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other guidance as are necessary or ap- expands this statutory rule, whereby the
Corporations & Shareholders propriate to carry out, and to prevent excise tax can apply where the U.S. af-
the avoidance of, the purposes of this filiate does not acquire, but is treated as
New stock repurchase section, including regulations and other funding the acquisition of, stock of the
excise tax guidance (1) to prevent the abuse of the publicly traded foreign corporation, and
The Inflation Reduction Act, P.L. exceptions provided by Sec. 4501(e); (2) the principal purpose of such funding
117-169, was signed into law on Aug. to address special classes of stock and is to avoid the excise tax (including a
16, 2022. The act included a new Sec. preferred stock; and (3) for the applica- “per se rule,” where a principal purpose
4501 that imposes an excise tax on tion of the rules with respect to foreign is deemed to exist if stock acquisitions
certain repurchases of stock by publicly corporations under Sec. 4501(d). occur within two years of certain fund-
traded corporations. ings). In addition, except as described
In general, and before considering Notice 2023-2 here, compensation-related aspects of
exceptions, the amount of the excise tax On Dec. 27, 2022, Treasury and the the excise tax are beyond the scope of
is equal to 1% of (1) the aggregate fair IRS released Notice 2023-2, which this item.
market value (FMV) of stock repur- announced that they intend to issue
chased by a corporation, over (2) the proposed regulations with respect to the Corporations subject to
aggregate FMV of stock issued by the excise tax. The notice provides interim the excise tax
corporation, in each case, during the tax guidance that Treasury and the Ser- The excise tax applies to a “covered cor-
year. The excise tax applies to repurchas- vice generally intend to include in the poration” that repurchases its stock (Sec.
es of stock by corporations beginning proposed regulations, including several 4501(a)). A covered corporation means
after Dec. 31, 2022. The excise tax is not examples that illustrate the applica- any domestic corporation the stock
deductible for purposes of computing tion of the rules set forth in the notice. of which is traded on an “established
U.S. federal income tax (Sec. 275(a)(6)). Treasury and the IRS anticipate that securities market” within the meaning of
The Inflation Reduction Act did the proposed regulations will be consis- Sec. 7704(b)(1) (Sec. 4501(b)). Notice
not include any legislative history that tent with the guidance provided in the 2023-2 defines the term “established
describes the underlying policy for the notice. In addition, until the issuance of securities market” by reference to
excise tax. Based on prior draft legisla- the proposed regulations, taxpayers are Regs. Sec. 1.7704-1(b), which includes,
tion proposing an identical excise tax, permitted to rely on the operating rules among other things, (1) a national
the apparent policy is to disincentivize set forth in Section 3 of the notice. The securities exchange that is registered
publicly traded corporations from using proposed regulations are anticipated to under the Securities Exchange Act of
available cash to repurchase stock (in- apply to repurchases of stock made after 1934 (e.g., NYSE and NASDAQ);
cluding any savings resulting from the Dec. 31, 2022, and to issuances of stock and (2) an interdealer quotation system
lowering of the U.S. federal corporate made during a tax year ending after Dec. that regularly disseminates firm buy or
income tax rate to 21%), which may 31, 2022. sell quotations by identified brokers or
increase earnings per share and benefit Contrary to the apparent underlying dealers by electronic means or otherwise
corporate executives who have stock- policy for the excise tax described above, (which could include over-the-counter
based compensation as well as other the notice contains rules that result in a (OTC) markets).
shareholders (see, e.g., Press Release broad application of the excise tax. The Although covered corporation status
for Proposed Stock Buyback Account- notice requests comments, including on requires a corporation’s class of stock
ability Act (Sept. 10, 2021); President aspects of the excise tax not discussed in to be traded on an established securi-
Biden Announces the Build Back Better the notice. Thus, the proposed regula- ties market, the notice provides that
Framework (Oct. 28, 2021) (“[I]ncludes tions could have additional rules or “stock” means any instrument issued by
a 1% surcharge on corporate stock buy- rules different from those set forth in a corporation that is treated as stock for
backs, which corporate executives too the notice. U.S. federal income tax purposes. Thus,
often use to enrich themselves rather Although the application of the ex- repurchases of nontraded classes of stock
than investing [in] workers and growing cise tax to foreign corporations is beyond of a covered corporation would be taken
their businesses”)). the scope of this item, Sec. 4501(d) gen- into account for purposes of the excise
erally provides that the excise tax applies tax (see the notice, Section 3.09, Ex-
Regulatory authority to acquisitions of stock of a publicly ample 1, where the excise tax applies to
Sec. 4501(f) provides that the IRS will traded foreign corporation by certain a redemption by a covered corporation
prescribe such Treasury regulations and U.S. affiliates. The notice significantly of mandatorily redeemable preferred

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