The Final Regulations adopt and modify rules contained in proposed Treasury regulations that were released on April 19, 2024 (the “Proposed Regulations”).3 A more detailed discussion of the Proposed Regulations can be found here.
As further detailed below, the Final Regulations significantly reduce the administrative burdens imposed on taxpayers under the Proposed Regulations. The most noteworthy changes include:
Withdrawal of the Funding Rule
The Final Regulations do not adopt the Proposed Regulations’ funding rule (the “Funding Rule”), which would have extended the Excise Tax to cases where a U.S. affiliate of a foreign-parented group funds a stock repurchase by the foreign parent (or its affiliate) with a “principal purpose” of avoiding the Excise Tax. The Funding Rule was broadly criticized by commentators given the broad definition of the term “funding” and its potential to implicate ordinary-course, non-tax motivated stock redemptions by foreign corporations with no clear U.S. nexus (including, for example, redemptions of foreign-issued AT1 by a foreign-parented bank with U.S. affiliates, which may be required for applicable bank-regulatory purposes).
Withdrawal of the Constructive Specified Affiliate Acquisition Rule
The Final Regulations do not adopt the Proposed Regulations’ rule that would have treated certain acquisitions of entities holding “hook stock” as repurchases by the covered corporation.
Definition of stock—preferred stock treatment
The Final Regulations exclude section 1504(a)(4) “plain vanilla” preferred stock from the definition of “stock” subject to the Excise Tax, given the similarity of such stock to debt.
Definition of stock—additional Tier 1 capital
The Final Regulations extend the exception to the definition of “stock” for additional tier 1 preferred stock (AT1) to instruments subject to certain U.S. prudential regimes, including specified savings and loan holding companies and Farm Credit System entities. However, the Final Regulations do not extend the exception to cover foreign-issued AT1, with the preamble explaining that such an extension should not be necessary as a result of the withdrawal of the Funding Rule. AT1 may not qualify as section 1504(a)(4) “plain vanilla” preferred stock if it is convertible into common equity.
“Take private” transactions and acquisitive reorganizations not considered economically similar transactions
Redemptions occurring as part of a transaction in which a covered corporation ceases to be a covered corporation (for example, “take privates” and acquisitive reorganizations) are not treated as repurchases or an Economically Similar Transaction (defined below). A shareholder’s exchange of its stock in a target corporation in an acquisitive reorganization pursuant to a plan of reorganization is not treated as a repurchase, allowing cash or other property to be distributed to target shareholders in an acquisitive reorganization without triggering the Excise Tax. Given this change, the Final Regulations remove the “target-sourced cash” rule applicable to acquisitive reorganizations under the Proposed Regulations.
Single entity reorganizations (section 368(a)(1)(E) (“E Reorganizations”) and (F) (“F Reorganizations”))
E Reorganizations are treated as repurchases only to the extent non-qualifying property (i.e., property the exchanging shareholder is not permitted to receive without recognizing gain or loss under section 354) is distributed in exchange for stock and the distribution is not treated as a section 301 distribution. Exchanges solely for qualifying property (i.e., property the exchanging shareholder is permitted to receive without recognizing gain or loss under section 354) are not repurchases.4 In F Reorganizations, the exchange itself is not a repurchase when only qualifying property is received; any separate redemption (e.g., cash paid in a separate section 302 transaction) is a separate transaction and therefore subject to the general Excise Tax rules.5
Divisive reorganizations (split offs)
A covered corporation’s distribution of stock of a controlled corporation in complete or partial redemption of its shares qualifying under section 355 is treated as a repurchase, subject to reduction under the reorganization exception to the extent the exchange is solely for qualifying property.6 The reorganization exception is limited solely to instances in which no gain or loss is recognized by the exchanging shareholder, consistent with the Proposed Regulations.
Removal of the “no double benefit” rule
The Final Regulations eliminate the “no double benefit” rule contained in the Proposed Regulations, which generally excluded stock issued in a reorganization from being counted under the Netting Rule (defined below). The no double benefit rule is removed because stock of a covered corporation acquired in an acquisitive reorganization is no longer considered a “repurchase” subject to section 4501 (and therefore stock issued by an acquiring covered corporation in such a transaction is not disregarded under the Netting Rule). However, the Netting Rule will disregard stock issued by (i) a controlled corporation in a section 355 distribution, (ii) the recapitalizing corporation in an E Reorganization, and (iii) the resulting corporation in an F Reorganization.
Instruments treated as stock for tax purposes
Instruments not in the legal form of stock but are treated as stock for U.S. federal income tax purposes (such as a deep-in-the-money option) are generally treated the same as stock for purposes of applying the Netting Rule (described below). A limited anti-avoidance rule applies to certain non-publicly offered instruments issued or provided to persons owning at least 10% (vote or value), where the issuer has knowledge of facts that would indicate such ownership; in those cases, issuances are disregarded unless and until repurchased, subject to identification and reporting conditions.
Dividend exception—evidentiary standard
In applying the dividend exception of section 4501(e)(6), the Final Regulations retain the rebuttable presumption rule of the Proposed Regulations, but relax the evidentiary burden by eliminating the shareholder’s actual-reporting and mandatory-certification requirements and allowing rebuttal based on the corporation’s existing information and consistent treatment, with an optional shareholder’s certification safe harbor.
Except as noted below, the Final Regulations apply to (i) repurchases occurring after December 31, 2022 and (ii) issuances and provisions of stock during taxable years ending after December 31, 2022. Certain rules that were not described in prior guidance (including Notice 2023‑2) and specific rules relating to section 4501(d) covered corporations apply only to repurchases, issuances, and provisions occurring after April 12, 2024, with taxpayers being eligible to elect early application of the relevant provisions of the Final Regulations to transactions occurring on or before April 12, 2024 and after December 31, 2022, provided that the taxpayer consistently applies such provisions of the Final Regulations.
As discussed in more detail below, taxpayers who overpaid the Excise Tax may file for a refund. Taxpayers should consider whether prior transactions—such as taxable transactions or reorganizations in which gain (but not loss) was recognized under section 356—that were reported as “repurchases” may be exempt under the Final Regulations and, if so, whether those taxpayers are entitled to a refund.
General explanation of Section 4501
Section 4501 generally imposes the Excise Tax on publicly traded domestic corporations (under section 4501(b), such corporations are referred to as “covered corporations”) in an amount equal to 1% of the fair market value of any stock of the covered corporation that is (i) “repurchased” by the covered corporation after December 31, 2022 or (ii) purchased by a “specified affiliate”7 of the covered corporation (other than a foreign corporation or a foreign partnership (unless such partnership has a domestic entity as a direct or indirect partner)) after December 31, 2022 (other than a purchase from the covered corporation or a specified affiliate of the covered corporation).
The fair market value of the stock of the covered corporation treated as repurchased by such covered corporation (or purchased by a specified affiliate of such covered corporation) during a taxable year is reduced by the fair market value of any stock issued by such covered corporation during the taxable year (such rule, the “Netting Rule”).8 Section 4501(c)(1) defines a repurchase as (1) a redemption within the meaning of section 317(b) of stock of the covered corporation, and (2) any transaction which the Treasury Secretary deems to be economically similar (an “Economically Similar Transaction”).
While the Excise Tax generally only applies to stock repurchases by publicly traded domestic corporations, it may also apply to stock repurchases by publicly traded foreign corporations in two circumstances. Under section 4501(d), the Excise Tax applies where (i) a “covered surrogate foreign corporation”9 repurchases its own stock or (ii) a specified affiliate of the covered surrogate foreign corporation purchases the stock of the covered surrogate foreign corporation. Additionally, the Excise Tax applies where the stock of an “applicable foreign corporation”10 is purchased by a specified affiliate of the applicable foreign corporation that is (i) a domestic corporation, (ii) a domestic partnership or (iii) a foreign partnership with at least one domestic entity as a direct or indirect partner.
Section 4501(e), however, contains six exceptions to the imposition of the Excise Tax:
- Reorganization exception: To the extent that the repurchase is part of a reorganization (within the meaning of section 368(a)), and no gain or loss is recognized on the repurchase by the shareholder under chapter 1 by reason of the reorganization.11
- Stock contributions to employee plans: In any case in which the stock repurchased, or an amount of stock equal to the value of the stock repurchased, is contributed to an employer‑sponsored retirement plan, employee stock ownership plan (ESOP), or similar plan.12
- De minimis exception: In any case in which the total value of the stock repurchased during the taxable year does not exceed USD1 million.13
- Dealer exception: Under regulations prescribed by the Secretary, in cases in which the repurchase is by a dealer in securities in the ordinary course of business.14
- RIC/REIT exception: In any case in which the repurchase is by a regulated investment company (RIC) or by a real estate investment trust (REIT).15
- Dividend exception: To the extent that the repurchase is treated as a dividend for purposes of the Code.16
Below, we provide more detailed comments on some of the most relevant changes made to the proposed rules by the Final Regulations.
Funding Rule
Proposed Regulations
The Proposed Regulations would have treated an “applicable specified affiliate”17 of an “applicable foreign corporation”18 as acquiring stock of the applicable foreign corporation to the extent the affiliate funded by any means a repurchase or acquisition (directly or indirectly) of the applicable foreign corporation’s stock with a principal purpose of avoiding the Excise Tax (the “Funding Rule”).19 Under the Proposed Regulations, if a principal purpose of a funding was to fund, directly or indirectly, a covered purchase, then with respect to that funding, a principal purpose of avoiding the section 4501(d) Excise Tax was deemed to exist. A principal purpose would be presumed to exist if the applicable specified affiliate funded by any means, directly or indirectly, a downstream relevant entity and the funding occurred within two years of a covered purchase by or on behalf of the downstream relevant entity. Due to the broad definition of “funding” under the Funding Rule, the Funding Rule would have placed a significant administrative burden on taxpayers to document that routine intercompany transactions were not made with a principal purpose of funding a repurchase.
Final Regulations
Treasury and the Service concluded that the Funding Rule was overly burdensome and potentially implicated common business transactions. The withdrawal also obviated certain proposed limitations (for example, the need to exclude foreign‑issued AT1 preferred solely by virtue of foreign regulatory status) and made certain Netting Rule proposals unnecessary.
The removal of the Funding Rule eliminates one of the more burdensome and controversial aspects of the Proposed Regulations and aligns section 4501(d) with bright‑line, administrable standards rather than intent‑based funding tests.
Constructive Specified Affiliate Acquisition Rule
Proposed Regulations
Under the Proposed Regulations, the acquisition by a covered corporation of another corporation or partnership owning stock in such acquiring covered corporation (i.e., “hook stock”) could have been treated as a repurchase, subject to thresholds and timing conditions (the “Constructive Specified Affiliate Acquisition Rule”).20 More specifically, the Constructive Specified Affiliate Acquisition Rule treated the acquiring covered corporation as repurchasing its stock for purposes of the Excise Tax where: (i) a corporation or partnership became a specified affiliate of such acquiring covered corporation; (ii) at the time that the corporation or partnership became a specified affiliate of such acquiring covered corporation, the acquired corporation or partnership owned shares of the acquiring covered corporation and such shares of the acquiring covered corporation represented more than 1% of the fair market value of such acquired corporation or partnership at the time of the acquisition; and (iii) the acquired corporation or partnership acquired such shares after December 31, 2022.21
Final Regulations
The Final Regulations do not adopt the Constructive Specified Affiliate Acquisition Rule, noting that such rule was overly broad and would introduce undue complexity by potentially covering transactions unrelated to the acquisition or involving small holdings.
Definition of Stock
Proposed Regulations
The Proposed Regulations generally treated any instrument treated as stock for U.S. federal tax purposes at the time of issuance as “stock” for purposes of the Excise Tax;22 however, the Proposed Regulations excluded preferred stock that was (i) AT1 capital,23 and (ii) did not qualify as common equity tier 1 capital.24 Notably, the Proposed Regulations did not exclude section 1504(a)(4) preferred stock (“Plain Vanilla Preferred Stock”), which generally (A) does not have the right to vote, (B) is limited and preferred to dividends and does not participate in corporate growth to any significant extent, (C) has redemption or liquidation rights which do not exceed the issue price of such stock (except for a reasonable redemption or liquidation premium), and (D) is not convertible into another class of stock.
Final Regulations
The Final Regulations exclude Plain Vanilla Preferred Stock from the definition “stock” for purposes of the Excise Tax because such stock is more debt‑like and does not implicate stock repurchase policy concerns. The Final Regulations also provide transition relief for redemptions of stock issued before August 16, 2022 that, at all times between the time of issuance and redemption, was mandatorily redeemable or subject to a unilateral holder put. While the redemption of such stock is not treated as a repurchase, the instrument may remain “stock” for other U.S. federal tax purposes.
In addition, the Final Regulations extend the AT1 preferred stock exclusion to certain instruments subject to U.S. prudential regimes (including for specified savings and loan holding companies and Farm Credit System entities). The exclusion does not extend to foreign‑issued AT1 instruments solely by virtue of foreign regulatory status, including foreign-issued AT1 instruments issued in compliance with the Basel III Accord.
Corporate transactions
Acquisitive reorganizations and take private transactions
In an acquisitive asset reorganization, the target corporation is generally considered to have (i) transferred all of its assets in exchange for stock of the transferee corporation, and (ii) distributed the transferee corporation stock to its shareholders in exchange for their stock in the target corporation.25 Therefore, there is an actual or deemed redemption of stock of a target corporation as a result of an asset reorganization.26
Under the Proposed Regulations, absent an exception, the “target‑corporation‑funded portion” of consideration provided to target shareholders in a leveraged buyout or other “take private” transaction was treated as a repurchase in computing the target corporation’s Excise Tax base.27 In the case of an acquisitive reorganization in which the target corporation is a covered corporation, the Proposed Regulations treated the exchange by the target corporation shareholders of their target corporation stock pursuant to the plan of reorganization as a repurchase by the target corporation.28
The Netting Rule under the Proposed Regulations applied to the extent that no consideration other than stock of the acquiring corporation was received in such transactions, and therefore the stock which was “repurchased” would be “netted” to the extent that the repurchase occurred under section 354 in which no gain or loss was recognized on the repurchase to the shareholder.
Moreover, the Proposed Regulations treated E Reorganizations and F Reorganizations as Economically Similar Transactions.29 Accordingly, stock issued by the recapitalizing corporation in an E Reorganization, or by the resulting corporation in an F Reorganization, was disregarded for purposes of the Netting Rule in the case of other repurchases by such corporations under the “no double benefit rule.”30
Deviating from the Proposed Regulations, under the Final Regulations, the Excise Tax does not apply to transactions that fundamentally restructure corporate ownership or control through combinations or separate business entities. Therefore, a redemption (or an Economically Similar Transaction) that occurs as part of a transaction in which the corporation ceases to be a covered corporation (e.g., “take‑private” transactions, leveraged buy-outs and acquisitive reorganizations) is not a repurchase for purposes of the Excise Tax. For single‑entity reorganizations, an E Reorganization is treated as a repurchase only if and to the extent nonqualifying property is distributed and the distribution of such property is not treated as a section 301 distribution (either by reason of Treas. Reg. § 1.301-1(j), 1.305-7(c)(2), or 1.368-2(e)(5)). In an F Reorganization, there is no repurchase when solely qualifying property is received, while any cash or other non-qualifying property distributed is treated as a separate transaction (e.g., cash in a section 302 transaction) that is analyzed under the general rules.
Given these changes, the Final Regulations remove the provision of the Proposed Regulations that treated the “target-corporation-funded portion” of the consideration in a leveraged buyout or other take private transaction as a repurchase for purposes of the Excise Tax, as such rule is now unnecessary.
Liquidations
Under the Proposed Regulations, a distribution in complete liquidation of a covered corporation to which either section 332 (nontaxable to the 80% distributee) or section 331 (taxable) applies would not be a repurchase and thus would not be subject to the Excise Tax.31 However, if both sections 331 and 332 applied to a distribution in complete liquidation (e.g., minority shareholders exist), the distribution to the 80% distributee under section 332 was not subject to the Excise Tax, but the distribution to the minority shareholder under section 331 was subject to the Excise Tax.32
Under the Final Regulations, complete liquidations to which section 331, section 332, or both section 331 and section 332 apply are not subject to the Excise Tax.33
Divisive reorganizations and spinoffs
The Proposed Regulations provided that, for a redemption (such as in a split-off transaction) qualifying under section 355 (including section 356), the exchange by the distributing corporation shareholders is a repurchase by the distributing corporation if the distributing corporation is a covered corporation.
34 However, under the Proposed Regulations, the distributing corporation would be able to reduce its repurchase amount pursuant to the reorganization exception.
35
The Final Regulations continue to treat a split‑off transaction involving a covered distributing corporation as a repurchase, subject to the reorganization exception to the extent the exchange is solely for qualifying property.
36 Accordingly, by contrast to acquisitive reorganizations, which are not considered Economically Equivalent Transactions, because split‑offs are repurchases and the reorganization exception is limited to the receipt of qualifying property, any nonqualifying property received in the split-off would be subject to the Excise Tax.
37
Netting Rule
Proposed Regulations
The Netting Rule provides that the fair market value taken into account for purposes of the Excise Tax with respect to any stock repurchased by a covered corporation is reduced by the fair market value of any stock issued by the covered corporation during the taxable year.
Under the Proposed Regulations, stock issued by a covered corporation (i) to a specified affiliate of the covered corporation or (ii) in connection with the performance of services by an employee or other service provider for a specified affiliate was disregarded for purposes of the Netting Rule. However, stock issued by a covered corporation to its specified affiliate would be treated as issued for purposes of the Netting Rule where: (i) the specified affiliate subsequently transfers such stock, not in connection with the performance of services provided to the specified affiliate, to a person that is not a specified affiliate of the covered corporation in the same taxable year that the covered corporation issued the stock to the specified affiliate; or (ii) the stock of the covered corporation was subsequently transferred by the specified affiliate to an employee of the specified affiliate in connection with the provision of services. The proposal also included a “no double benefit” rule that would disregard certain issuances in reorganizations and section 355 transactions, and a broad anti‑avoidance regime for non‑stock instruments (for example, deep‑in‑the‑money options) that limited netting until repurchase and imposed consistency and fair‑market‑value caps.
Final Regulations
The Final Regulations make several notable changes to the Netting Rule that was contained in the Proposed Regulations. Most significantly, the Final Regulations expand the Netting Rule to cover stock provided by a specified affiliate to non‑employee service providers for services provided to that affiliate and, in lieu of the “no double benefit rule” (discussed below), add targeted exclusions that disregard for netting purposes stock that is issued in E Reorganizations, F Reorganizations, and section 355 distributions.
Given the broad exception for acquisitive reorganizations discussed above, the Final Regulations also withdraw the previously proposed “no double benefit rule” as no longer necessary. Accordingly, an acquiring corporation may reduce its own Excise Tax base for stock that it issues in an acquisitive reorganization, to the extent otherwise permitted under the Netting Rule.
Finally, the Final Regulations replace the Proposed Regulation’s broad anti‑avoidance rules for instruments treated as stock for U.S. federal income tax purposes but that are not legally in the form of stock with a more tailored rule. The Final Regulations generally treat non‑stock instruments the same as stock for purposes of the Netting Rule, reserving a limited exception only for non‑SEC‑registered instruments issued to 10% owners where the issuer has knowledge of facts that would indicate such ownership.38 The Final Regulations also remove the consistency and fair‑market‑value limitations that were contained in the Proposed Regulations, reducing collateral effects on ordinary capital‑raising and compliance burdens.
Dividend exception
Proposed Regulations
In implementing the “dividend exception” under section 4501(e)(6), the Proposed Regulations created a rebuttable presumption that a redemption to which section 302 or 356(a) applied was deemed subject to section 302(a) or 356(a)(1), respectively, and therefore was ineligible for the dividend exception.
39 That presumption could be overcome only if the covered corporation obtained a shareholder certification and established that (i) the shareholder reported the repurchase as a dividend on its U.S. federal income tax return, (ii) the corporation had sufficient E&P to treat as a dividend either the redemption under section 302 or the receipt of money or other property under
section 356, (iii) the corporation treated the transaction consistently, and (iv) the corporation had no knowledge to the contrary (the “sufficient evidence requirement”).
40
Final Regulations
The Final Regulations retain the rebuttable presumption but ease the sufficient evidence requirement by eliminating both (i) the requirement that the shareholder actually report the transaction as a dividend on its U.S. federal income tax return, and (ii) the requirement to obtain a shareholder certification in all cases.
41 Under the Final Regulations, a covered corporation can rebut the presumption using information it already knows that supports dividend treatment under section 302(d) or 356(a)(2) (e.g., ownership documents, publicly available information, the pro rata nature of the repurchase, or by using the certification safe harbor), coupled with consistent treatment (including withholding, if required), no contrary knowledge, and sufficient E&P.
42 Moreover, a shareholder certification—formerly required under the Proposed Regulations—functions, under the Final Regulations, as an optional safe harbor that, if obtained and not contradicted by known facts, will satisfy the sufficient-evidence requirement for the dividend exception.
43
Applicability dates and refunds
Generally, the Final Regulations apply to (i) repurchases occurring after December 31, 2022 and (ii) issuances and provisions of stock during taxable years ending after December 31, 2022.
Certain rules that were not described in prior guidance (including Notice 2023‑2) and specific rules relating to section 4501(d) covered corporations apply only to repurchases, issuances, and provisions occurring after April 12, 2024, with taxpayers being eligible to elect early application of the relevant provisions of the Final Regulations to transactions occurring on or before April 12, 2024 and after December 31, 2022, provided that the taxpayer consistently applies such provisions of the Final Regulations.
The Final Regulations describe refund claim procedures (including use of Form 720-X with an amended Form 7208, or Form 8849 with Schedule 6 and a corrected Form 7208, depending on the filer). Taxpayers should consider whether prior transactions—such as taxable transactions or reorganizations in which gain (but not loss) was recognized under Section 356—that were reported as “repurchases” may be exempt under the Final Regulations and, if so, whether those taxpayers are entitled to a refund.
Footnotes
1. Unless otherwise indicated, all “section” references contained herein are to sections of the Code.
2. TD 10037 (November 21, 2025).
3. 89 Fed. Reg. 25980 (April 12, 2024).
4. See section 354(a) and section 361(c)(2).
5. Treas. Reg. § 1.368-2(m)(3)(iii).
6. See, e.g., sections 355(a) and (c), and section 361(c)(2).
7. Section 4501(c)(2)(B) defines a specified affiliate as, with regard to any corporation, (i) any corporation more than 50 percent of the stock of which is owned (by vote or by value), directly or indirectly, by the corporation, and (ii) any partnership more than 50 percent of the capital interests or profits interests of which is held, directly or indirectly, by the corporation.
8. Section 4501(c)(3). This includes stock issued to an employee or a specified affiliate.
9. A “covered surrogate foreign corporation” is defined as a corporation that is a “surrogate foreign corporation” (as defined in section 7874(a)(2)(B)), but by substituting “September 20, 2021” for “March 4, 2003” each place it appears, and whose stock is traded on an established securities market.
10. An “applicable foreign corporation” is defined as any foreign corporation, the stock of which is traded on an established securities market within the meaning of section 7704(b)(1). Section 4501(d)(3).
11. Section 4501(e)(1).
12. Section 4501(e)(2).
13. Section 4501(e)(3).
14. Section 4501(e)(4).
15. Section 4501(e)(5).
16. Section 4501(e)(6).
17. An “applicable specified affiliate” is defined as a “specified affiliate of an applicable foreign corporation, other than a foreign corporation or a foreign partnership (unless the partnership has a domestic entity as a direct or indirect partner, as determined under paragraph (h) of this section).” Prop. Treas. Reg. § 58.4501-7(b)(2)(iv). Thus, an “applicable specified affiliate” generally includes a U.S. subsidiary or U.S. partnership, more than 50% of the stock, or the capital or profits interests, of which is owned, directly or indirectly, by the applicable foreign corporation. It may also include a foreign partnership, more than 50% of the capital or profits interests of which is owned, directly or indirectly, by the applicable foreign corporation if such partnership has one or more U.S. entities as direct or indirect partners having, in the aggregate, 5% or more of the capital and profits interests in the foreign partnership. See Prop. Treas. Reg. § 58.4501-7(h)(5). The Final Regulations largely adopt the definition from the Proposed Regulations except that a foreign partnership should only be treated as an applicable specified affiliate it has one or more U.S. entities as direct or indirect partners having, in the aggregate, 10% (rather than 5%) or more of the capital and profits interests in the foreign partnership. Treas. Reg. § 58.4501-7(g)(5).
18. An “applicable foreign corporation” is defined as any foreign corporation, the stock of which is traded on an established securities market within the meaning of section 7704(b)(1). Section 4501(d)(3).
19. See Prop. Treas. Reg. § 58.4501-7(e)(1). Such funding included distributions, debt or capital contributions that, directly or indirectly, funded the repurchase of an applicable foreign corporation’s stock, or an acquisition of stock of an applicable foreign corporation by a relevant entity (as defined in proposed §58.4501-7(b)(2)(xiv)) (such repurchase or acquisition, a covered purchase).
20. Prop. Treas. Reg. § 58.4501-2(f)(3). Such shares of stock of a covered corporation would be treated as repurchased by the covered corporation to the extent that (i) the target corporation or partnership becomes a specified affiliate of the covered corporation and (ii) at the time the target corporation or partnership becomes a specified affiliate, it owns stock of the covered corporation (A) representing more than one percent of the fair market value of the assets of the target corporation or partnership, and (B) that was acquired after December 31, 2022.
21. Id.
22. Prop. Treas. Reg. § 58.4501-1(b)(29)(i).
23. Within the meaning of 12 CFR 3.20(c), 217.20(c), or 324.20(c).
24. Within the meaning of 12 CFR 3.20(b), 217.20(b), or 324.20(b).
25. Rev. Rul. 69-6; section 354.
26. See also section 361(c)(1).
27. See Prop. Treas. Reg. § 58.4501-2(e)(2).
28. Prop. Treas. Reg. § 58.4501-2(e)(4)(i). The covered corporation first computed the fair market value (“FMV”) exchanged and then reduced that amount under the statutory exception in section 4501(e)(1) (reorganization exception) by the fair market value of the target corporation stock exchanged for qualifying property (i.e., property permitted to be received by the shareholders without recognition of gain or loss under section 354). Prop. Treas. Reg. §§ 58.4501-2(c)(1)(i) and (ii).
29. Prop. Treas. Reg. §§ 58.4501-2(e)(4)(ii) and (iii). A recapitalizing corporation in an E reorganization or the transferor corporation in an F reorganization was treated as having a “repurchase” equal to the fair market value of the shares exchanged by its shareholders. That amount was then reduced to the extent shareholders received qualifying property, so the Excise Tax applies only to any portion of the exchange funded with non‑qualifying property.
30. Prop. Treas. Reg. §§ 58-4501-3(c)(2), (3), 58-4501-4(f)(3).
31. Prop. Treas. Reg. § 58.4501-2(e)(5).
32. Prop. Treas. Reg. § 58.4501-2(e)(4)(v)(A). The premise was that the transaction looked substantially similar to upstream reorganizations where the minority shareholders were redeemed out.
33. Treas. Reg. § 58.4501-2(e)(5)(i). According to Treasury and the IRS, this change is consistent with their conclusion that the Excise Tax should not be imposed on upstream reorganizations and other acquisitive reorganizations.
34. Prop. Treas. Reg. § 58.4501-2(e)(4)(iv).
35. Prop. Treas. Reg. § 58.4501-3(c).
36. Treas. Reg. § 58.4501-2(e)(4)(ii).
37. Treas. Reg. § 58.4501-3(c).
38. The constructive ownership rules of section 318 apply in determining ownership for purposes of this rule.
39. Prop. Treas. Reg. § 58.4501-3(g)(2)(i).
40. Prop. Treas. Reg. §§ 58.4501-3(g)(2)(ii) and (iii), and (3).
41. Treas. Reg. § 58.4501-3(g)(2).
42. Treas. Reg. § 58.4501-3(g)(3)(i).
43. Treas. Reg. § 58.4501-3(g)(3)(ii).
