KPMG report: Initial analysis of stock repurchase excise tax proposed regulations - KPMG United States (2024)

FAQs

What is the excise tax on KPMG stock buybacks? ›

Among other things, it imposes a 1% excise tax on net share repurchases in a tax year that are made by certain publicly traded corporations. We explain the accounting treatment for the new excise tax using Q&As reflecting issues encountered in practice since the IRA was signed into law.

On April 12, 2024, the US Department of the Treasury and the IRS published proposed regulations (89 FR 25980 and 89 FR 25829, the “Proposed Regulations”) on the application of Section 4501,¹ which imposes a 1% excise tax² on certain repurchases of stock of publicly traded US corporations (the “Excise Tax”).

The statute generally imposes a 1% tax on the value of stock repurchased by a covered corporation, subject to a “netting rule” under which the value of the repurchased stock during a taxable year can be reduced by the value of stock issued by the covered corporation in that same year.

The buyback tax will be reported on Form 720, “Quarterly Federal Excise Tax Return,” and a new Form 7208, “Excise Tax on Repurchase of Corporate Stock.” A draft version of Form 7208 is available on the IRS website.

The excise tax imposes a 1% tax on publicly traded US corporations on the value of any of its stock that is repurchased by the corporation (or certain of its affiliates) during the tax year, effective for certain stock repurchases made after December 31, 2022.

The stock buyback excise tax applies at a rate of one percent of the fair market value (FMV) of any stock of a covered corporation that is repurchased by the corporation during its taxable year, minus the aggregate FMV of stock issued by the taxpayer during that year.

What is a share buyback? A share buyback is when companies buy back their own shares from the market, cancel them and, ultimately, reduce share capital. With fewer shares in circulation, each shareholder gets both a larger stake in the company and a higher return on future dividends.

Long-term capital gains tax rates for the 2024 tax year

For the 2024 tax year, individual filers won't pay any capital gains tax if their total taxable income is $47,025 or less. The rate jumps to 15 percent on capital gains, if their income is $47,026 to $518,900. Above that income level the rate climbs to 20 percent.

April 15, 2024 - Tax day (unless extended due to local state holiday). The tax deadline typically falls on April 15 each year, but can be delayed if it falls on a weekend or holiday.

Income or gains from buybacks are tax-exempt in the hands of shareholders under section 10(34A) of the Income Tax Act, 1961, to prevent double taxation. Shareholders should be aware of the considerations under Section 14A.

What is the difference between treasury stock and buy back? ›

Treasury Stocks are the shares that a company buys back from its existing shareholders. Once bought back, these shares are kept in the company's treasury to be reissued later or permanently retired.

Treasury stock may be resold to stockholders at the same, a higher, or a lower price than it was purchased for. When sold, the Treasury Stock account can only be credited in multiples of its original purchase price per share.

The 1% excise tax is effective for repurchases of stock occurring after 31 December 2022, and is reduced under the netting rules by any stock issued during the taxable year.

Per IRS rules, when investment income and expenses, stocks, stock rights, and bonds became worthless during the tax year, they're treated as sold on the last day of the tax year.

If you dispose of shares you hold on capital account back to the company, it is a capital gains tax (CGT) event. This means you must: calculate your capital gain or loss by subtracting the cost of the shares from your capital proceeds. report your capital gain or loss in your income tax return.

L. 117-169), which was signed into law on August 16, 2022, reinstated the Petroleum Superfund Tax at a rate of 16.4 cents per barrel. The Joint Committee on Taxation estimates these excise taxes combined would increase revenues by over $52 billion over a 10-year period.

The Excise Tax is equal to (i) 1 percent of the aggregate fair market value of stock repurchased by a corporation during the taxable year (subject to certain exceptions) less (ii) the aggregate fair market value of stock issued by the corporation during such taxable year.

Overview. Section 4501 imposes an excise tax on each covered corporation equal to 1% of the fair market value (FMV) of the corporation's stock repurchased by that corporation during a taxable year.

The tax rate for the distributed income (i.e., the buyback amount) is set at 20%, along with a 12% surcharge and applicable cess. The company must settle this tax within 14 days from the date of payment to shareholders for the buyback.