Final procedural regs on stock repurchase excise tax

On July 3, 2024, the U.S. Department of the Treasury and the IRS published final procedural regulations under Section 4501, providing guidance on how to report and pay the 1% excise tax on repurchases of corporate stock. The stock repurchase excise tax primarily affects U.S. publicly traded corporations but also can affect U.S. entities with publicly traded foreign parent corporations.

The initial reporting and payment due date for the stock repurchase excise tax for certain taxpayers is Oct. 31, 2024. However, proposed regulations addressing applicability and computation of the excise tax issued on April 12, 2024, have not yet been finalized.

Crowe observation

Without final regulations on the operational rules under Section 4501, companies lack certainty regarding how to determine whether they are subject to the excise tax, which transactions are subject to the excise tax, and how the excise tax is computed.

Final procedural regulations

The final procedural regulations generally adopt the procedural rules set forth in the proposed regulations. Under those rules, the stock repurchase excise tax is reported on Form 720, “Quarterly Federal Excise Tax Return,” due for the first full quarter after the end of the corporation’s taxable year, with Form 7208, “Excise Tax on Repurchase of Corporate Stock,” attached. The final procedural regulations generally are effective for returns and claims for refund that show the stock repurchase excise tax required to be filed after June 28, 2024, the date the final regulations were filed with the Federal Register.

Crowe observation

If the effective date contained in the proposed procedural regulations (returns and claims for refund that show the excise tax that are required to be filed after the date final regulations are published in the Federal Register) was adopted in the final procedural regulations, the initial reporting date would have been Jan. 31, 2025. By changing the effective date to the date the final regulations were filed with the Federal Register, rather than the date they were published in the Federal Register, the final procedural regulations accelerate the initial reporting and filing due date by three months.

The final regulations also exempt real estate investment trusts (REITs) and regulated investment companies (RICs) from return filing (but not recordkeeping) obligations and clarify that a stock repurchase excise tax return is required only for tax years in which a qualifying repurchase is made.

Initial reporting and payment due date

The stock repurchase excise tax is applicable to transactions completed in tax years ending after Dec. 31, 2022. Though reporting and payment of the tax was delayed, reporting and payment still are due for applicable transactions occurring after the statute’s effective date.

Final regulations set an initial deadline of Oct. 31, 2024, for reporting and paying excise tax applicable to transactions completed in tax years ending after Dec. 31, 2022, and on or before June 28, 2024 (the date the final procedural regulations were filed with the Federal Register). Specific filing requirements and timing will vary depending on the covered corporation’s tax year end.

The following examples illustrate how these rules might apply depending on a taxpayer’s year end:

• A covered corporation with a calendar tax year ending Dec. 31, 2023, is required to file a single Form 720 and Form 7208 for the 2023 taxable year due on Oct. 31, 2024. Filings for the subsequent tax year ending Dec. 31, 2024, are due April 30, 2025.
• A covered corporation with a March 31 year end is required to file a single Form 720 but include two Forms 7208 with the Form 720, one for the tax year ended March 31, 2023, and another for the tax year ended March 31, 2024. The Form 720 and both Forms 7208 are due on Oct. 31, 2024. Filings for the subsequent tax year ending March 31, 2025, are due July 31, 2025.
• A covered corporation with a June 30 year end is required to file a Form 720 and a single Form 7208 for the tax year ended June 30, 2023, and a separate Form 720 and Form 7208 for the tax year ended June 30, 2024. The Forms 720 and 7208 for the tax years ended June 30, 2023, and June 30, 2024, are due on Oct. 31, 2024. Filings for the subsequent tax year ending June 30, 2025, are due Oct. 31, 2025.

In addition to Forms 720 and 7208 filing obligations, the final procedural regulations retain the strict recordkeeping requirements included in proposed regulations. Pursuant to final regulations, taxpayers are required to maintain complete and detailed records sufficient to accurately establish the amount of repurchases, exceptions, or adjustments required to be shown on their stock repurchase excise tax return.

Looking ahead

The stock repurchase excise tax rules are drafted broadly with limited exceptions. Consequently, excise tax liability may be triggered in the context of merger and acquisition transactions as well as in transactions that would not conventionally be viewed as stock repurchases.

Publicly traded corporations and others treated as covered by these rules (such as specified U.S. affiliates of foreign publicly traded corporations) should review activity during tax years ending after Dec. 31, 2022, for potential stock repurchase excise tax exposure and prepare for Oct. 31, 2024, filing and payment obligations, if applicable. Because operational rules for the stock repurchase excise tax have not been issued, taxpayers should consult with their tax adviser to evaluate whether they have a reporting and payment obligation that is due by Oct. 31, 2024.