Recent legislative changes have introduced two significant excise tax developments that may impact your business operations and financial reporting. We’ve outlined the key points below to help you maneuver through these new requirements. 

Stock repurchase excise tax (Section 4501) 

The Inflation Reduction Act has introduced a new 1% excise tax on net stock repurchases made by covered corporations. This tax became effective for repurchases occurring after December 31, 2022. Here’s what you need to know: 

Scope 

• Applies to publicly traded domestic corporations. 
• Includes certain publicly traded foreign corporations. 
• May be applicable to private companies for which stock price quotes are readily available. 

Tax calculation 

• 1% of the net fair market value (FMV) of repurchased stock during the taxable year. 
• Netting rule: Subtract from the gross FMV of stock repurchases, any stock issued during the taxable year, including stock issued or provided to employees of the covered corporation or a specified affiliate.  
• Statutory exceptions: Also subtracted from the gross FMV are any repurchases excluded by exceptions within Section 4501(e).
  1. Only net repurchases (repurchases exceeding issued stock value) are subject to the excise tax.
  2. De-minimis exception: A covered corporation is exempt from the stock repurchase excise tax for a taxable year if the total fair market value of its stock repurchases does not exceed $1 million during that year. 

Reporting requirements 

• File Form 720 (Quarterly Federal Excise Tax Return) with the Form 7208 (Excise Tax on Repurchase of Corporate Stock). 
• Reporting required even if no tax is owed due to netting or statutory exceptions. 
• File by the due date of Form 720 that is for the first full calendar quarter after the end of the taxable year of the covered corporation. 
• The payment deadline coincides with the filing deadline. 
• No extensions permitted for reporting or payment. 

Special considerations 

• Corporations with multiple taxable years in this period should file a single Form 720 with separate Forms 7208 for each year. 
• The excise tax is non-deductible and cannot be reduced by tax losses or other income tax assets. 

Action items 

1. Review your stock repurchase activities since January 1, 2023. 
2. Implement tracking mechanisms for stock repurchases and issuances. 
3. Consult with your tax advisors to ensure proper calculation and reporting. 
4. Conduct a comprehensive review of your stock management policies. 
5. Train relevant personnel on the new tax requirements and reporting procedures. 

Medicare drug price negotiation excise tax (Section 5000D) 

The IRS has finalized rules (TD 10003) on a new excise tax related to Medicare’s drug price negotiation program. This tax is imposed on sales by manufacturers, producers or importers of designated drugs. 

Key points 

• Applies to sales of “designated drugs” dispensed, furnished or administered under Medicare terms. 
• The IRS estimates fewer than 50 payers over the next three years.  
• Effective August 5, 2024, applies retroactively from October 1, 2023. 

We understand that these new excise taxes introduce complexity to your tax planning and compliance efforts. Our team at BPM is committed to guiding you through these changes. Contact us to discuss how these developments may apply to your specific situation.