Tax Update Blog

IRS issues stock buyback tax guidance.

December 27, 2022 | Blog
By Joe Kristan, CPA

The IRS has issued preliminary rules for the stock buyback tax that takes effect in 2023. New Sec. 4501 applies a 1% excise tax to stock redemptions by "covered corporations," defined generally as publicly-traded corporations.

The 52-page notice (Notice 2023-02, courtesy Tax Notes) provides examples covering a number of issues, including

- redemption of non-traded preferred stock of public companies.

- operation of the rule reducing the tax when the redeeming corporation issues new stock in the same year.

- implications of the buyout tax on mergers, acquisitions, spin-offs.

-  the impact of stock options, including "net" exercise of options.

The tax will be paid on Form 720, the federal excise tax return, once each year. 

Related coverage in Tax Notes: Interim Guidance Issued for Stock Buyback Tax.

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