The revised version of the Inflation Reduction Act (IRA) of 2022 (H.R. 5376) that was approved by the Senate on August 7, 2022, includes an excise tax that would impose a 1% surcharge on corporate stock buybacks. The bill is expected to be considered by the House of Representatives by the end of the week.

The stock buyback excise tax does not include significant substantive changes compared to the House-passed Build Back Better Act (see Tax Alert 2021-2033). However, the effective date has been changed to apply to repurchases of stock after December 31, 2022.

The provision would add a new IRC Section 4501, which would impose a 1% excise tax on publicly traded US corporations for the value of any of its stock that is repurchased by the corporation during the tax year.

Implications

The legislative text of proposed new IRC Section 4501 in the Inflation Reduction Act is substantially the same as what was included in earlier versions of the Build Back Better Act. However, its passage as part of the Inflation Reduction Act of 2022 now seems more likely. Accordingly, publicly traded corporations with stock repurchase programs should consider its potential application after December 31, 2022. In the absence of any further guidance regarding congressional intent or Treasury views, questions remain regarding the scope of transactions to which the new excise tax provision would apply, including certain divisive transactions under IRC Section 355, acquisitive reorganizations under IRC Section 368 with boot and "take private" transactions funded with the public target's debt.

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