The IRS recently issued final regulations (T.D. 10037) regarding the application of the 1% excise tax on stock repurchases by publicly traded corporations under Sec. 4501.
Introduced by the Inflation Reduction Act of 2022, the tax is based on the fair market value (FMV) of a corporation’s stock that certain corporations repurchase during a tax year.
Notably, the final regulations eliminate the “funding rule,” where a U.S. subsidiary could have been treated as repurchasing stock of a foreign corporation if it helped its foreign parent finance a purchase. A proposal that would have disregarded certain reorganization and distribution transactions for purposes of the netting rule under Sec. 4501(c)(3) has also been eliminated.
Additionally, the final regulations include an exception for “take-private transactions” and leveraged buyouts and liquidations under Secs. 331 and 332. They also include an exception for repurchases of preferred stock.
The final regulations became effective on Nov. 24, 2025.
