The Inflation Reduction Act of 2022 imposes a new 1% excise tax on stock repurchases by public companies. Although publicized as a means to discourage run-of-the-mill buybacks, the tax extends broadly to other situations including some standard M&A transactions, corporate split-offs, redemptions in “de-SPAC” transactions, and routine preferred stock retirements and redemptions. A provision in the tax for netting new issuances against repurchases can operate in unexpected ways. Public issuers should analyze the potential application of this tax to any transaction involving the purchase, exchange, or transfer of their stock and the impact of the January 1, 2023 effective date.
