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Our recent Client Alert discusses the long-awaited proposed regulations under Section 4051 relating to the one percent stock buyback excise tax, which were issued by the U.S. Department of Treasury and the Internal Revenue Service on April 9, 2024. The excise tax was enacted as part of the “Inflation Reduction Act” and originally signed into law on August 16, 2022. The excise tax generally applies to stock repurchases and “economically similar” transactions undertaken by publicly traded U.S. corporations and certain foreign corporations on or after January 1, 2023. The newly published proposed regulations may generally be relied upon by taxpayers until the regulations are finalized. The proposed regulations address a variety of matters relating to M&A and restructuring transactions, capital markets transactions, and compensatory transactions such as net share settlements and “sell to cover” transactions.

With certain exceptions, the proposed regulations are generally applicable to repurchases of stock occurring after December 31, 2022, and during taxable years ending after December 31, 2022, and to issuances of stock occurring during taxable years ending after December 31, 2022. The proposed regulations are also subject to a public review and comment period before they will be finalized and made effective.