One of the headline tax changes in the Inflation Reduction Act of 2022, Public Law 117-169, is a 1% excise tax on stock repurchases by public companies. New Section 4501 of the Internal Revenue Code applies a non-deductible 1% excise tax to the fair market value of net stock repurchases by certain publicly traded corporations that take place after December 31, 2022. As we described in our previous client alert, Surprises and Questions Around the New Stock Buyback Tax, after the new law’s enactment, there were many questions regarding the application of the excise tax to certain common transactions, such as tax-free reorganizations and liquidations. In late December, the Treasury Department issued Notice 2023-2, which addresses some of these questions, but others remain unanswered.
In general, the Notice takes a technical approach to interpretation of the statute and does not interpret the statute by applying the principles underlying the purpose of the excise tax. As a result, the Notice makes clear that the excise tax under Section 4501 is not limited to traditional stock buybacks by public companies. Our alert summarizes significant points addressed in the Notice that we think will be of particular interest to our clients. Our tax specialists are available to evaluate and to advise on the potential application of this tax to any transaction involving the purchase, exchange or transfer of public company stock.
