Tax insight

Treasury issues final regulations on stock repurchase excise tax

Insight
5 minute read
November 21, 2025

What happened?

Treasury and the IRS today released final regulations under Section 4501 (final regulations) regarding the stock repurchase excise tax (the excise tax), which was enacted as part of the Inflation Reduction Act of 2022. The final regulations remove or scale back many provisions that were included in the proposed regulations issued in 2024 (the proposed regulations) and that many practitioners and taxpayers had viewed as unduly burdensome or as giving the stock repurchase excise tax a broader reach than intended.

The final regulations revise the government’s position with respect to several categories of transactions that had previously been treated as stock repurchases subject to the excise tax. Notably, the final regulations make the following changes to the proposed regulations:

Eliminate the funding rule previously included in the proposed regulations that potentially subjected US subsidiaries of foreign-parented multinationals to the excise tax if they funded their foreign affiliates with a principal purpose of funding a repurchase or avoiding the excise tax.
Exclude acquisitive reorganizations, leveraged buyouts, other “take-private” transactions, and all liquidations from the excise tax.
Exclude the repurchase of preferred stock that is described in Section 1504(a)(4) from the treatment as a repurchase of stock. In addition, an exclusion was added for mandatorily redeemable stock issued prior to August 16, 2022.
Expand the ability for domestic covered corporations to treat stock settled under an equity compensation award to a nonemployee service provider of a specified affiliate as an issuance for purposes of the netting rule, which the proposed regulations had prohibited.

Why is it relevant?

Many foreign-parented multinationals were concerned that the broad language of the funding rule created uncertainty as to whether various ordinary course of business transactions with their US affiliates could result in the potential application of the excise tax. In addition, many US companies were concerned that the application of the excise tax to acquisitive reorganizations and leveraged buyouts could increase the cost associated with various M&A deals. The elimination of these provisions in the final regulations alleviates these concerns.

Actions to consider

The final regulations generally apply to (i) repurchases of stock of a covered corporation occurring after December 31, 2022, and (ii) issuances and provisions of stock of a covered corporation occurring during taxable years ending after December 31, 2022. Clients that previously filed Form 7208, Excise Tax on Repurchase of Corporate Stock, with their Form 720 reporting a liability based on a type of transaction that is now exempt under the final regulations should consider filing Form 720-X to amend their Form 720 and attach a corrected Form 7208 (identifying it as “Amended”).