural set of regulations, which includes setting a filing deadline for covered corporations that had taxable years ending after Dec. 31, 2022, and on or before June 28, 2024, now set to be Oct. 31, 2024. The final regulations for the computational issues related to the stock repurchase excise tax have not been released yet.  

Background 

Section 4501 imposes an excise tax on each covered corporation equal to 1% of the fair market value (FMV) of the corporation’s stock repurchased by that corporation during a taxable year. The stock repurchase excise tax is effective for repurchases after Dec. 31, 2022.

A “covered corporation” is any domestic corporation the stock of which is traded on an established securities market within the meaning of Section 7704(b)(1). The definition of covered corporation includes a domestic corporation that has stock traded on a national securities exchange (e.g., NYSE and NASDAQ). The tax may also apply to an acquisition of stock of a covered corporation by certain related parties and to acquisitions of stock of a foreign corporation under certain circumstances.

The IRS released initial guidance related to the stock repurchase excise tax in December 2022 (Notice 2023-2) and June 2023 (Announcement 2023-18). In April 2024, the IRS issued two sets of proposed regulations, one with details on the due dates and reporting requirements of the stock repurchase excise tax and the other covering key definitions and operating rules. The new final regulations cover only the reporting and payment rules and are consistent with the proposed regulations with minimal changes. For more information on the proposed regulations on the underlying rules, see our prior story.

Stock repurchase excise tax return

As provided in previous guidance, the term “stock repurchase excise tax return” will be Form 720. The tax will be calculated on a Form 7208, Excise Tax on Repurchase of Corporate Stock, which will be attached to the Form 720, where the stock repurchase excise tax liability will be reported.

The final regulations specify that a stock repurchase excise tax return will be required to be filed by any covered corporation that makes a repurchase after Dec. 31, 2022, other than a covered corporation that qualifies as regulated investment company (RIC) or Real Estate Investment Company (REIT).

In addition, the final regulations provide that if a covered corporation has more than one taxable year ending after Dec. 31, 2022, but before June 28, 2024, the covered corporation should file a single Form 720 with two separate Forms 7208.

The full payment of the stock repurchase excise tax liability is required with a stock repurchase excise tax return when it is filed.

A covered corporation (or a person treated as a covered corporation) that is required to file a stock repurchase excise tax return, or pay the stock repurchase excise tax, but does not timely file such return or pay such tax, may be subject to additions to tax under Section 6651 and Treas. Reg. Sec. 301.6651-1.

Due date

Consistent with the proposed regulations, the final regulations generally require the stock repurchase excise tax return to be filed by the due date for the Form 720 related to the first full calendar quarter after the end of the taxable year of the covered corporation. However, there are transition rules for taxable years that end prior to June 28, 2024. 

Under the general rule, a calendar-year corporation will be required to file the stock repurchase excise tax return for its 2024 taxable year ending Dec. 31, 2024, by April 30, 2025, which is the due date of the Form 720 for the calendar quarter ending March 31, 2025 (the first full calendar quarter after the end of the taxpayer’s taxable year).

The transition rules provide that for taxable years ending after Dec. 31, 2022, and on or before June 28, 2024, the form is due by the due date of the Form 720 for the first full calendar quarter after June 28, 2024, which is Oct. 31, 2024. 

Record-keeping requirements

The final regulations stipulate that any covered corporation (or person treated as a covered corporation) must keep complete and detailed records that are sufficient to establish accurately the amount of repurchases, adjustments, or exceptions required to be shown in any stock repurchase excise tax return.

Furthermore, 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 by notice served, to enable the IRS to determine whether or not such corporation or person is liable for tax (including such RICs or REITs as such records may be relevant in the event that the covered corporations cease to qualify as a RIC or REIT).

Tax return preparers

Any person signing a stock repurchase excise tax return is required to include a written declaration that the return is made under penalties of perjury when required by the return or the forms or their corresponding instructions.