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Chapter 7 — Common Issues Related to Cash Flows

7.16 Excise Taxes Paid on Treasury Stock Transactions

7.16 Excise Taxes Paid on Treasury Stock Transactions

The Inflation Reduction Act of 2022 adds a new Internal Revenue Code section, Section 4501, that imposes a 1 percent excise tax on own-stock repurchases by publicly traded companies that occur after December 31, 2022. Specifically, under Section 4501, a covered corporation is subject to a tax equal to 1 percent of (1) the fair market value of any stock of the corporation that is repurchased by this corporation (or certain affiliates) during any taxable year, with limited exceptions, less (2) the fair market value of any stock issued by the covered corporation (or certain affiliates) during the taxable year (including compensatory stock issuances). The 1 percent excise tax may also be imposed on acquisitions of stock in certain mergers or acquisitions involving covered corporations.