April 18, 2024
Stock Repurchase Excise Tax: Treasury and IRS Announce Proposed Regulations
Shortly after the Inflation Reduction Act was signed into law, a number of tricky interpretive issues regarding the stock repurchase excise tax were identified, and the IRS published temporary interim guidance in Notice 2023-2. John blogged about the application of that interim guidance to SPACs in early 2023. Earlier this month, the Treasury Department and IRS jointly announced proposed regulations with new guidance on the excise tax.
This Greenberg Traurig alert notes that the regulations, if adopted as proposed, would generally follow the approach in the interim guidance, with some modifications and clarifications. The memo summarizes the application of the proposed rules to SPACs as follows:
– The Treasury Department and IRS decided it was neither necessary nor appropriate to adopt special rules for SPACs in the Proposed Regulations. Thus, SPACs are generally subject to the rules of the Proposed Regulations in the same manner as other taxpayers.
– The Proposed Regulations do not provide transition relief from the stock repurchase excise tax for payments in connection with merger and acquisition (M&A) transactions pursuant to a binding commitment entered into prior to the enactment date of the tax. Similarly, no transition relief is provided for redemptions by SPACs formed prior to the enactment date.
– The Proposed Regulations do not provide an exception for redemptions of stock subject to a mandatory redemption provision or unilateral put option, which is a type of stock commonly issued by SPACs.
– The Proposed Regulations do not expand the netting rule to apply to de-SPAC transactions in which the SPAC is not the acquiring corporation, such as “double dummy” transactions.
– SPACs generally will not be required to pay stock repurchase excise taxes in respect of 2023 repurchases until after the final regulations are published.
For a discussion of the application of the proposed regulations more broadly to other M&A/restructuring, capital markets, and compensatory transactions, see this memo from Wilson Sonsini. We’re posting related resources in our “Tax” Practice Area.
– Meredith Ervine