DealLawyers.com Blog

We’ve previously blogged about some of the complications that the 1% stock buyback excise tax imposed by the Inflation Reduction Act and the proposed regulations implementing that tax create for some M&A transactions.  Fortunately, the Treasury Dept’s recently promulgated final regs provide relief from excise tax liability for take privates, LBOs, & tax-free reorgs. This excerpt from Debevoise’s memo on the regs explains:

– The Final Regulations exempt take-private and leveraged buyouts from the Buyback Tax if the transaction results in the public company ceasing to be publicly traded.

Comment: The application of the Buyback Tax to leveraged buyouts may have increased the tax cost of borrowings by target corporations in take-private transactions if acquisition debt was incurred by the target corporation. This exemption will help acquirors optimize a formerly public target’s state tax profile and avoid special structuring.

– For tax-free acquisitive reorganizations, the Final Regulations allow taxpayers to receive cash boot without triggering the Buyback Tax. Upstream reorganizations or liquidations of subsidiaries with minority public stock are similarly no longer subject to the Buyback Tax.

Comment: Cash boot received in split-off transactions is still subject to the Buyback Tax. Cash boot received in a spin-off transaction may avoid the Buyback Tax if the boot is treated as a dividend.

The memo says that a company that’s paid the excise tax on a transaction that’s exempt under the final regs may receive a refund by filing an amended quarterly return after the November 24, 2025 effective date of the regulations.

– John Jenkins