WOLF & CO Alerts Excise Tax on Repurchase of Corporate Stock

Excise Tax on Repurchase of Corporate Stock

On August 16, President Biden signed the Inflation Reduction Act into law. Among other provisions, it imposes a 1% excise tax on the fair market value of stock repurchased by a publicly traded U.S. corporation during the taxable year. The taxable amount is reduced by the fair market value of stock issued during the taxable year, and the tax is nondeductible.

This excise tax includes the acquisition of corporate stock by an affiliated corporation that is more than 50% owned by that corporation. There are also special rules for the acquisition of stock of certain foreign corporations.

The excise tax will not apply to:

  1. Repurchases as part of a reorganization, with no gain or loss recognized by the shareholder.
  2. Cases where the stock repurchased is contributed to an employer-sponsored retirement plan, ESOP, or similar plan.
  3. Cases where the total value of stock repurchased during the year does not exceed $1,000,000.
  4. Cases where the repurchase is by a dealer of securities in the ordinary course of business.
  5. Repurchases by a RIC or REIT.
  6. Repurchases treated as dividends.

Treasury will issue regulations and other guidance necessary to carry out the purpose of the excise tax.

The excise tax will apply to repurchases of stock after December 31, 2022.

If you have any questions, please reach out to your Wolf tax professional or Mike Rowe at [email protected] or at 617-428-5437.