The American Institute of CPAs (AICPA) has submitted comments to the Department of the Treasury and the Internal Revenue Service (IRS) on the excise tax on repurchase of corporate stock proposed regulations, which address the application of the new excise tax on repurchases of corporate stock under section 4501.
Section 4501(a) was enacted as part of the Inflation Reduction Act of 2022 and provides that a covered corporation is subject to “a tax equal to 1 percent of the fair market value of any stock of the corporation which is repurchased by such corporation during the taxable year.” In an expansion of the section 4501 statute, Notice 2023-2 included a “funding rule” that would subject an applicable specified affiliate to the excise tax to the extent it “funded” an acquisition of the stock of that foreign parent.
Concerns with Proposed Regulations
The submitted comment letter addresses the concerns associated with the Proposed Reg. Per Se Rule, requesting its revocation and asking to clarify and limit the application of the Proposed Reg. Funding Rule solely to fundings that were made to avoid the application of section 4501(d). As drafted, the proposed regulations may also pull in entities that provide funding to relevant parties as part of their ordinary course of business but still be a covered funding.
The letter further discusses and highlights the issues with the current drafting of the “principal purpose” test, emphasizing the need to consider “all facts and circumstances” in determining whether a transaction’s principal purpose is to avoid the excise tax. and determining whether a transaction has a principal purpose of avoiding the Excise Tax with the need to consider “all facts and circumstances.”
