IRS Clarifies Stock Repurchase Excise Tax Obligations Pending Publication of Regulations

Taxpayers will not be required to report or pay the new excise tax on corporate stock repurchases before the time specified in forthcoming regulations, according to IRS Announcement 2023-18 released on June 29.

The new corporate excise tax on stock repurchases under Section 4501, enacted last year by the Inflation Reduction Act, applies to stock repurchases after December 31, 2022. Notice 2023-2, published in January 2023, provides interim guidance concerning the excise tax and addresses certain time-sensitive issues pending publication of more comprehensive regulations.

Among other matters, Notice 2023-2 states that the IRS anticipates that the forthcoming regulations will specify that corporations will report the stock repurchase excise tax once per tax year on the Form 720, Quarterly Federal Excise Tax Return, that is due for the first full quarter after the close of the taxpayer’s tax year. The interim guidance further noted that the payment deadline would be the same as the reporting deadline and no extensions would be permitted for either.

The new IRS announcement addresses circumstances where the anticipated deadline for reporting and paying the excise tax for a tax year ending after December 31, 2022, may arise before the IRS has published regulations on the excise tax. As transitional guidance, the announcement provides that taxpayers will not be required to report or pay the new excise tax on corporate stock repurchases before the time specified in forthcoming regulations. The announcement clarifies that the IRS expects to provide in forthcoming regulations that corporations in these circumstances will report and pay the excise tax with the Form 720 that is due for the first full quarter after the date of publication of the forthcoming regulations.

The announcement further specifies that the forthcoming regulations will provide that:

• There will be no addition to tax under Section 6651(a) (or any other provision of the Code) for failing to report or pay the tax before the deadline specified in the forthcoming regulations.
• Corporations must keep complete and detailed records to establish accurately any amount of stock repurchases – including those made after December 31, 2022, but before the forthcoming regulations are published.

Observations

Announcement 2023-18 provides a deferral of the reporting obligations for corporate repurchases of stock occurring after December 31, 2022, in instances where the reporting obligation would otherwise occur prior to publication of regulations addressing the stock repurchase excise tax and the corresponding reporting requirements. Because reporting for calendar-year taxpayers is not currently required until April 30, 2024, the deferral provided by the announcement will likely primarily benefit fiscal-year taxpayers.