June 29, 2023
IRS effectively extends due date for certain taxpayers for returns and payment of stock repurchase excise tax
In Announcement 2023-18, the IRS confirmed that taxpayers are not required to report or pay the IRC Section 4501 excise tax on stock buybacks on any tax return filed before regulations are published.
The Inflation Reduction Act enacted a 1% excise tax on repurchases of certain corporate stock by covered corporations under IRC Section 4501, applicable to repurchases made after December 31, 2022. In January 2023, the IRS published Notice 2023-2 with interim guidance on the excise tax, describing certain rules that the Treasury Department and IRS intend to include in the forthcoming regulations while also permitting taxpayers to rely on these rules until those regulations are issued (see Tax Alert 2023-0054).
Announcement 2023-18 specified that taxpayers with a tax year ending after December 31, 2022, but before the regulations are published, will be required to report the stock repurchase excise tax on the Form 720 quarterly excise tax return that is due for the first full quarter after the date the regulations are published and pay the excise tax at that time. There will not be any additional tax under IRC Section 6651(a) (or any other Code section) for failure to file a return or pay the associated tax before the time specified in the regulations.
Additionally, covered corporations will be required to keep "complete and detailed records to establish accurately any amount of stock repurchase" for any repurchases made after December 31, 2022, and must retain these records as long as their contents may become material.
Certain fiscal-year taxpayers that have engaged in stock repurchases in 2023 will likely welcome Announcement 2023-18 because it effectively provides an extension for filing and paying the stock repurchase excise tax. That is, for those taxpayers that have engaged in repurchases under IRC Section 4501 and whose relevant tax year has closed or is closing soon (e.g., a fiscal-year taxpayer whose tax year closed March 31, 2023), the Announcement effectively replaces a return-filing and tax-payment deadline based upon the close of the tax year, as originally set forth in Notice 2023-2, with a yet-to-be-determined filing date that will be announced in "forthcoming regulations." Moreover, taxpayers will also welcome the statement that no penalties will be asserted for failure to file a return or pay the associated tax before the time specified in forthcoming regulations.
It is not clear from the Announcement whether the reference to "forthcoming regulations" means proposed or final regulations and when the filing date will be announced. Given this uncertainty, it may be prudent for taxpayers to maintain appropriate books and records to make certain they can comply with a filing obligation that may not arise until some unspecified later date.
Finally, while the group of taxpayers that might currently benefit from the effective extension is limited to a relatively contained group of fiscal-year taxpayers, the more time that elapses until the date prescribed in forthcoming regulations, the larger the group of affected taxpayers will become.
Published by NTD’s Tax Technical Knowledge Services group; Andrea Ben-Yosef, legal editor