Treasury Department Finalizes 1% Corporate Stock Buyback Tax Reporting Rules
In Short
The Background: The U.S. Treasury Department ("Treasury") issued regulations finalizing the reporting requirements on the 1% corporate stock buyback tax and starting the clock on the tax's first filing and payment deadline.
The Situation: The deadline for the first filing and payment of the 1% corporate stock buyback tax is October 31, 2024.
The Details: The October 31, 2024, date will be the first deadline for calendar-year tax return filers with regard to their stock repurchases occurring during the 2023 calendar year, and for fiscal-year tax return filers with regard to their stock repurchases, occurring after December 31, 2022, during all fiscal years ending after December 31, 2022, and before July 1, 2024.
On June 28, 2024, Treasury issued regulations (the "final procedural regulations") finalizing proposed rules regarding the reporting and payment of the non-deductible 1% excise tax, enacted on August 16, 2022 (as Section 4501 of the Internal Revenue Code) (the "Stock Buyback Tax"). The Stock Buyback Tax generally applies to stock repurchases occurring after December 31, 2022, by domestic corporations and certain foreign corporations whose stock is traded on an established securities market (including any national, regional, local, or foreign stock exchange, as well as any interdealer quotation system) ("traded corporations").
On April 9, 2024, Treasury issued two sets of proposed regulations relating to the Stock Buyback Tax (read our prior coverage of the proposed regulations, "New Guidance from the Treasury Department on 1% Corporate Stock Buyback Tax"). The first set addressed the scope and calculation of the tax (the "proposed computational regulations"). The second addressed the tax's reporting and payment requirements (the "proposed procedural regulations"). These final procedural regulations finalize only the proposed procedural regulations and largely follow the proposed procedural regulations with certain minor modifications.
The key reporting and payment requirements under these final procedural regulations are:
- General Reporting. All traded corporations, except real estate investment trusts ("REITs") and regulated investment companies ("RICs"), that engage in a stock repurchase during a taxable year, whether or not resulting in a Stock Buyback Tax liability, are required to file a Stock Buyback Tax return for that taxable year. The tax is reported annually on the IRS Form 720 (Quarterly Federal Excise Tax Return) that is due for the first full calendar quarter after the end of the traded corporation's taxable year. Thus, for example, the due date for a calendar-year traded corporation to report its 2024 excise tax would be April 30, 2025 (for a fiscal-year traded corporation having a tax year end of January 31, 2025, the due date would be July 31, 2025). A new form, IRS Form 7208 (Excise Tax on Repurchase of Corporate Stock), requiring information specific to the Stock Buyback Tax, must be attached to the IRS Form 720.
- Transition Period Reporting. Under the proposed procedural regulations, the deadline for reporting and paying the Stock Buyback Tax was deferred until promulgation of these final procedural regulations. Thus, under the final procedural regulations, the deadline for reporting, and paying, the Stock Buyback Tax for taxable years ending after December 31, 2022, and on or before June 28, 2024 (the "transition period"), is October 31, 2024. If a fiscal-year traded corporation has more than one taxable year ending during the transition period, the traded corporation should file a single IRS Form 720 with two separate Forms 7208 attached.
- Payment. Payment of the Stock Buyback Tax is due by the filing deadline, and no extensions for reporting or paying the tax are permitted.
- Recordkeeping. All traded corporations subject to the reporting requirements, above, as well as REITs and RICs, are required to keep complete and detailed records of all repurchases in a manner that supports the accuracy of any potential Stock Buyback Tax return.
Treasury's issuance of the final procedural regulations, in the absence of final computational regulations, will likely complicate traded corporations' Stock Buyback Tax reporting to the extent that final computational regulations are not issued before the filing deadline, October 31, 2024. The rules included in the proposed computational regulations will not be binding on traded corporations filing their Stock Buyback Tax returns for the transition period to the extent there are differences between those proposed regulations and eventual final regulations.
Treasury has been receiving substantial comments on the proposed computational regulations, and these comments will likely result in the final computational regulations differing at least somewhat from the proposed computational regulations. As a result, assuming final computational regulations are not issued before October 31, 2024, traded corporations will have filed their excise tax returns based on inaccurate rules that could, in some circumstances, result in significant overpayment of Stock Buyback Tax liability.
Three Key Takeaways
- The first excise tax returns for the Stock Buyback Tax will be due on October 31, 2024, with the first payments of the tax due when those returns are filed.
- The reporting and payment of the Stock Buyback Tax may be based on a set of proposed computational regulations, unless issued as final regulations before October 31, 2024.
- Even if a traded corporation's stock issuances equal or exceed its repurchases such that it has no net repurchases during a taxable year, that corporation must nonetheless report those repurchases in its annual Stock Buyback Tax filing.
