In the final week of June, the Internal Revenue Service (IRS) released provisional guidance about the newly introduced 1% excise tax on corporate share buybacks, a component of the previous year's Inflation Reduction Act.
As per Announcement 2023-18, the IRS has clarified that taxpayers are not obligated to report the newly imposed excise tax as outlined in section 4501 of the Tax Code for repurchases of corporate shares within the taxable year of a covered corporation. These taxes will not be required on any returns submitted to the IRS, nor are any payments necessary before a specific timeframe specified in impending regulations.
Furthermore, the IRS confirmed that there will be no additional tax as per section 6651(a) of the Internal Revenue Code (or any other part of the Tax Code) for neglecting to file a return reporting the excise tax on stock buybacks or for not paying the same, before the time stated in the forthcoming regulations.
The forthcoming regulations from the IRS and the Treasury Department will mandate that covered corporations maintain comprehensive and meticulous records to precisely calculate any amount of stock buybacks (including those executed after December 31, 2022, but before the publication of the regulations) and to retain these records as long as their content may be relevant.
The excise tax on stock buybacks applies to repurchases made post-December 31, 2022, and is designed to discourage corporations from boosting their stock prices through share repurchases. On January 17 of the current year, the Treasury and the IRS issued Notice 2023-2, offering initial guidance on enforcing the stock repurchase excise tax. The notice informed that the Treasury and the IRS plan to issue subsequent regulations concerning the application of this tax. The notice also elucidated specific rules for computing the amount of the stock repurchase excise tax that will be incorporated in future regulations. It confirmed that taxpayers could adhere to these rules until the upcoming regulations are published.
For corporate taxpayers whose tax year ends after December 31, 2022, but before the publication of the upcoming regulations, it is anticipated that the regulations will state that any liability for the excise tax on stock buybacks for such taxable year should be reported on Form 720. This report should be filed within the first full quarter following the publication date of the forthcoming regulations. Concurrently, the deadline for the payment of the excise tax will coincide with the filing deadline.
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