CLS Blue Sky Blog

Kirkland Discusses Proposed Regulations for Excise Tax on Share Repurchases

On April 12, 2024, the U.S. Department of Treasury and the Internal Revenue Service published proposed regulations regarding the 1% excise tax on certain stock redemptions and economically similar transactions (corporate “repurchases”) by publicly traded U.S. corporations (“Covered Corporations”) on or after January 1, 2023, described in Section 4501 of the Internal Revenue Code (the “Excise Tax”). The proposed regulations effectively replace Treasury’s and the IRS’s prior guidance in Notice 2023-2 (the “Notice”) and may generally be relied upon by taxpayers until the regulations are finalized. Treasury and the IRS have requested comments on the proposed regulations.

The proposed regulations reflect Treasury’s and the IRS’s consideration of comments and criticisms received with respect to the Excise Tax and prior guidance, including in response to the Notice. The proposed regulations narrow the scope of the widely criticized “per se” funding rule for repurchases and acquisitions of a publicly traded foreign corporation’s stock funded by a U.S. subsidiary, but otherwise largely follow the framework set forth in the Notice. For a summary of certain key areas of guidance set forth in the Notice, see our January 5, 2023, Alert“Treasury and IRS Issue Guidance on Excise Tax on Share Repurchases by Publicly Traded Corporations.”

Some noteworthy aspects of the proposed regulations include:

This post comes to us from Kirkland & Ellis LLP. It is based on the firm’s memorandum, “Treasury and IRS Issue Proposed Regulations on Excise Tax on Share Repurchases by Publicly Traded Corporations,” dated April 17,  2024, and available here. 

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