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As is the case with respect to stock repurchases, the notice
provides that stock generally will be treated as issued or provided
by the covered corporation when ownership of the stock transfers
for US federal income tax purposes.

(A) (including by reason of Sec. 368(a) a controlled corporation by a distribut- consideration actually paid for the stock.
(2)(D), (E), or (C), or Sec. 368(a)(1) ing corporation that qualify under Sec. Where the repurchased stock is traded
(D) (but the latter only if the condi- 355 but are not a split-off (e.g., pro rata on an established securities market, the
tions in Sec. 354(b)(1) are met) (which spin-offs — see the notice, Section 3.09, covered corporation is required to apply
are treated as repurchases by the target Examples 13 and 14). one of the four following “acceptable
corporation of its stock from the target methods” for determining the market
corporation shareholders in exchange for Timing and FMV price for the date the stock is repur-
the reorganization consideration); (2) Pursuant to Notice 2023-3, stock gener- chased: (1) the daily volume-weighted
“recapitalizations” under Sec. 368(a)(1) ally is treated as repurchased when its average price; (2) the closing price; (3)
(E); (3) “F reorganizations” under Sec. ownership transfers for U.S. federal the average of the high and low prices;
368(a)(1)(F); (4) distributions qualifying income tax purposes to the covered or (4) the trading price. If the date of
under Sec. 355 (whether or not part of a corporation or the relevant specified af- repurchase is not a trading day, then
reorganization under Sec. 368(a)(1)(D)) filiate. See, for example, the notice, Sec- the covered corporation must apply the
in which shareholders of the distributing tion 3.09, Example 15 — an accelerated selected method to the immediately
corporation exchange distributing cor- share repurchase agreement between a preceding trading day. Covered corpora-
poration stock for stock in a controlled covered corporation and an investment tions are required to consistently use
corporation (including money and other bank involved two repurchases, (1) one a selected method for all repurchases
property) (i.e., “split-offs”); and (5) a repurchase where, upon entering into during the tax year (but apparently may
liquidation to which both Sec. 332 and the agreement, the investment bank chose a different method for another tax
Sec. 331 apply (in general, a liquidation borrowed covered corporation shares on year).
with an 80%-plus corporate shareholder the open market and delivered the shares If the repurchased stock is not traded
and minority shareholders). to the covered corporation in exchange on an established securities market, the
As discussed below with respect to for a cash payment; and (2) a second market price is required to be deter-
the statutory exclusion relating to Sec. repurchase where, upon final settlement mined under the principles of Regs. Sec.
368(a) reorganizations, the broad defini- of the agreement, the investment bank 1.409A-1(b)(5)(iv)(B)(1). The provision
tion of “repurchase” pursuant to the delivered additional covered corporation generally provides that the FMV of
foregoing economically similar transac- stock to the covered corporation. stock may be determined using a reason-
tions is mitigated to some extent by The timing for a transfer of owner- able application of a reasonable valua-
effectively allowing covered corporations ship for U.S. federal income tax purposes tion method.
to offset repurchases where the consid- may not be clear, as in the case of open-
eration received by covered corporation market purchases where the trade and Statutory exceptions
shareholders is property that can qualify settlement dates may occur several days As indicated above, the stock repurchase
for nonrecognition treatment. apart. For economically similar transac- excise tax base is first reduced by the
The following is a nonexclusive list tions, stock is treated as repurchased amount of any repurchases that qualify
of transactions that are not economically when the shareholders of the covered for one of several statutory exceptions.
similar transactions under the notice: (1) corporation exchange their covered One statutory exception relates to
complete liquidations where only Sec. corporation stock (e.g., for an acquisitive repurchases relating to Sec. 368(a) reor-
332 or only Sec. 331 applies (see the reorganization, the effective date of a ganizations (Sec. 4501(e)(1)). Under this
notice, Section 3.09, Example 16 — in merger). exception, stock is not treated as repur-
addition, where Sec. 331 applies, with In addition, under the notice, the chased to the extent that the repurchase
respect to any distributions that occur FMV of the repurchased stock is the is part of a Sec. 368(a) reorganization
in the liquidating corporation’s final tax “market price” of the stock on the date and no gain or loss is recognized on the
year); and (2) distributions of stock of of the repurchase, regardless of the repurchase by the shareholder by reason

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