On August 16, 2022, President Biden signed the Inflation Reduction Act of 2022 (the IRA) into law. Among the provisions of the IRA is a nondeductible 1% excise tax on the repurchase of corporate stock (the Buyback Tax). The Buyback Tax is directly levied on repurchasing corporations, which means that corporations that currently have, or are considering, the adoption of stock buyback programs will need to include the Buyback Tax in the evaluation of the costs of any such program. Not all stock buybacks are covered by the tax, and there are a number of exceptions that may apply to limit the impact of the Buyback Tax, as discussed in more detail below. The Buyback Tax is effective for transactions occurring in taxable years after December 31, 2022.

The Buyback Tax

The Buyback Tax imposes on each “covered corporation” a nondeductible tax equal to 1% of the fair market value of any stock of the covered corporation which is repurchased by such corporation during taxable years after December 31, 2022, unless an exception applies.