Bulletin No. 2025–51

HIGHLIGHTS

OF THIS ISSUE





Bulletin No. 2025–51

December 15, 2025

These synopses are intended only as aids to the reader in

identifying the subject matter covered. They may not be

relied upon as authoritative interpretations.

ADMINISTRATIVE

EXCISE TAX

REG-124791-11, page 852.

T.D. 10037, page 788.

This document withdraws a notice of proposed rulemaking

regarding the eligibility of tax return preparers to obtain a

preparer tax identification number (PTIN).

EMPLOYEE PLANS

Notice 2025-73, page 845.

This notice sets forth updates on the corporate bond monthly

yield curve, the corresponding spot segment rates for September 2025 used under § 417(e)(3)(D), the 24-month average segment rates applicable for October 2025, and the

30-year Treasury rates, as reflected by the application of

§ 430(h)(2)(C)(iv).

Notice 2025-74, page 848.

This notice sets forth updates on the corporate bond

monthly yield curve, the corresponding spot segment rates

for October 2025 used under § 417(e)(3)(D), the 24-month

average segment rates applicable for November 2025, and

the 30-year Treasury rates, as reflected by the application of

§ 430(h)(2)(C)(iv).

ESTATE TAX

T.D. 10038, page 838.

This guidance contains a final rule relating to the imposition

of a user fee on authorized persons requesting the issuance

of IRS Letter 627, also referred to as an estate tax closing

letter. Pursuant to the guidelines in OMB Circular A-25, the

IRS has calculated its cost of providing the estate tax closing

letter to be $56. REG-107459-24

Finding Lists begin on page ii.

Section 10201 of Public Law 117-169, 136 Stat. 1818

(August 16, 2022), commonly referred to as the Inflation

Reduction Act of 2022, enacted section 4501 of the Internal

Revenue Code. Section 4501 imposes a one percent excise

tax on repurchases of stock of a publicly traded corporation. These final regulations under subpart A of part 58 contain operative rules that provide further clarity regarding the

application of the excise tax to corporations that repurchase

their stock.

EXEMPT ORGANIZATIONS

Announcement 2025-27, page 851.

Revocation of IRC 501(c)(3) Organizations for failure to meet

the code section requirements. Contributions made to the

organizations by individual donors are no longer deductible

under IRC 170(b)(1)(A).

INCOME TAX

Notice 2025-72, page 840.

This notice describes proposed regulations that Treasury and

the IRS intend to issue under section 70352(c)(1)(C) of Public

Law 119-21, 139. Stat. 72 (July 4, 2025), commonly known

as the One, Big, Beautiful Bill Act (OBBBA), providing for the

allocation of foreign taxes of foreign corporations affected by

the repeal of section 898(c)(2). This notice also announces

that Treasury and the IRS intend to issue proposed regulations under section 987 that would modify the election to

recognize pretransition section 987 gain or loss ratably over

the transition period pursuant to §1.987-10(e)(5)(ii)(A).

The IRS Mission

Provide America’s taxpayers top-quality service by helping

them understand and meet their tax responsibilities and

enforce the law with integrity and fairness to all.

Introduction

The Internal Revenue Bulletin is the authoritative instrument

of the Commissioner of Internal Revenue for announcing official rulings and procedures of the Internal Revenue Service

and for publishing Treasury Decisions, Executive Orders, Tax

Conventions, legislation, court decisions, and other items of

general interest. It is published weekly.

It is the policy of the Service to publish in the Bulletin all substantive rulings necessary to promote a uniform application

of the tax laws, including all rulings that supersede, revoke,

modify, or amend any of those previously published in the

Bulletin. All published rulings apply retroactively unless otherwise indicated. Procedures relating solely to matters of internal management are not published; however, statements of

internal practices and procedures that affect the rights and

duties of taxpayers are published.

Revenue rulings represent the conclusions of the Service

on the application of the law to the pivotal facts stated in

the revenue ruling. In those based on positions taken in rulings to taxpayers or technical advice to Service field offices,

identifying details and information of a confidential nature are

deleted to prevent unwarranted invasions of privacy and to

comply with statutory requirements.

Rulings and procedures reported in the Bulletin do not have the

force and effect of Treasury Department Regulations, but they

may be used as precedents. Unpublished rulings will not be

relied on, used, or cited as precedents by Service personnel in

the disposition of other cases. In applying published rulings and

procedures, the effect of subsequent legislation, regulations,

court decisions, rulings, and procedures must be considered,

and Service personnel and others concerned are cautioned

against reaching the same conclusions in other cases unless

the facts and circumstances are substantially the same.

The Bulletin is divided into four parts as follows:

Part I.—1986 Code.

This part includes rulings and decisions based on provisions

of the Internal Revenue Code of 1986.

Part II.—Treaties and Tax Legislation.

This part is divided into two subparts as follows: Subpart A,

Tax Conventions and Other Related Items, and Subpart B,

Legislation and Related Committee Reports.

Part III.—Administrative, Procedural, and Miscellaneous.

To the extent practicable, pertinent cross references to these

subjects are contained in the other Parts and Subparts. Also

included in this part are Bank Secrecy Act Administrative

Rulings. Bank Secrecy Act Administrative Rulings are issued

by the Department of the Treasury’s Office of the Assistant

Secretary (Enforcement).

Part IV.—Items of General Interest.

This part includes notices of proposed rulemakings, disbarment and suspension lists, and announcements.

The last Bulletin for each month includes a cumulative index

for the matters published during the preceding months. These

monthly indexes are cumulated on a semiannual basis, and are

published in the last Bulletin of each semiannual period.

The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.

December 15, 2025 

Bulletin No. 2025–51

Part I

26 CFR §§58.4501-1, 58.4501-2, 58.4501-3,

58.4501-4, 58.4501-5, 58.4501-6, and 58.4501-7

T.D. 10037

DEPARTMENT OF THE

TREASURY

Internal Revenue Service

26 CFR Parts 1 and 58

Excise Tax on Repurchase

of Corporate Stock

AGENCY: Internal Revenue Service

(IRS), Treasury.

ACTION: Final regulations.

SUMMARY: This document contains

final regulations that provide guidance

regarding the application of the excise tax

on repurchases of corporate stock made

after December 31, 2022. The regulations

affect certain publicly traded corporations

that repurchase their stock or whose stock

is acquired by certain specified affiliates.

DATES: Effective date: The final regulations are effective on November 24, 2025.

Applicability dates: For dates of applicability, see §§1.1275-6(f)(12)(iii)(B),

58.4501-6, 58.4501-7(r), and 58.6011-1(d).

FOR FURTHER INFORMATION

CONTACT: Concerning §58.4501-7,

Brittany N. Dobi of the Office of Associate Chief Counsel (International) at (202)

317-5469 (not a toll-free number). For all

other issues, Kailee H. Hock of the Office

of Associate Chief Counsel (Corporate) at

(202) 317-3181 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Authority

This document contains final regulations under sections 1275, 4501, and 6011

of the Internal Revenue Code (Code).

These regulations would amend 26 CFR

parts 1 (Income Tax Regulations) and 58

(Stock Repurchase Excise Tax Regula-

December 15, 2025

tions) by providing guidance regarding

the application of the excise tax on repurchases of corporate stock (stock repurchase excise tax) enacted as section 10201

of Public Law 117-169, 136 Stat. 1818

(August 16, 2022), commonly referred

to as the Inflation Reduction Act of 2022

(IRA). The additions and amendments to

the Income Tax Regulations and Stock

Repurchase Excise Tax Regulations are

issued pursuant to the express delegations of authority to the Secretary of the

Treasury or the Secretary’s delegate (Secretary) provided under sections 1275(d),

4501(f), and 7805(a) of the Code.

Section 1275(d) states that the Secretary may prescribe regulations providing

that where, by reason of varying rates

of interest, put or call options, indefinite

maturities, contingent payments, assumptions of debt instruments, or other circumstances, the tax treatment under sections

1271 through 1275 or section 163(e) of

the Code does not carry out the purposes

of those sections, “such treatment shall be

modified to the extent appropriate to carry

out the purposes of” those sections.

Section 4501(f) states that “[t]he Secretary shall prescribe such regulations and

other guidance as are necessary or appropriate to carry out, and to prevent the avoidance

of, the purposes of [section 4501],” including regulations or other guidance (i) to prevent the abuse of the statutory exceptions

provided by section 4501(e), (ii) to address

special classes of stock and preferred stock,

and (iii) for the application of the special

rules for acquisitions of stock of certain foreign corporations under section 4501(d).

Section 7805(a) authorizes the Secretary to “prescribe all needful rules and

regulations for the enforcement of [the

Code], including all rules and regulations

as may be necessary by reason of any

alteration of law in relation to internal

revenue.”

Background

I. Overview of Section 4501

A. In general

Section 4501 was added to a new chapter 37 of the Code. Section 4501 imposes

788

on each covered corporation an excise tax

(that is, the stock repurchase excise tax)

on repurchases of corporate stock made

after December 31, 2022. Under section

4501(a), the stock repurchase excise tax

is equal to one percent of the fair market

value of any stock of the covered corporation that is repurchased by the corporation

during the taxable year. Section 4501(b)

defines the term “covered corporation” to

mean any domestic corporation the stock

of which is traded on an established securities market (within the meaning of section 7704(b)(1) of the Code).

Section 4501(c)(1) provides that, for

purposes of section 4501, a “repurchase”

includes (1) a redemption within the

meaning of section 317(b) of the Code

with regard to the stock of a covered corporation (section 317(b) redemption),

and (2) any transaction determined by the

Secretary to be economically similar to a

section 317(b) redemption (economically

similar transaction).

B. Specified affiliates

Section 4501(c)(2)(A) treats the acquisition of stock of a covered corporation by

a specified affiliate of the covered corporation, from a person who is not the covered corporation or a specified affiliate of

the covered corporation, as a repurchase

of stock of the covered corporation by the

covered corporation. Section 4501(c)(2)

(B) defines the term “specified affiliate”

to mean, 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.

C. Adjustment to amount taken into

account under section 4501(a)

The stock repurchase excise tax is

applied to the fair market value of any

stock of the covered corporation repurchased by the covered corporation during

its taxable year. However, the “netting

rule” of section 4501(c)(3) provides that

the amount taken into account under sec-

Bulletin No. 2025–51

tion 4501(a) 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, including the fair

market value of any stock issued or provided to employees of the covered corporation or employees of a specified affiliate of the covered corporation during the

taxable year (whether or not the stock

is issued or provided in response to the

exercise of an option to purchase the

stock).

D. Special rules for certain acquisitions

and repurchases of stock of certain

foreign corporations

Section 4501(d) provides special rules

for the imposition of the stock repurchase

excise tax on acquisitions of stock of applicable foreign corporations and covered

surrogate foreign corporations. Under section 4501(d)(3)(A), the term “applicable

foreign corporation” means any foreign

corporation the stock of which is traded

on an established securities market. Under

section 4501(d)(3)(B), the term “covered

surrogate foreign corporation” means any

surrogate foreign corporation (as determined under section 7874(a)(2)(B) of

the Code by substituting “September 20,

2021” for “March 4, 2003” each place it

appears) the stock of which is traded on

an established securities market, but only

with respect to taxable years that include

any portion of the applicable period with

respect to that corporation under section

7874(d)(1).

Section 4501(d)(1) applies in the case

of an acquisition of stock of an applicable

foreign corporation by a specified affiliate of the corporation (other than a foreign corporation or a foreign partnership

(unless the partnership has a domestic

entity as a direct or indirect partner)) from

a person that is not the applicable foreign

corporation or a specified affiliate of the

applicable foreign corporation. If section

4501(d)(1) applies, then for purposes of

determining the stock repurchase excise

tax: (i) the specified affiliate is treated as

a covered corporation with respect to the

acquisition; (ii) the acquisition is treated

as a repurchase of stock of a covered corporation by the covered corporation; and

(iii) the adjustment under the netting rule

Bulletin No. 2025–51

of section 4501(c)(3) is determined only

with respect to stock issued or provided by

the specified affiliate to employees of the

specified affiliate.

Section 4501(d)(2) applies in the case

of either a repurchase of stock of a covered surrogate foreign corporation by the

covered surrogate foreign corporation, or

an acquisition of stock of a covered surrogate foreign corporation by a specified

affiliate of such corporation. If section

4501(d)(2) applies, then for purposes of

determining the stock repurchase excise

tax: (i) the expatriated entity (within the

meaning of section 7874(a)(2)(A)) with

respect to the covered surrogate foreign

corporation is treated as a covered corporation with respect to the repurchase or

acquisition; (ii) the repurchase or acquisition is treated as a repurchase of stock

of a covered corporation by the covered

corporation; and (iii) the adjustment under

section 4501(c)(3) is determined only

with respect to stock issued or provided

by the expatriated entity to employees of

the expatriated entity.

E. Statutory exceptions to the application

of section 4501(a)

Section 4501(e) lists six transactions

that are statutorily excepted, in whole

or in part, from the application of section 4501(a) to a repurchase of a covered

corporation’s stock. These exceptions,

each of which is referred to as a “statutory

exception” in this preamble, are:

(1) To the extent that the repurchase is

part of a reorganization (within the meaning of section 368(a) of the Code) and no

gain or loss is recognized on the repurchase by the shareholder under chapter 1

of the Code (chapter 1) by reason of the

reorganization (section 4501(e)(1));

(2) 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 (section

4501(e)(2));

(3) In any case in which the total value

of the stock repurchased during the taxable

year does not exceed $1,000,000 (section

4501(e)(3)) (de minimis exception);

(4) Under regulations prescribed by the

Secretary, in cases in which the repurchase

789

is by a dealer in securities in the ordinary

course of business (section 4501(e)(4));

(5) By a regulated investment company

(RIC), as defined in section 851 of the

Code, or by a real estate investment trust

(REIT), as defined in section 856(a) of the

Code (section 4501(e)(5)); or

(6) To the extent that the repurchase is

treated as a dividend for purposes of the

Code (section 4501(e)(6)).

II. Prior Guidance

On January 17, 2023, the Department

of the Treasury (Treasury Department)

and the IRS published Notice 2023-2,

2023-3 I.R.B. 374, to provide initial guidance regarding the application of the stock

repurchase excise tax. On July 24, 2023,

the Treasury Department and the IRS

published Announcement 2023-18, 202330 I.R.B. 366, announcing that taxpayers

would not be required to report the stock

repurchase excise tax, or to make any payments of the tax, before the time specified

in forthcoming regulations.

On April 12, 2024, the Treasury

Department and the IRS published a

notice of proposed rulemaking (REG115710-22) in the Federal Register

(89 FR 25980) proposing to add a new

part 58 to 26 CFR chapter I and providing proposed regulations in subpart A

thereof that would implement the stock

repurchase excise tax for repurchases

made after December 31, 2022 (proposed computational regulations). On

April 12, 2024, the Treasury Department

and the IRS also published a separate

notice of proposed rulemaking (REG118499-23) in the same issue of the

Federal Register (89 FR 25829) providing proposed regulations in subpart B

of proposed 26 CFR part 58 regarding

the reporting and payment of the stock

repurchase excise tax (proposed procedural regulations). After taking into

account comments received on the proposed procedural regulations, the Treasury Department and the IRS published

final regulations (TD 10002) in the Federal Register (89 FR 55045) on July

3, 2024 (final procedural regulations)

adopting the proposed procedural regulations with modifications as subpart B

of 26 CFR part 58 (Stock Repurchase

Excise Tax Regulations).

December 15, 2025

A public hearing regarding the proposed computational regulations was held

on August 27, 2024. As described in the

Summary of Comments and Explanation

of Revisions, this Treasury decision adopts

the proposed computational regulations,

with modifications in response to the

comments received at the public hearing

as well as additional written comments, as

subpart A of the Stock Repurchase Excise

Tax Regulations and amends the final procedural regulations under section 6011 in

subpart B of the Stock Repurchase Excise

Tax Regulations. This Treasury decision

also amends the Income Tax Regulations

under section 1275 by adopting proposed

§1.1275-6(f)(12)(iii) without substantive

modification.

Summary of Comments and

Explanation of Revisions

I. Application of the Stock Repurchase

Excise Tax to Various Types of Stock

Proposed §58.4501-1(b)(29)(i) generally would define “stock” as any instrument issued by a corporation that is stock

or that is treated as stock for Federal tax

purposes at the time of issuance, regardless of whether the instrument is traded

on an established securities market.

However, proposed §58.4501-1(b)(29)

(ii) would exclude from the definition of

“stock” preferred stock that (i) qualifies

as additional tier 1 capital (within the

meaning of 12 CFR 3.20(c), 217.20(c),

or 324.20(c)), and (ii) does not qualify as

common equity tier 1 capital (within the

meaning of 12 CFR 3.20(b), 217.20(b),

or 324.20(b)) (additional tier 1 preferred

stock). The proposed computational regulations otherwise would apply the stock

repurchase excise tax to preferred stock

(including preferred stock issued prior

to the enactment date of the IRA) that is

treated as “stock” for Federal tax purposes

in the same manner as to common stock.

A. Preferred stock generally; section

1504(a)(4) preferred stock

Several commenters recommended

excluding redemptions of all preferred

stock from the application of the stock

repurchase excise tax. The commenters

contended that, although preferred stock is

December 15, 2025

treated as “stock” for Federal tax purposes,

applying the stock repurchase excise tax

to repurchases of such stock would contravene congressional intent that the tax

apply solely to repurchases of common

stock. Commenters further contended that

(i) because repurchases of preferred stock

(particularly “plain vanilla” preferred

stock described in section 1504(a)(4) of

the Code) are more akin to repaying debt,

repurchases of such stock do not implicate

the policy concerns underlying the stock

repurchase excise tax, and (ii) if redemptions of preferred stock were subject to

the stock repurchase excise tax, publicly

traded corporations might be incentivized

to increase their leverage by issuing debt

in lieu of preferred stock. Commenters

also contended that the grant of authority in section 4501(f) to address special classes of stock and preferred stock

essentially directs (or, at the very least, is

a statement of congressional intent) that

the Secretary issue regulations excluding

preferred stock from the stock repurchase

excise tax.

The plain language of the definitions

and operative rules in section 4501 does

not differentiate between common stock

and preferred stock, and a repurchase of

preferred stock is a “redemption” within

the meaning of section 317(b). Additionally, the grant of regulatory authority

in section 4501(f) is neither a mandate

to exclude all preferred stock from the

stock repurchase excise tax nor an indication that Congress intended the Treasury

Department and the IRS to provide such an

exclusion in regulations. If Congress had

intended to exclude all preferred stock,

it would have so provided in the statute.

Accordingly, these final regulations do not

exclude all preferred stock from the stock

repurchase excise tax.

However, the Treasury Department

and the IRS agree that preferred stock

described in section 1504(a)(4) is more

akin to debt. Accordingly, the Treasury

Department and the IRS do not view

repurchases of such stock as implicating

the policy concerns underlying the stock

repurchase excise tax. Consequently,

these final regulations provide that repurchases of preferred stock described in section 1504(a)(4) are not subject to the stock

repurchase excise tax. See §58.4501-1(b)

(34)(iii) (excluding section 1504(a)(4)

790

stock from the definition of “stock” for

purposes of the stock repurchase excise

tax regulations). As discussed in the

remainder of this part I of the Summary of

Comments and Explanation of Revisions,

these final regulations also provide additional exceptions for special classes of

stock and for certain preferred stock under

the grant of authority in section 4501(f).

B. Mandatorily redeemable stock; stock

issued prior to enactment of the IRA

Several commenters recommended

that, if the final regulations do not generally exclude preferred stock from the

stock repurchase excise tax, the final regulations should provide (i) an additional

exception for mandatorily redeemable

preferred stock, or (ii) transition relief

for repurchases of preferred stock issued

prior to the date of enactment of the IRA

(that is, August 16, 2022). One commenter recommended excluding all mandatorily redeemable preferred stock from

application of the stock repurchase excise

tax. Another commenter recommended

transition relief for all types of preferred

stock issued prior to the date of enactment of the IRA. Still other commenters

recommended limiting transition relief to

(i) mandatorily redeemable stock (or at

least mandatorily redeemable preferred

stock), and (ii) stock subject by its terms

to unilateral put options of the holders,

if such stock was outstanding as of the

date of enactment of the IRA. According

to the commenters, the requested relief is

appropriate because (i) absent such relief,

previously established economic entitlements will be undermined, (ii) covered

corporations are required to repurchase

mandatorily redeemable stock, and (iii)

mandatorily redeemable preferred stock

may resemble other instruments treated as

debt for tax purposes.

The Treasury Department and the IRS

agree that transition relief is appropriate

for certain types of stock issued prior to

the date of enactment of the IRA if the

covered corporation no longer has discretion as to whether to repurchase such stock

after that date. Accordingly, these final

regulations incorporate transition relief

for mandatorily redeemable stock and for

stock subject by its terms to a unilateral

put option of the holder, if such stock was

Bulletin No. 2025–51

outstanding prior to August 16, 2022. See

§58.4501-2(e)(3)(iii).

C. Additional tier 1 preferred stock

As previously discussed in this part I

of the Summary of Comments and Explanation of Revisions, proposed §58.45011(b)(29)(ii) would exclude certain additional tier 1 preferred stock from the

definition of “stock” for purposes of the

stock repurchase excise tax. The proposed

computational regulations would define

“additional tier 1 preferred stock” to mean

preferred stock that qualifies as additional

tier 1 capital (within the meaning of 12

CFR 3.20(c), 217.20(c), or 324.20(c))

and does not qualify as common equity

tier 1 capital (within the meaning of 12

CFR 3.20(b), 217.20(b), or 324.20(b)).

Consequently, under the proposed computational regulations, additional tier 1 preferred stock described in those regulations

would not be subject to the stock repurchase excise tax, and the issuance of that

additional tier 1 preferred stock would not

be taken into account for purposes of the

netting rule.

1. Farm Credit System Stock; Savings

and Loan Holding Companies with

Significant Insurance Operations

Commenters recommended expanding

the definition of “additional tier 1 preferred stock” to include preferred stock

issued by cooperative banks, agricultural

credit associations, Federal land credit

associations, and production credit associations in the Farm Credit System, which

are collectively referred to as “system entities.” According to the commenters, system entities are chartered under the Farm

Credit Act of 1971 (Public Law 92-181,

85 Stat. 583) and subject to regulation and

oversight by the Farm Credit Administration (FCA). For example, according to the

commenters, system entities are subject

to regulatory capital requirements prescribed by the FCA and issue and redeem

preferred stock governed by 12 CFR

628.20(c) to meet these regulatory capital

requirements.

The commenters also noted that,

although the stock of cooperatives that are

system entities generally is not publicly

traded, the preferred stock of such entities

Bulletin No. 2025–51

occasionally is traded over the counter

(OTC), and such trades are reported on the

Financial Industry Regulatory Authority

OTC Reporting Facility (ORF). The commenters further noted that the U.S. Securities and Exchange Commission (SEC) has

designated the ORF as a qualifying electronic quotation system for purposes of

the penny stock rules and as an automated

interdealer quotation system for purposes

of the definition of “penny stock” under

17 CFR 240.3a51-1. Accordingly, the

commenters noted that the ORF potentially could qualify as an “established

securities market” as defined in proposed

§58.4501-1(b)(13).

Another commenter noted that the

capital adequacy rules for qualifying preferred stock as additional tier 1 capital

are functionally the same for bank holding companies as for savings and loan

holding companies with significant insurance operations (savings and loan holding companies). Additional tier 1 capital

requirements for savings and loan holding companies are described in 12 CFR

217.608. The commenter requested that

preferred stock qualifying as additional

tier 1 capital issued by savings and loan

holding companies be included in the

definition of “additional tier 1 preferred

stock.”

According to the commenters, the preferred stock issued by system entities and

governed by 12 CFR 628.20(c), as well as

the preferred stock issued by savings and

loan holding companies and governed by

12 CFR 217.608, have the same requirements and restrictions as the additional

tier 1 preferred stock governed by 12 CFR

3.20(c), 217.20(c), and 324.20(c). Specifically, the system entity and the savings and loan holding company may not

redeem or repurchase the preferred stock

without prior approval from the FCA or

the Board of Governors of the Federal

Reserve System (Board), respectively.

Moreover, if such preferred stock is callable by its terms, (i) it may not be called

for at least five years, (ii) the system entity

or the savings and loan holding company

must receive prior approval from the FCA

or the Board, respectively, to exercise the

call option, and (iii) the system entity or

the savings and loan holding company

either must replace the instrument with

other tier 1 capital or demonstrate to the

791

FCA or the Board, respectively, that it will

continue to hold capital commensurate

with risk.

The Treasury Department and the

IRS agree with the commenters that the

requirements and restrictions for certain stock issued by system entities and

savings and loan holding companies are

similar to the requirements and restrictions for additional tier 1 preferred stock

governed by 12 CFR 3.20(c), 217.20(c),

and 324.20(c). Accordingly, these final

regulations provide an exception to the

stock repurchase excise tax for stock of

system entities that qualifies as additional

tier 1 preferred stock that is not common

equity tier 1 capital, as well as for stock

of savings and loan holding companies

that qualifies as additional tier 1 preferred

stock that is not common equity tier 1 capital. See §58.4501-1(b)(34)(ii).

2. Foreign Additional Tier 1 Preferred

Stock

Another commenter recommended

expanding the definition of “additional

tier 1 preferred stock” to include instruments issued by foreign-parented banks

that issue additional tier 1 capital pursuant

to their own local rules implementing the

Basel III Accord. According to the commenter, the Basel III Accord established

numerous requirements that an instrument must meet to qualify as additional

tier 1 capital, including that: (i) the issuer

must obtain supervisory approval prior

to repurchasing or redeeming the instrument; (ii) the instrument may be callable

only after a minimum of five years; and

(iii) the issuer may not exercise a call

option unless it either (A) replaces the

called instrument with capital of the same

or better quality, or (B) demonstrates that

its capital position is well above the minimum capital requirements after the call

option is exercised. See Basel Committee on Banking Supervision, Basel III: A

Global Regulatory Framework for More

Resilient Banks and Banking Systems, at

16 (rev. June 2011). The commenter noted

that such requirements are reflected in the

framework for the rules and regulations

adopted by the United States with respect

to an instrument’s qualification as additional tier 1 capital under 12 CFR 3.20(c),

217.20(c), and 324.20(c).

December 15, 2025

These final regulations do not

include an exception for additional tier

1 preferred stock of a foreign issuer. As

described in part VIII.B of this Summary

of Comments and Explanation of Revisions, these final regulations do not adopt

the proposed funding rule. Moreover, the

commenter did not identify any regulatory reason why an applicable specified

affiliate would acquire additional tier 1

preferred stock of a foreign parent. By

contrast, it is common for a U.S. issuer

of additional tier 1 preferred stock to

repurchase or redeem its stock in order

to manage its compliance with U.S. regulatory rules. Accordingly, the reasons

for providing an exception for U.S. additional tier 1 preferred stock do not apply

to additional tier 1 preferred stock of a

foreign issuer.

II. Becoming or Ceasing to Be a Covered

Corporation

Under the proposed computational regulations, a corporation generally would be

treated as (i) becoming a covered corporation at the beginning of the date on which

its stock begins to be traded on an established securities market (initiation date),

and (ii) ceasing to be a covered corporation at the end of the date on which all of

its stock ceases to be traded on an established securities market (cessation date).

See proposed §§58.4501-1(b)(3) and (16)

and 58.4501-2(d)(1) and (d)(2)(i). Proposed §58.4501-4(b)(2) would provide

that stock issued by a covered corporation

or provided by a specified affiliate before

the initiation date or after the cessation

date is not taken into account in computing the covered corporation’s stock repurchase excise tax base.

However, proposed §58.4501-2(d)

(2)(ii) would provide an exception for

certain repurchases after the cessation

date. Under this exception, if a corporation ceased to be a covered corporation

pursuant to a plan that included a repurchase, and if the cessation date preceded

the date of any repurchase undertaken

pursuant to the plan, the corporation

would continue to be a covered corporation with regard to each repurchase

pursuant to the plan until the end of the

date of the last repurchase pursuant to

the plan. For example, all repurchases

December 15, 2025

of target covered corporation stock in an

acquisitive reorganization pursuant to the

plan of reorganization would be subject

to the stock repurchase excise tax (if no

exception applied), even if all the target

covered corporation’s stock ceased to be

traded on an established securities market prior to the last repurchase made pursuant to the plan of reorganization.

One commenter recommended narrowly tailoring this exception to apply

only in situations in which (i) there is a

binding commitment to execute a series

of steps that include a cessation date and

a repurchase, (ii) the repurchase and cessation of publicly traded status are part

of the same series of steps, and (iii) the

repurchase relates to the shares outstanding at the time the covered corporation

entered into the plan. Commenters also

recommended expanding the exception

to include issuances that occur as a part

of a “take private” plan for purposes of

the netting rule. For example, one commenter noted that certain “take private”

transactions are structured to include

both issuances to new shareholders and

repurchases from other shareholders, and

that the timing of the issuances may not

always precede the date that a corporation

ceases to have stock that is traded on an

established securities market. The commenter recommended that, if a corporation continues to be treated as a covered

corporation after the cessation date, its

status as a covered corporation should be

respected for both repurchases and issuances. A commenter also recommended

clarifying whether a corporation is treated

as a covered corporation until the date of

the final repurchase (i) only for purposes

of repurchases made pursuant to the plan,

or (ii) for all purposes.

These final regulations do not include

an exception for certain repurchases after

the cessation date because, as discussed

in parts III and IV.C of this Summary of

Comments and Explanation of Revisions,

the Treasury Department and the IRS

have concluded that section 4501 does

not apply to “take private” transactions

(including but not limited to acquisitive

reorganizations). See §58.4501-2(e)(3)

(ii) and (e)(5)(v). For the same reason,

these final regulations do not provide an

exception for issuances after the cessation date.

792

III. Target-Sourced Cash in Take-Private

Transactions

Under the proposed computational

regulations, unless an exception applies,

the target-corporation-funded portion of

the consideration in a leveraged buyout

or other “take private” transaction would

be treated as a repurchase for purposes of

computing the target corporation’s stock

repurchase excise tax base. See proposed

§58.4501-2(e)(2); see also Rev. Rul.

78-250, 1978-1 C.B. 83 (disregarding the

creation and merger of a transitory corporation into an existing corporation and

treating the cashing out of the existing

corporation’s minority shareholders as a

redemption subject to section 302).

To determine the target-corporation-funded portion of the consideration

used to pay shareholders in such transactions, one commenter recommended

against applying a tracing rule and,

instead, recommended a rule treating cash

on a target corporation’s balance sheet or

cash borrowed by the target corporation

as being used to satisfy the target corporation’s liabilities in order of seniority

(similar to the priority of claims on a corporation’s assets in an insolvency or bankruptcy under title 11 of the U.S. Code)

before being distributed to its shareholders. Under this approach, cash on the target

corporation’s balance sheet or borrowed at

the target corporation level would not be

treated as resulting in a repurchase to the

extent there were transaction expenses,

accrued cash amounts owed to employees,

or target corporation debt that was being

repaid, as any of these liabilities would be

senior to shareholders’ rights to payment.

In a prior comment received with

respect to Notice 2023-2, a stakeholder

also contended that taxable acquisitions

generally should not be subject to the

stock repurchase excise tax because, like

other M&A transactions, taxable acquisitions generally do not bear the traditional

hallmarks of conventional, often opportunistic stock repurchase transactions

and programs that, in the stakeholder’s

view, were the intended target of the stock

repurchase excise tax. In other words, taxable acquisitions are not single-company

transactions that distribute corporate value

to shareholders in exchange for the surrender of corporate stock.

Bulletin No. 2025–51

The Treasury Department and the IRS

agree with the commenter that Congress

generally did not intend for the stock

repurchase excise tax to apply to transactions, such as leveraged buyouts and other

“take private” transactions, that fundamentally restructure corporate ownership

or control through combinations of separate business entities. Accordingly, these

final regulations provide that redemptions

by a covered corporation that occur as

part of a transaction in which the covered

corporation ceases to be a covered corporation are not treated as repurchases for

purposes of the stock repurchase excise

tax. See §58.4501-2(e)(3)(ii). Because the

Treasury Department and the IRS have

concluded that since section 4501 does

not apply to transactions that fundamentally restructure corporate ownership or

control through combinations or separate

business entities, the Treasury Department

and the IRS have determined that it is not

necessary for these final regulations to

address how to determine the target-corporation-funded portion of the consideration in such transactions.

IV. Economically Similar Transactions

Consistent with section 4501(c)(1),

proposed §58.4501-2(e)(2) would define

a “repurchase” to mean solely (i) a section 317(b) redemption (unless otherwise

excluded under proposed §58.4501-2(e)

(3)), or (ii) an economically similar transaction. Proposed §58.4501-2(e)(4) would

provide an exclusive list of transactions

that are economically similar transactions,

including: (i) an acquisitive reorganization

under section 368(a)(1)(A) (including by

reason of section 368(a)(2)(D) and (E)),

section 368(a)(1)(C), or section 368(a)(1)

(D) or (G) (if the reorganization satisfies

the requirements of section 354(b)(1) of

the Code) in which the target corporation

is a covered corporation; (ii) a reorganization under section 368(a)(1)(E) (E reorganization) in which the recapitalizing corporation is a covered corporation; (iii) a

reorganization under section 368(a)(1)(F)

(F reorganization) in which the transferor

corporation is a covered corporation; (iv)

a split-off under section 355 of the Code

by a distributing corporation that is a

covered corporation; (v) a distribution to

which section 331 of the Code applies if

Bulletin No. 2025–51

the distribution is part of a complete liquidation of a covered corporation to which

both sections 331 and 332(a) of the Code

apply; and (vi) certain forfeitures and

clawbacks of stock of a covered corporation.

A. List of economically similar

transactions

Several commenters recommended

that any transactions added to the exclusive list of economically similar transactions in future guidance should be subject

to the stock repurchase excise tax only on

a prospective basis, in order to provide

clarity and certainty.

As stated in the preamble to the proposed computational regulations, the

Treasury Department and the IRS anticipate that most transactions treated as economically similar transactions in future

regulations would be treated as such only

on a prospective basis. See section 7805(b)

(1), which generally limits the retroactive

application of temporary, proposed, or

final regulations under the Code.

However, under section 7805(b)(3), the

Secretary may provide that any regulation

may take effect or apply retroactively to

prevent abuse. The Treasury Department

and the IRS decline to preemptively provide that future regulations will not retroactively treat any additional transactions

as economically similar transactions, as

such retroactive treatment may be necessary in certain situations to prevent abuse.

Accordingly, these final regulations do not

adopt this recommendation.

B. Complete liquidations

Under proposed §58.4501-2(e)(5), a

distribution in complete liquidation of a

covered corporation to which either section 331 or 332 (but not both) applies

would not be a repurchase and, thus,

would not be subject to the stock repurchase excise tax. However, under proposed §58.4501-2(e)(4)(v)(A), if sections

331 and 332 both apply to a complete

liquidation, then (i) the distribution to

the 80-percent distributee (see section

332(b)(1)) would not be subject to the

stock repurchase excise tax, but (ii) each

distribution to which section 331 applies

(that is, the surrender of covered corpora-

793

tion stock by each minority shareholder)

would be subject to the stock repurchase

excise tax. Such a complete liquidation is

substantively similar to an upstream reorganization of the liquidating subsidiary

into the 80-percent distributee in which

the minority shareholders receive only

non-qualifying property in exchange for

their stock in the liquidating subsidiary.

As discussed in parts IV.C.1 and 4 of

this Summary of Comments and Explanation of Revisions, the Treasury Department and IRS have concluded that section

4501 does not apply to upstream reorganizations and other acquisitive reorganizations. Accordingly, to provide consistency, these final regulations also provide

that complete liquidations to which sections 331 and 332 both apply are not subject to the stock repurchase excise tax. See

§58.4501-2(e)(5)(i).

C. Acquisitive reorganizations

In the case of an acquisitive reorganization in which the target corporation is a

covered corporation, proposed §58.45012(e)(4)(i) would treat 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. Under proposed

§58.4501-2(c)(1)(i) and (e)(4)(i), the effect

of an acquisitive reorganization on a target

corporation’s stock repurchase excise tax

base would be computed by first including in that tax base the fair market value

of all target corporation stock exchanged

in the transaction (regardless of the type

of consideration for which the stock is

exchanged) (gross repurchase amount).

Under proposed §58.4501-2(c)(1)(ii), the

gross repurchase amount then would be

reduced under the statutory exception in

section 4501(e)(1) (reorganization exception) by the fair market value of the target

corporation stock exchanged for property

permitted to be received by the target corporation shareholders without recognition

of gain or loss under section 354 or 355

(that is, qualifying property). Thus, under

the foregoing approach, the target corporation generally would have been subject

to the stock repurchase excise tax only to

the extent of the fair market value of target

corporation stock exchanged for property

that is non-qualifying property.

December 15, 2025

1. Acquisitive Reorganizations as

Economically Similar Transactions

Several commenters recommended

excluding acquisitive reorganizations from

the stock repurchase excise tax in whole

or in part. The commenters disagreed

with subjecting all exchanges of target

corporation stock as part of an acquisitive reorganization to the stock repurchase

excise tax. According to the commenters,

a multi-step analysis is required to ensure

the properly tailored application of the

stock repurchase excise tax to merger and

acquisition (M&A) transactions: (i) first,

there must be a threshold determination

that a “repurchase” (as defined in section

4501(c)(1)) has occurred; (ii) second, the

repurchase must be determined to be part

of a section 368(a) reorganization; and

(iii) third, the reorganization exception

must be applied to determine the extent to

which the repurchase is excluded from the

stock repurchase excise tax.

One commenter asserted that, if Congress had intended the exchange of target corporation stock in connection with

any type of reorganization under section

368(a) to be treated as a repurchase, Congress could have provided explicit language to that effect in the statute. In a prior

comment received with respect to Notice

2023-2, a stakeholder also contended that

acquisitive reorganizations should not

be subject to the stock repurchase excise

tax because acquisitive reorganizations

and other M&A transactions do not bear

the traditional hallmarks of conventional,

often opportunistic stock repurchase

transactions and programs that, in the

stakeholder’s view, were the intended target of the stock repurchase excise tax.

The Treasury Department and the IRS

agree with the commenters that Congress

generally did not intend for the stock repurchase excise tax to apply to transactions,

such as acquisitive reorganizations, that

fundamentally restructure corporate ownership or control through combinations of

separate business entities. In other words,

as noted by one commenter, reorganizations are not single-company transactions

that distribute corporate value to shareholders in exchange for the surrender of corporate stock. Moreover, as discussed in parts

III and IV.B of this Summary of Comments

and Explanation of Revisions, the Treasury

December 15, 2025

Department and the IRS have concluded

that section 4501 does not apply to a covered corporation that ceases to be a covered

corporation (for example, through a merger

or a liquidation for Federal income tax

purposes) as a result of the reorganization.

Accordingly, in the case of an acquisitive

reorganization in which the target corporation is a covered corporation prior to the

transaction, these final regulations do not

treat 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.

See §58.4501-2(e)(5)(v).

2. Sourcing Approach to Acquisitive

Reorganizations

Several commenters recommended that,

if the final regulations do not wholly exempt

acquisitive reorganizations from the stock

repurchase excise tax, this tax should apply

solely to the extent that any non-qualifying property is sourced from the target

corporation (sourcing approach). Under

the proposed computational regulations, a

sourcing approach would apply to taxable

acquisitions involving partial redemptions

using cash sourced from the target corporation, but not to acquisitive reorganizations. According to the commenters, this

disparate treatment of taxable transactions

and acquisitive reorganizations is contrary

to the plain language of section 4501(c)

(1) and extending the sourcing approach

would strike a better balance between the

statutory language of section 4501 and the

types of single-entity corporate contractions to which, in the commenters’ view,

the excise tax was intended to apply.

Another commenter recommended

applying a sourcing approach to cash paid

to dissenting shareholders. Under this

approach, the stock repurchase excise tax

would apply to the extent cash sourced

from the target corporation was used to

satisfy dissenting shareholders’ claims.

By concluding that section 4501 does

not apply to acquisitive reorganizations,

these final regulations have addressed this

comment.

3. Reverse Triangular Mergers

One commenter recommended that, if

the foregoing recommendations regard-

794

ing acquisitive reorganizations are not

adopted, the stock repurchase excise tax

base should exclude any non-qualifying

property sourced from the acquiring corporation and paid to target shareholders in

connection with a reorganization qualifying under section 368(a)(1)(A) by means

of section 368(a)(2)(E) (reverse triangular

merger). According to the commenter, a

reverse triangular merger (like a reorganization under section 368(a)(1)(B) (B

reorganization)) is a stock-based reorganization that does not involve an actual or a

deemed redemption within the meaning of

section 317(b). Another commenter recommended providing an overlap rule for

reverse triangular mergers that also qualify as B reorganizations (because the consideration provided includes only qualifying property). Under this overlap rule,

such transactions would be treated as B

reorganizations and would not be subject

to the stock repurchase excise tax.

By concluding that section 4501 does

not apply to acquisitive reorganizations,

these final regulations have addressed this

comment.

4. Upstream Reorganizations

One commenter requested clarification as to whether an actual or deemed

upstream reorganization of a specified

affiliate into a covered corporation in a

transaction that qualifies under section

368(a)(1)(A) or (C) is a “repurchase” for

purposes of the stock repurchase excise

tax. See Rev. Rul. 69-617, 1969-2 C.B.

57. For Federal income tax purposes, the

transaction would be treated as if (i) the

specified affiliate’s assets were transferred

to the covered corporation in exchange for

covered corporation stock in an exchange

that qualifies for nonrecognition under

section 361(a), and then (ii) the specified

affiliate transferred the covered corporation stock back to the covered corporation

in exchange for the specified affiliate’s

stock (that is, the covered corporation is

treated as acquiring its own stock) in an

exchange that qualifies for nonrecognition treatment to the covered corporation

under section 354 and to the specified

affiliate under section 361(c).

Under the proposed computational regulations, the deemed exchange described

in clause (ii) of the prior sentence may

Bulletin No. 2025–51

implicate the stock repurchase excise tax,

because the acquiring covered corporation

is deemed to acquire its stock from the

specified affiliate in exchange for property

(that is, stock of the specified affiliate).

Additionally, the reorganization exception

would not apply, because that exception

is limited to situations where a covered

corporation is the target corporation. The

commenter recommended providing that

such transactions are not repurchases for

purposes of the stock repurchase excise

tax if the target corporation is not also a

covered corporation.

By concluding that section 4501 does

not apply to acquisitive reorganizations,

these final regulations have addressed this

comment.

D. Single-entity reorganizations

1. In General

Under proposed §58.4501-2(e)(4)

(ii) and (iii), respectively, E reorganizations and F reorganizations would be

treated as economically similar transactions in the same manner as other reorganizations for purposes of the stock

repurchase excise tax. Accordingly, a

recapitalizing corporation in an E reorganization or the transferor corporation

in an F reorganization would have a

repurchase to the extent of the fair market value of the shares exchanged by its

shareholders in the transaction. However,

under proposed §58.4501-3(c)(2) and (3)

(applying the reorganization exception to

E reorganizations and F reorganizations,

respectively), the fair market value of the

repurchased shares exchanged for qualifying property (that is, property permitted to be received by the shareholders

without recognition of gain or loss under

section 354) would reduce the corporation’s gross repurchase amount. As a

result, the corporation would be subject

to the stock repurchase excise tax only

to the extent of the fair market value of

its shares repurchased with non-qualifying property (if any). Additionally, stock

issued by the recapitalizing corporation

in the E reorganization, or by the resulting corporation in the F reorganization,

would be disregarded for purposes of the

netting rule under the “no double benefit

rule.” See proposed §58.4501-4(f)(3).

Bulletin No. 2025–51

A distribution of non-qualifying property by the transferor corporation in an

F reorganization is treated as a separate

transaction (for example, under section

302) for Federal income tax purposes. See

§1.368-2(m)(3)(iii) (providing that any

distribution of money or other property

from either the transferor corporation or

the resulting corporation, including any

money or other property exchanged for

shares, in an F reorganization is treated as

an unrelated, separate transaction from the

reorganization). The proposed computational regulations would not have changed

the application of this rule for purposes of

the stock repurchase excise tax.

Several commenters contended that an

exchange of stock for qualifying property

in an E reorganization or an F reorganization should not be subject to the stock

repurchase excise tax. Stated differently,

commenters recommended that E reorganizations and F reorganizations should not

give rise to a repurchase unless and to the

extent that shareholders receive non-qualifying property. One commenter contended

that stock issued by a covered corporation

is not “property” for purposes of section

317(b). Therefore, according to the commenter, the issuance of qualifying property in exchange for stock in an E reorganization or an F reorganization should

not be treated as an economically similar

transaction that results in a repurchase for

purposes of section 4501(a). A commenter

recommended analyzing the distribution

of non-qualifying property separately

under section 301 and/or section 302 of

the Code for purposes of the stock repurchase excise tax, consistent with general

principles of Federal income tax law. The

commenter also requested clarification

as to whether all E reorganizations and F

reorganizations are covered, or only those

in which an “exchange” occurs in form.

The Treasury Department and the IRS

agree with the commenters that the issuance of qualifying property in exchange

for stock in an E reorganization or an

F reorganization should not be treated

as an economically similar transaction.

Accordingly, these final regulations provide that E reorganizations are treated

as repurchases for purposes of the stock

repurchase excise tax only if and to

the extent that (i) shareholders receive

non-qualifying property (that is, property

795

not permitted to be received by the shareholders without recognition of gain or loss

under section 354), and (ii) the receipt of

such property is not treated as a distribution under section 301 (either by reason of

§1.301-1(j), 1.305-7(c)(2), or 1.368-2(e)

(5)). See §58.4501-2(e)(4)(i). As a result,

E reorganizations in which the recapitalizing corporation’s shareholders receive

only qualifying property (i) are not treated

as repurchases for purposes of the de

minimis exception, and (ii) do not need to

be reported on the stock repurchase excise

tax return under §58.6011-1(a).

Because any distribution of money or

other property from either the transferor

corporation or the resulting corporation in

an F reorganization is treated as an unrelated, separate transaction (see §1.3682(m)(3)(iii)), and because such a distribution to the corporation’s shareholders in

exchange for their stock in the corporation

constitutes a section 317(b) redemption

(see §58.4501-5(b)(10) (Example 10)),

these final regulations do not include an

explicit rule treating F reorganizations in

which the transferor corporation’s shareholders receive non-qualifying property

as economically similar transactions. See

§58.4501-2(e)(4). As is the case with

E reorganizations, F reorganizations in

which the transferor corporation’s shareholders receive only qualifying property (i) are not treated as repurchases for

purposes of the de minimis exception,

and (ii) do not need to be reported on the

stock repurchase excise tax return under

§58.6011-1(a).

2. Debt-for-Debt Exchanges

The proposed computational regulations provided that the stock repurchase

excise tax would apply to E reorganizations only if there is an exchange by the

recapitalizing corporation shareholders

of their recapitalizing corporation stock.

See proposed §58.4501-2(e)(4)(ii); see

also proposed §§58.4501-1(a) (excise tax

is imposed on “any stock of the corporation that is repurchased”); 58.4501-1(b)

(29) (definition of “stock”); 58.4501-2(c)

(1) (determination of stock repurchase

excise tax base). Nevertheless, one commenter recommended clarifying that the

stock repurchase excise tax does not apply

to E reorganizations in which there is no

December 15, 2025

exchange of recapitalizing corporation

stock (for example, in a recapitalization

solely with respect to debt securities).

Accordingly, although these final regulations continue to provide that the stock

repurchase excise tax applies to E reorganizations only if there is an exchange

by the recapitalizing corporation shareholders of their recapitalizing corporation

stock (see §58.4501-2(e)(4)(i)), these final

regulations also include an example illustrating that such debt-for-debt exchanges

are not subject to the stock repurchase

excise tax. See §58.4501-5(b)(2) (Example 2).

3. Preferred Stock with Dividends in

Arrears

Another commenter recommended

that, to the extent shares are repurchased

in an E reorganization in exchange for

qualifying property, the fair market value

of those repurchased shares should be a

reduction to the excise tax base, regardless of whether any shares (that is, qualifying property) issued are treated as distributed under sections 301 and 305(b) of

the Code pursuant to section 305(c) and

§1.305-7(c)(1)(ii). (Section 305(c) concerns certain transactions that are treated

as distributions, and §1.305-7(c)(1)(ii)

provides that a recapitalization is deemed

to result in a distribution to which section

305(c) and §1.305-7 apply if a shareholder

owning preferred stock with dividends in

arrears exchanges the stock for other stock

and, as a result, increases the shareholder’s proportionate interest in the assets or

earnings and profits (E&P) of the corporation.) In other words, the commenter

recommended that the reorganization

exception apply to the entire repurchase in

connection with the E reorganization, and

not just to the part of the repurchase that is

not treated as a distribution under sections

301 and 305(b).

The Treasury Department and the IRS

agree that the fair market value of shares

exchanged in an E reorganization attributable to dividends in arrears should not

be subject to the stock repurchase excise

tax. As discussed in part IV.D.1 of this

Summary of Comments and Explanation

of Revisions, these final regulations treat

E reorganizations as repurchases for purposes of the stock repurchase excise tax

December 15, 2025

only if and to the extent (i) shareholders

receive non-qualifying property, and (ii)

the receipt of such property is not treated

as a distribution under section 301 by

reason of §1.305-7(c)(2) or 1.368-2(e)

(5). Accordingly, these final regulations

have addressed this comment through

narrowing the scope of what constitutes a

repurchase, which has the added benefit of

eliminating the reporting burden for such

exchanges.

E. Split-offs

Proposed §58.4501-2(e)(4)(iv) would

provide that, in the case of a split-off qualifying under section 355 (or so much of

section 356 of the Code as relates to section 355) by a distributing corporation that

is a covered corporation, the exchange by

the distributing corporation shareholders

of their distributing corporation stock is

a repurchase by the distributing corporation. Thus, under the proposed computational regulations, a split-off that involves

the exchange of distributing corporation

stock solely for qualifying property would

be taken into account for purposes of

the de minimis exception and would be

required to be reported on the stock repurchase excise tax return. However, under

proposed §58.4501-3(c), the distributing

corporation would be able to reduce its

repurchase amount pursuant to the reorganization exception (see part V.A of this

Summary of Comments and Explanation

of Revisions for a discussion of the reorganization exception).

The Treasury Department and the IRS

have concluded that section 4501 applies

to the exchange by the distributing corporation shareholders of their distributing

corporation stock for the stock of a controlled corporation in a split-off. Accordingly, these final regulations continue to

treat the acquisition by a distributing corporation that is a covered corporation of its

stock in a split-off as a repurchase by the

distributing corporation. See §58.45012(e)(4)(ii).

V. Statutory Exceptions

A. Reorganization exception

With respect to the reorganization

exception, the proposed computational

796

regulations would adopt a consideration-based approach to the requirement

in section 4501(e)(1) that no gain or loss

is recognized on the repurchase by the

shareholder under chapter 1 by reason of

the reorganization. The approach would

focus on whether the target corporation

shareholders receive property permitted

to be received without the recognition of

gain or loss under section 354 or 355 (that

is, qualifying property). See proposed

§58.4501-3(c). This approach would be

consistent with the interpretation of similar requirements elsewhere in subchapter

C of chapter 1 of the Code (subchapter C).

See, for example, §§1.306-2(b)(2) (interpreting the exception to section 306(a) for

a disposition of section 306 stock in which

no gain or loss is recognized); 1.355-3(b)

(4)(i) (interpreting the requirement under

section 355(b)(2)(C) and (D) that an active

trade or business not be acquired direct

or indirectly within the five-year period

preceding the distribution in a transaction

in which gain or loss was recognized in

whole or in part).

A commenter recommended that the

determination of whether a shareholder

recognized gain or loss also should take

into account whether, and the extent to

which, a shareholder receiving non-qualified property actually recognized gain

(that is, whether the amount realized by

the shareholder exceeds the shareholder’s basis). According to the commenter,

this interpretation is closer to the language of the statute than the proposed

consideration-based approach. However,

in prior comments provided with respect

to section 4501, a different stakeholder

expressed the view that the consideration-based approach is superior from a

policy perspective.

The Treasury Department and the IRS

disagree with the commenter that the

determination of whether the reorganization exception applies should take into

account the basis and amount realized in

the transaction of each shareholder of a

covered corporation. Congress overlaid

the stock repurchase excise tax on top of

the provisions and principles of subchapter

C. As specifically applicable to the reorganization exception, Congress defined

a “repurchase” in section 4501(c)(1) to

mean solely a section 317(b) redemption

(and any transaction determined by the

Bulletin No. 2025–51

Secretary to be economically similar to a

section 317(b) redemption), and then provided an exception in section 4501(e)(1)

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. The Treasury Department

and the IRS have determined that, consistent with the interpretation of similar provisions of subchapter C (and taking into

account the narrowed scope of economically similar transactions), the reorganization exception in these final regulations

applies only if section 355 prevents the

shareholder of a covered corporation from

recognizing gain or loss on the exchange

of the covered corporation’s stock (that is,

if the shareholder receives only qualifying

property). This interpretation gives effect

to the statutory language “by reason of

such reorganization.”

The consideration-based approach also

is consistent with the Treasury Department’s and the IRS’s view that the reorganization exception should be available

to the extent shareholders’ interests in

the covered corporation are preserved.

Moreover, basing the application of the

reorganization exception on whether

shareholders actually recognized gain as

an economic matter would be inconsistent with the statutory structure of section

4501, because the general statutory definition of “repurchase” in section 4501(c)(1)

includes any section 317(b) redemption or

economically similar transaction regardless of whether the shareholder recognizes

gain or loss in an economic sense.

In addition, the Treasury Department

and the IRS continue to be of the view

that the consideration-based approach

not only implements the plain language

of the reorganization exception but also

provides a rule that is readily administrable by taxpayers and the IRS. In contrast,

an approach that focuses on whether each

shareholder of a covered corporation actually recognized gain or loss would impose

an unreasonable administrative burden on

taxpayers and the IRS. Therefore, these

final regulations do not adopt the commenter’s recommendation.

Instead, consistent with the views

expressed by the other stakeholder, these

final regulations maintain an approach

Bulletin No. 2025–51

based on the type of consideration provided in the reorganization, and, thus,

similar to the applicability of the “no recognition of gain or loss” rules in section

355. Relatedly, however, and as previously discussed in part IV of this Summary of Comments and Explanation of

Revisions, the reorganization exception

in these final regulations also reflects the

narrower scope of reorganizations that are

economically similar transactions for purposes of section 4501.

B. Stock contribution exception

Section 4501(e)(2) provides an exception to the application of the stock repurchase excise tax “in any case in which

the stock repurchased is, 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, or similar plan.”

One commenter recommended that, to

better reflect the reality of group employee

plans and align with congressional intent,

the final regulations should exempt a stock

repurchase from the stock repurchase

excise tax if the repurchase is related to

either (i) the granting of stock to employees as part of a long-term incentive plan,

or (ii) a cancellation of stock triggered by

a previous capital increase carried out as

part of an employee shareholder program.

The commenter also requested exempting

all repurchases made in connection with

employee stock plans if (i) such repurchases are made using trust assets by a

grantor trust established in connection

with unfunded deferred compensation

arrangements (commonly referred to as a

“rabbi trust”), and (ii) the shares continue

to be held by the rabbi trust for use in connection with those employee stock plans.

These final regulations do not adopt the

commenter’s recommendations. The Treasury Department and the IRS are of the

view that the stock contribution exception

should not be used to encourage executive

compensation arrangements. The definition of an “employer-sponsored retirement plan” in proposed §58.4501-1(b)

(11) is limited to plans that are qualified

under section 401(a) of the Code (including ESOPs). These final regulations do

not broaden this term to include executive

compensation arrangements.

797

C. RIC/REIT exception

To implement the exception for

repurchases by a RIC or a REIT in section 4501(e)(5), proposed §58.4501-3(f)

would provide that a repurchase by a covered corporation that is a RIC or a REIT is

a reduction for purposes of computing the

covered corporation’s stock repurchase

excise tax base. These final regulations

retain this rule. See §58.4501-3(f).

A commenter recommended extending

the exception for RICs to all funds registered under the Investment Company Act

of 1940, 15 U.S.C. 80a-1 et. seq., including funds that do not qualify as RICs for

Federal income tax purposes (non-RIC

funds). The commenter suggested that

Congress’s rationale for excepting RICs

from the stock repurchase excise tax also

applies to non-RIC funds, because the

organizational structure, operations, applicable securities laws, and accounting standards are the same for those funds as for

funds that are RICs for Federal income tax

purposes. The commenter indicated that

the majority of non-RIC funds affected

by the stock repurchase excise tax fail

to qualify as RICs solely because their

investments in publicly traded partnerships exceed the limits in section 851(b)

(3). According to the commenter, those

investments do not distinguish these

funds from RICs in any way relevant to

the stock repurchase excise tax. The commenter also noted that most non-RIC

funds are required to redeem shares at the

demand of a shareholder, which means

that the stock repurchase excise tax will

not deter repurchases. Moreover, the commenter noted that because shares of nonRIC funds are priced based on net asset

value, such funds are incapable of using

stock repurchases to artificially increase

their share value.

The Treasury Department and the IRS

agree that certain non-RIC funds are obligated to redeem shares at the demand of a

shareholder and, therefore, are limited in

their ability to use stock repurchases for

other purposes, such as artificially increasing share value. Accordingly, under the

grant of authority in section 4501(f), these

final regulations provide an exception

for certain non-RIC funds that parallels

the exception for RICs in §58.4501-3(f).

Under these final regulations, the excep-

December 15, 2025

tion applies only to a covered corporation

that is described in section 851(a)(1)(A)

but that has not elected to be a RIC under

section 851(b) (non-RIC ’40 Act fund) and

that is either: (i) an “open-end company”

as defined in section 5(a) of the Investment Company Act of 1940 (15 U.S.C.

80a-5); or (ii) a “closed-end company” as

defined in section 5(a) of the Investment

Company Act of 1940, if the repurchase

occurs as part of a periodic repurchase

offer of the closed-end non-RIC ’40 Act

fund (sometimes referred to as an “interval fund”) pursuant to SEC Rule 23c-3 (17

CFR 270.23c-3).

D. Dividend exception

To implement the “dividend exception”

of section 4501(e)(6), proposed §58.45013(g)(1) generally would provide that the

fair market value of stock repurchased

by a covered corporation is a reduction

for purposes of computing the covered

corporation’s stock repurchase excise tax

base to the extent the repurchase is treated

as a distribution of a dividend under section 301(c)(1) or 356(a)(2).

Proposed §58.4501-3(g)(2)(i) would

provide a rebuttable presumption that a

repurchase to which section 302 or 356(a)

applies is subject to section 302(a) or

356(a)(1), respectively (and, therefore,

is ineligible for the dividend exception).

Under proposed §58.4501-3(g)(2)(ii), a

covered corporation would be permitted

to rebut this presumption with regard to a

specific shareholder solely by establishing

with sufficient evidence (sufficient evidence requirement) that the shareholder

treats the repurchase as a dividend on the

shareholder’s Federal income tax return.

Proposed §58.4501-3(g)(2)(iii) would

provide that, to satisfy the sufficient evidence requirement, the covered corporation must obtain the shareholder’s certification, in accordance with proposed

§58.4501-3(g)(3), that the repurchase

either (i) constitutes a redemption treated

as a distribution to which section 301

applies, or (ii) has the effect of the distribution of a dividend under section 356(a)

(2). The covered corporation also would

be required to (i) treat the repurchase consistent with the shareholder certification,

(ii) have no knowledge of facts indicating

that the shareholder certification is incor-

December 15, 2025

rect, and (iii) demonstrate 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.

Several commenters recommended

adopting a sufficient evidence requirement

that does not require shareholder certification (at least in certain circumstances).

According to commenters, covered corporations may be unable to compel their

shareholders to provide a certification in

accordance with proposed §58.4501-3(g)

(3), and obtaining certification from foreign shareholders that do not file U.S.

tax returns and otherwise have no U.S.

tax nexus may be difficult. Accordingly,

one commenter recommended requiring

shareholder certification only if the covered corporation lacks sufficient evidence

to determine that a repurchase should be

treated as a dividend.

Several commenters also recommended

adopting a sufficient evidence requirement that does not require shareholders to

treat the repurchase as a dividend on their

Federal income tax return, because some

shareholders are not required to file a Federal income tax return. One commenter

recommended modifying the sufficient

evidence requirement to permit U.S. companies to provide IRS Form 1042-S, Foreign Person’s U.S. Source Income Subject

to Withholding, to show payment of a

dividend to foreign shareholders in lieu of

obtaining certifications from those shareholders.

The Treasury Department and the IRS

agree with the commenters that the sufficient evidence requirement should be

modified to facilitate administrability and

reduce taxpayer burden. Accordingly,

under these final regulations, the sufficient

evidence requirement no longer requires

shareholders to treat a repurchase as a dividend on their Federal income tax return.

Instead, a covered corporation may rebut

the presumption of no dividend equivalence in §58.4501-3(g)(2)(i) with regard

to a specific shareholder by establishing

with sufficient evidence that the covered

corporation and the shareholder treat

the repurchase as a dividend for Federal

income tax purposes. See §58.4501-3(g)

(2)(ii).

Moreover, the sufficient evidence

requirement no longer requires a shareholder certification, although the final

798

regulations continue to allow covered

corporations to satisfy this requirement

by obtaining a shareholder certification.

Instead, the sufficient evidence requirement may be satisfied if the covered corporation: (i) establishes, based on information known to the covered corporation (for

example, through legal documentation of

share ownership, publicly available information, the pro rata nature of the repurchase, or the shareholder certification safe

harbor), that the repurchase either (A) is a

redemption that is treated as a distribution

to which section 301 applies by reason of

section 302(d), or (B) has the effect of the

distribution of a dividend under section

356(a)(2); (ii) has no knowledge of facts

indicating that the treatment described

in clause (i) of this sentence is incorrect;

(iii) treats the repurchase consistent with

such treatment, including by withholding the applicable amounts if required;

and (iv) demonstrates 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. See

§58.4501-3(g)(3).

Like the aforementioned documentation requirement in §58.4501-3(c)(4) for

the reorganization exception, §58.45013(g)(4) requires a covered corporation to

retain the evidence described in §58.45013(g)(3), make that evidence available for

inspection to the IRS if any of the evidence becomes material in the administration of any internal revenue law, and retain

records of all information necessary to

document and substantiate such evidence.

The Treasury Department and the IRS

continue to be of the view that reliance

solely on the Form 1042-S does not provide sufficient evidence that a shareholder

treats a repurchase as a dividend. The

Form 1042-S is based on the presumption that share repurchases are dividends

subject to withholding tax. Consequently,

reliance solely on the Form 1042-S for

purposes of substantiating the dividend

exception could overstate the amount of

repurchases that qualify for this exception.

VI. Netting Rule

A. Overview

Proposed §58.4501-4 would provide

rules implementing the netting rule. In

Bulletin No. 2025–51

general, under proposed §58.4501-4(b)

(1), the stock repurchase excise tax base

with regard to a taxable year of a covered corporation would be reduced by

the aggregate fair market value of stock

of the covered corporation: (i) issued by

the covered corporation during its taxable

year in connection with the performance

of services for the covered corporation by

employees or other service providers of

the covered corporation; (ii) provided by

a specified affiliate of the covered corporation in connection with the performance

of services for the specified affiliate by an

employee of the specified affiliate during

the covered corporation’s taxable year;

or (iii) issued by the covered corporation

during the covered corporation’s taxable

year not in connection with the performance of services.

Proposed §58.4501-4(c) would provide additional rules regarding stock

issued or provided to an employee of a

covered corporation or specified affiliate

as compensation for services performed

as an employee, including transfers of

stock in connection with the performance

of services described in section 83 of the

Code (such as pursuant to a nonqualified

stock option or pursuant to a stock option

described in section 421 of the Code).

Proposed §58.4501-4(f)(3) contains

the “no double benefit rule” under which

stock issued by a covered corporation as

part of a transaction qualifying as a reorganization under section 368(a) or a distribution under section 355 would be disregarded for purposes of the netting rule

if: (i) the stock is qualifying property; (ii)

the stock is used by another covered corporation (second covered corporation) to

repurchase stock of the second covered

corporation in an acquisitive reorganization, an E reorganization, an F reorganization, or a split-off; and (iii) the repurchase

described in clause (ii) of this sentence is

not included in the second covered corporation’s stock repurchase excise tax base

because that repurchase is a qualifying

property repurchase.

B. No double benefit rule; issuances in E

reorganizations, F reorganizations, and

section 355 transactions

Commenters agreed with the proposed

exclusion of stock issued by a recapital-

Bulletin No. 2025–51

izing corporation in an E reorganization

or a resulting corporation in an F reorganization for purposes of the netting

rule. See proposed §58.4501-4(f)(3). One

commenter agreed with the end result

under the proposed regulations but recommended that, because a corporation’s

own stock is not “property” for purposes

of section 317(b), a special rule should be

added to disregard such issuances for purposes of the netting rule.

Another commenter queried whether

the “no double benefit rule” would apply

to an E reorganization. As noted previously, this rule applies to disregard the

issuance of stock by a covered corporation if, among other conditions, the stock

is “used by another covered corporation

(second covered corporation) to repurchase stock of the second covered corporation.” However, the commenter noted

that there is no second corporation in an E

reorganization.

These final regulations do not include

the “no double benefit rule,” because that

rule is no longer necessary in light of other

changes under these final regulations. For

example, as discussed in part IV.D.1 of

this Summary of Comments and Explanation of Revisions, these final regulations

(i) treat E reorganizations as repurchases

only if and to the extent that non-qualifying property is distributed by the recapitalizing corporation to its shareholders in

exchange for their stock, and (ii) treat a

distribution of non-qualifying property by

the transferor corporation in an F reorganization as a separate transaction. Moreover, as discussed in part IV.C.1 of this

Summary of Comments and Explanation

of Revisions, the exchange by target corporation shareholders of their target corporation stock pursuant to the plan of reorganization in an acquisitive reorganization

is not a repurchase by the target corporation under these final regulations.

Additionally, these final regulations

adopt the comment recommending the

addition of a special rule providing that

stock issued by the recapitalizing corporation in an E reorganization or the resulting corporation in an F reorganization is

not taken into account for purposes of the

netting rule. See §58.4501-4(f)(3). These

final regulations also provide that stock

issued by a covered corporation that is a

controlled corporation in a distribution

799

qualifying under section 355 (or so much

of section 356 as relates to section 355)

is disregarded for purposes of the netting

rule. See §58.4501-4(f)(9).

C. Issuances in acquisitive

reorganizations

One commenter recommended against

treating qualifying property issued by the

acquiring corporation in connection with

an acquisitive reorganization as being

issued in a redemption or as resulting in

an increase in the target corporation’s

stock repurchase excise tax base. Instead,

the commenter recommended allowing a

reduction by the acquiring corporation for

purposes of its stock repurchase excise tax

base.

Because these final regulations eliminate the “no double benefit rule,” the

acquiring corporation is no longer prohibited from reducing its stock repurchase

excise tax base under the netting rule for

its stock issued in an acquisitive reorganization.

D. Instruments not in the legal form of

stock

The proposed computational regulations would provide an anti-avoidance

rule to address the issuance or provision of

instruments of a covered corporation that

are treated as stock for Federal tax purposes but are not in the legal form of stock

(non-stock instruments). For example, a

taxpayer seeking to avoid the application

of the stock repurchase excise tax might

issue deep-in-the-money call options

(which the taxpayer treats as stock for

Federal tax purposes) to accommodation

parties with the mutual understanding that

such options never would be exercised.

Under proposed §58.4501-4(f)(13),

the issuance or provision of a non-stock

instrument (including certain deep-in-themoney options) would be disregarded for

purposes of the netting rule unless and

until the instrument is repurchased, and

the amount of the issuance for purposes

of the netting rule would be limited to the

lesser of the fair market value of the instrument at the time of issuance or repurchase.

To prevent taxpayers from taking inconsistent positions with respect to comparable non-stock instruments, proposed

December 15, 2025

§58.4501-4(f)(13)(ii)(D) would provide

that a taxpayer that fails to timely report

a repurchase of a non-stock instrument

may not take into account any issuances

for purposes of the netting rule for comparable non-stock instruments repurchased

within the five taxable years ending on the

last day of the repurchase year, unless the

failure to timely report the earlier repurchase was due to reasonable cause.

Consistent with the general application

of the stock repurchase excise tax to all

instruments treated as stock for Federal

tax purposes, the proposed computational

regulations would not exclude the acquisition of non-stock instruments from the

definition of a “repurchase.”

Several commenters recommended

removing the special netting rule for nonstock instruments so that all instruments

of a covered corporation treated as stock

for Federal tax purposes, regardless of

legal form, are treated alike for purposes

of the stock repurchase excise tax. One

commenter noted that the value of stock

issued to closely related parties (which

would be the most likely to accommodate

non-economic abusive behavior) already

is excluded for the purpose of the netting

rule. See proposed §58.4501-4(f)(13)(ii)

(A). Another commenter noted that taxpayers would be unlikely to engage in

transactions involving accommodation

parties, because those transactions would

be subject to substance-based challenges

by the IRS and would face other legal

and non-tax impediments discouraging

non-economic activity. A commenter

also contended that the proposed rule

may encourage taxpayers to strategically

choose the legal form of equity issuances

to obtain preferable treatment with regard

to the stock repurchase excise tax, thereby

engaging in non-economic activity strictly

for Federal tax benefits.

The commenters also suggested alternatives if the special netting rule for nonstock instruments is retained. One commenter suggested that, if the rule is not

removed, it should be expanded to apply

to equity instruments that are limited and

preferred as to dividends and do not participate in corporate growth, or at least

expanded to incorporate preferred equity

that is mandatorily redeemable or redeemable at a specified time. Other commenters

suggested applying the rule only to spe-

December 15, 2025

cific cases in which the non-stock instrument is issued to an accommodation party

and subject to a binding repurchase agreement.

These final regulations adopt the commenters’ view that non-stock instruments

generally should be treated the same as

stock for purposes of the netting rule,

except in certain potentially abusive transactions. Under these final regulations, the

issuance or provision of non-stock instruments generally is regarded at the time

of issuance. However, to address certain

potentially abusive transactions, these

final regulations retain a limited version

of the proposed special netting rule that

applies only to non-stock instruments that

are (i) not a non-stock instrument the offer

and sale of which was registered with the

SEC, and (ii) issued to a person that owns

(or, under the attribution rules of section

318 of the Code, is considered to own) at

least 10 percent of the stock of the covered

corporation, either by vote or value, but

only if the covered corporation has knowledge of facts that would indicate such

ownership, including through legal documentation of share ownership, publicly

available information, or any other means

at the time of issuance by the covered corporation or at the time of the provision by

the specified affiliate of the covered corporation. See §58.4501-4(f)(13).

The changes to the special netting rule

for non-stock instruments under these

final regulations are intended to avoid

the potential application of the rule to

situations that are not abusive, while still

applying to situations in which taxpayers

seek to avoid the application of the stock

repurchase excise tax. Consistent with

this intent, these final regulations would

not subject public offerings of non-stock

instruments to the special netting rule. In

addition, in light of commenters’ suggestion that abusive transactions are likely

to involve accommodation parties, these

final regulations limit the application of

the rule to situations in which there is a

direct or indirect ownership relationship

between the covered corporation and

the holder of the non-stock instrument.

Finally, these final regulations remove the

proposed consistency requirement and the

proposed fair market value rule in order to

simplify the application of the rule. Taken

together, these changes are intended to

800

exclude non-tax motivated issuances of

non-stock instruments, thereby facilitating administrability and reducing taxpayer

burden in the application of the special

netting rule for non-stock instruments.

E. Stock issued or provided to nonemployee service providers of a specified

affiliate

Under the proposed computational

regulations, a covered corporation’s

stock repurchase excise tax base would

be reduced by the aggregate fair market

value of stock of the covered corporation

provided by a specified affiliate of the covered corporation in connection with the

performance of services for the specified

affiliate by an employee of the specified

affiliate during the covered corporation’s

taxable year. See proposed §58.4501-4(b)

(1)(ii). Under proposed §58.4501-4(f)(2)

(iv), stock of a covered corporation issued

by the covered corporation in connection

with the performance of services for a

specified affiliate would not be treated as

“issued” for purposes of the netting rule.

However, a transfer of stock of a covered

corporation described in §1.83-6(d) by

a specified affiliate to an employee (but

not a non-employee service provider) of

the specified affiliate would be treated as

“provided” by the specified affiliate under

proposed §58.4501-4(b)(1)(ii).

Commenters recommended applying

the netting rule when a covered corporation issues its stock to any service provider

(employee or non-employee) of a specified affiliate of the covered corporation

in connection with services performed for

the specified affiliate. Similarly, commenters recommended that the result should

be the same when the specified affiliate

provides stock of a covered corporation

to its employee or non-employee service

provider as compensation for services rendered (or when such transfer is deemed to

occur under §1.83-6(d)).

The Treasury Department and the IRS

agree with the commenters that the netting rule should apply to stock provided

by a specified affiliate to a non-employee

service provider (other than the covered

corporation or a specified affiliate of the

covered corporation) in connection with

the performance of services for the specified affiliate. Accordingly, these final reg-

Bulletin No. 2025–51

ulations provide that the stock repurchase

excise tax base with regard to a taxable

year of a covered corporation is reduced

by the aggregate fair market value of stock

of the covered corporation provided by a

specified affiliate of the covered corporation in connection with the performance

of services for the specified affiliate by an

employee or other service provider of the

specified affiliate during the covered corporation’s taxable year. See §58.4501-4(b)

(1)(ii) and (f)(2)(iv).

VII. Constructive Specified Affiliate

Acquisitions

Under proposed §58.4501-2(f)(3), an

acquisition by a covered corporation of

a corporation or partnership that owns

stock in the covered corporation generally would be treated as a repurchase of

covered corporation stock (constructive

specified affiliate acquisition rule). More

specifically, 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 (constructive

acquisition de minimis threshold), and

(B) that was acquired after December 31,

2022. Shares of covered corporation stock

previously treated as repurchased under

the constructive specified affiliate acquisition rule would not be subject to the rule

a second time (no double detriment rule).

Several commenters asserted that the

constructive specified affiliate acquisition

rule is overly broad. For example, rather

than just address transactions in which the

covered corporation and a potential specified affiliate are acting in concert to facilitate avoidance of the stock repurchase

excise tax, this rule would encompass

non-abusive transactions in which (i) the

potential specified affiliate’s acquisition of

covered corporation stock is entirely unrelated to the transaction in which it becomes

a specified affiliate, (ii) the covered corporation does not know in advance that its

stock is owned by the potential specified

Bulletin No. 2025–51

affiliate, and/or (iii) the potential specified affiliate owns only a small amount

of covered corporation stock. As a result,

according to commenters, this rule effectively could add unexpected transaction

costs to ordinary M&A transactions.

Accordingly, commenters recommended limiting the application of this

rule. For example, one commenter recommended applying this rule only in situations in which either (i) the potential

specified affiliate’s acquisition of covered

corporation stock occurs pursuant to a

binding agreement, or (ii) the covered corporation stock held by the potential specified affiliate exceeds a certain threshold.

Additionally, commenters recommended

increasing the constructive acquisition

de minimis threshold from one percent

to five percent. (One commenter further

recommended changing this threshold

from one percent of the fair market value

of the assets of the target corporation or

partnership to five percent of the covered

corporation’s stock; another commenter

recommended clarifying the meaning of

“fair market value of the assets.”) A commenter also recommended broadening the

no double detriment rule and providing

additional examples to illustrate its application.

The Treasury Department and the IRS

agree with the commenters that the constructive specified affiliate acquisition rule

is overly broad. Accordingly, these final

regulations do not adopt the constructive

specified affiliate acquisition rule.

VIII. Section 4501(d)–Acquisition of

Stock of Certain Foreign Corporations

A. In general

Proposed §58.4501-7 would provide

rules that relate to the application of section 4501(d) to the acquisition of stock

of certain foreign corporations (section

4501(d) proposed regulations). The section 4501(d) proposed regulations generally would apply based on related rules in

proposed §§58.4501-2 through 58.4501-4,

with modifications as appropriate to reflect

differences in the operation of section

4501(d). See part I.D of the Background.

Among other differences, section 4501(d)

provides special rules for the imposition of the stock repurchase excise tax

801

on specified affiliates treated as covered

corporations under section 4501(d)(1)(A)

and expatriated entities treated as covered

corporations under section 4501(d)(2)(A)

(each, a section 4501(d) covered corporation under the section 4501(d) proposed

regulations). In addition, the netting rule

applies only to stock issued or provided by

the specified affiliate or expatriated entity,

as applicable, to its employees under section 4501(d)(1)(C) and (d)(2)(C), respectively.

B. Funding rule

1. Proposed Funding Rule

The proposed funding rule would provide that an applicable specified affiliate

of an applicable foreign corporation is

treated as acquiring stock of the applicable foreign corporation to the extent the

applicable specified affiliate funds by any

means (including through distributions,

debt, or capital contributions), directly or

indirectly, an AFC repurchase (as defined

in proposed §58.4501-7(b)(2)(i)) 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) with a principal purpose of avoiding the section 4501(d)

excise tax. See proposed §58.4501-7(e)

(1). If a principal purpose of a funding

is to fund, directly or indirectly, a covered purchase, then with respect to that

funding, there is a principal purpose of

avoiding the section 4501(d) excise tax.

A principal purpose described in proposed

§58.4501-7(e)(1) would be presumed to

exist if the applicable specified affiliate

funds by any means, directly or indirectly,

a downstream relevant entity (as defined

in proposed §58.4501-7(b)(2)(xi)), and

the funding occurs within two years of a

covered purchase by or on behalf of the

downstream relevant entity.

2. Comments to Withdraw or Revise the

Proposed Funding Rule

Several commenters requested that the

proposed funding rule be withdrawn or

revised for various reasons, including the

following: (i) the rule could be burdensome to comply with, given its potential

December 15, 2025

to apply to common business transactions

(such as when an applicable foreign corporation has a pattern of redeeming its own

stock, which was established before Congress enacted the stock repurchase excise

tax, and an applicable specified affiliate

makes regular dividend distributions to

the applicable foreign corporation); (ii) it

is unclear (A) when to determine whether

the applicable specified affiliate has a

principal purpose of funding a covered

purchase, and (B) whose purpose to avoid

the stock repurchase excise tax is relevant;

(iii) there is insufficient clarity (and examples) surrounding the application of the

rule; and (iv) the priority rule for covered

fundings provided in proposed §58.45017(e)(6) does not take into account that the

foreign group may have a variety of funding sources.

Some commenters either supported

the proposed funding rule or agreed that

the Treasury Department and the IRS

have the authority to promulgate the rule.

Other commenters supported a narrower

application of the proposed funding rule

and suggested applying it to acquisitions

of stock of an applicable foreign corporation by a downstream relevant entity when

the acquisition is funded by an applicable

specified affiliate as well as other transactions structured to avoid section 4501(d).

Commenters also noted that it is uncommon for an applicable specified affiliate,

and by extension a downstream relevant

entity, to acquire the stock of an applicable foreign corporation.

Taking into account all comments,

these final regulations do not adopt the

proposed funding rule.

C. Section 4501(d) netting rule

by a section 4501(d) covered corporation

to an employee in connection with the

employee’s performance of services in the

employee’s capacity as an employee of

the section 4501(d) covered corporation.

Consequently, the section 4501(d) proposed regulations would provide that the

section 4501(d) netting rule applies only

with respect to stock issued or provided by

the section 4501(d) covered corporation to

its own employees in connection with the

performance of services.

2. Stock Issued or Provided to Nonemployee Service Providers

Commenters requested clarification

that the section 4501(d) netting rule

applies to stock issued or provided by a

specified affiliate to a non-employee service provider (other than the covered

corporation or a specified affiliate of the

covered corporation) in connection with

services provided for the specified affiliate. These final regulations do not adopt

this comment. The Treasury Department

and the IRS are of the view that the section 4501(d) netting rule does not apply

to non-employee service providers. Section 4501(d)(1)(C) explicitly states that

the adjustment under section 4501(c)(3)

is determined only with respect to stock

issued or provided by a specified affiliate

to employees of the specified affiliate.

Accordingly, the section 4501(d) netting

rule precludes the reduction of the section

4501(d) excise tax base when the section

4501(d) covered corporation issues or

provides shares to someone other than

employees of the section 4501(d) covered

corporation.

1. Overview

3. Other Comments Related to the Section

4501(d) Netting Rule

Section 4501(d)(1)(C) and (d)(2)(C)

provide that the adjustment in section

4501(c)(3) is determined only with respect

to stock issued or provided by the section

4501(d) covered corporation to employees

of the section 4501(d) covered corporation

(section 4501(d) netting rule). Proposed

§58.4501-7(n) would clarify that the section 4501(d) netting rule applies only to

stock of the applicable foreign corporation

or covered surrogate foreign corporation,

as applicable, that is issued or provided

Commenters recommended that the

section 4501(d) netting rule apply to

treat all members of a consolidated group

as one corporation, rather than the proposed entity-by-entity approach. Other

commenters recommended extending

the section 4501(d) netting rule to cover

employees of all specified affiliates (that

is, all employees in the affiliated group,

rather than the employees of an applicable

specified affiliate), because, in the commenters’ view, this rule is otherwise dis-

December 15, 2025

802

criminatory against inbound companies.

A commenter also recommended exempting from the section 4501(d) excise tax

stock repurchases that are (i) related to

either (A) stock grants to employees as

part of a long-term incentive plan, or (B)

a cancellation of stock triggered by a previous capital increase carried out as part

of an employee shareholder program, or

(ii) made in connection with employee

stock plans using trusts’ assets established

in connection with unfunded deferred

compensation arrangements (that is, rabbi

trusts) where (A) such shares are held for

use in connection with employee stock

plans, and (B) such trusts and associated

plans were established prior to the effective date of the final regulations. Some

commenters also suggested changes to

the section 4501(d) netting rule if the proposed funding rule applies.

These final regulations do not adopt

these comments. The Treasury Department and the IRS have determined that

the recommendations related to consolidated groups and additional exclusions

from the section 4501(d) netting rule are

inconsistent with the plain language of

section 4501(d), and it is not appropriate

to expand the section 4501(d) netting rule

beyond its statutory scope. Moreover, as

discussed in part VIII.B.2 of this Summary of Comments and Explanation of

Revisions, these final regulations do not

adopt the proposed funding rule.

D. Foreign partnerships as applicable

specified affiliates

Under section 4501(d)(1), if a foreign

partnership that is a specified affiliate of an

applicable foreign corporation has a direct

or indirect partner that is a domestic entity,

then the foreign partnership is an applicable specified affiliate of the applicable foreign corporation. Proposed §58.4501-7(h)

would provide rules for determining if a

foreign partnership is an applicable specified affiliate, including treating a domestic

entity as an indirect partner with respect to

a foreign partnership if the domestic entity

owns an interest in the foreign partnership

through: (i) one or more foreign partnerships; (ii) one or more foreign corporations controlled by one or more domestic

entities (domestic control requirement); or

(iii) an ownership chain with one or more

Bulletin No. 2025–51

entities described in the preceding clauses

(i) and (ii). See proposed §58.4501-7(h)

(2)(ii). The section 4501(d) proposed regulations also would provide a de minimis

rule pursuant to which a foreign partnership with one or more direct or indirect

domestic entity partners would not be

considered an applicable specified affiliate if the domestic entities hold, directly

or indirectly, in aggregate, less than five

percent of the capital and profits interests

in the foreign partnership. See proposed

§58.4501-7(h)(5).

One commenter suggested that the

proposed de minimis rule produces a

cliff effect that may result in a relatively

minimal U.S. nexus through a domestic

partner causing such a foreign partnership to be treated in the same manner

as a domestic corporation. The commenter recommended applying the stock

repurchase excise tax proportionately to

domestic partners of a foreign partnership (that is, based on the domestic partner’s interest in the foreign partnership),

rather than with respect to the entire foreign partnership.

These final regulations do not adopt

this recommendation, because section

4501(d) equates a foreign partnership having a domestic entity as a direct or indirect

partner with a domestic corporation and

does not apply the stock repurchase excise

tax proportionately to domestic partners

of a foreign partnership.

With respect to the de minimis rule, the

commenter acknowledged its appropriateness but recommended raising the threshold such that the rule (i) would apply only

to situations in which the domestic partner has a material interest in, and material

influence on, the operations of a foreign

partnership, and (ii) is administrable. The

commenter recommended applying the

section 4501(d) excise tax to a foreign

partnership if the foreign partnership’s

direct or indirect domestic partners, and

related parties of such domestic partners,

hold, directly or indirectly, in aggregate,

80 percent or more of the capital and profits interests in the foreign partnership. In

the alternative, the commenter recommended that the de minimis threshold be

increased to 25 percent for the domestic

partner itself or increased to 50 percent to

reflect actual control by the domestic partner and to be consistent with the percent-

Bulletin No. 2025–51

age used to determine specified affiliate

status more generally under section 4501.

These final regulations do not adopt

the foregoing recommendations. Section

4501(d) does not require the domestic

entity partner to have a material interest

in, or material influence on, the operations

of a foreign partnership. Moreover, the de

minimis rule addresses compliance burdens regarding the determination of when

direct or indirect ownership by domestic

entity partners causes a foreign partnership to be an applicable specified affiliate.

However, in response to the comment,

these final regulations raise the de minimis threshold so that a foreign partnership

with one or more direct or indirect domestic entity partners is not considered an

applicable specified affiliate if the domestic entities hold, directly or indirectly,

in aggregate, less than 10 percent of the

capital and profits interests in the foreign

partnership.

The commenter further requested clarification on how a foreign partnership

applicable specified affiliate that makes a

covered purchase pays the section 4501(d)

excise tax. The commenter stated that the

section 4501(d) proposed regulations do

not specify which entity is responsible

for paying the section 4501(d) excise tax

when the tax arises because of a covered

purchase by a foreign partnership applicable specified affiliate. Although acknowledging that the foreign partnership itself

is the payor of the excise tax because it

is the entity whose section 4501(d) excise

tax basis is increased as a result of the

covered funding, the commenter stated

that this requirement imposes significant administrative compliance burdens.

These asserted burdens include: (i) tracking direct and indirect domestic entity

partners to determine whether domestic

ownership falls outside of the de minimis threshold; (ii) requiring a foreign

partnership to file a section 4501 excise

tax return and pay the section 4501(d)

excise tax liability even though such foreign partnership would not otherwise be

required to file U.S. tax returns or report

operations for Federal tax purposes; and

(iii) requiring the foreign partnership to

set aside funds at the partnership level to

pay the section 4501(d) excise tax liability and determine how to allocate that liability among its partners.

803

The Treasury Department and the IRS

have determined that the statute is clear

that a foreign partnership applicable specified affiliate is the entity responsible for

paying the section 4501(d) excise tax when

the tax arises because that foreign partnership acquires the stock of the applicable

foreign corporation. In respect of filing

the stock repurchase excise tax return and

paying the section 4501(d) excise tax liability, see §§58.6011-1(a) (requirement to

file stock repurchase excise tax return) and

58.6151‑1(a) (time and place for paying

tax shown on stock repurchase excise tax

return). See also the discussion of filing

issues in respect of foreign partnership applicable specified affiliates in the preamble to

the proposed computational regulations.

E. Other modifications to the section

4501(d) proposed regulations

As noted in part VIII.A. of this Summary of Comments and Explanation of

Revisions, the section 4501(d) proposed

regulations generally apply based on

related rules in proposed §§58.4501-2

through 58.4501-4, with modifications

as appropriate to reflect differences in the

operation of section 4501(d). Accordingly,

these final regulations modify the section

4501(d) proposed regulations to reflect

modifications to the related rules in proposed §§58.4501-2 through 58.4501-4, as

appropriate.

IX. Other Comments

One commenter recommended that

these final regulations distinguish between

“illegitimate” repurchases (in the commenter’s view, repurchases that benefit executives rather than investors) and

“legitimate” repurchases. The Treasury

Department and the IRS are of the view

that the statute does not draw a distinction

between repurchases that benefit executives versus those that benefit investors.

Accordingly, these final regulations do not

adopt this comment. However, as reflected

in this Summary of Comments and Explanation of Revisions, these final regulations

streamline the stock repurchase excise tax

regulations while preserving clear, brightline rules for determining which repurchases are subject to the stock repurchase

excise tax.

December 15, 2025

X. Applicability Dates

B. Effect on prior returns

A. In general

If a covered corporation previously

filed a Form 7208, Excise Tax on Repurchase of Corporate Stock, applying

Notice 2023-2 or the proposed computational regulations and would like to file

a refund claim after the effective date of

these final regulations, the covered corporation should file a Form 720-X, Amended

Quarterly Federal Excise Tax Return, for

the quarter (or previously amended quarter, if applicable) in which the covered

corporation filed the original Form 720,

Quarterly Federal Excise Tax Return, and

attach a corrected Form 7208 (with the

word “Amended” added to the top of the

corrected Form 7208). If a taxpayer other

than the original filer would like to file a

refund claim, the taxpayer should file a

claim on Form 8849, Claim for Refund

of Excise Taxes, and attach Schedule 6,

Other Claims, and a corrected Form 7208.

If a covered corporation is filing a

Form 720-X for the third quarter of 2024,

and if the covered corporation previously

attached two Forms 7208 (one for a tax

year ending in 2023, and one for a tax

year ending in 2024) to the Form 720 for

that quarter, the covered corporation must

attach two corrected Forms 7208 (with the

word “Amended” added to the top of each

corrected Form 7208) to the Form 720-X

for that quarter.

These final regulations generally

provide that §§58.4501-1 through

58.4501-5 apply to (i) repurchases of

stock of a covered corporation occurring after December 31, 2022, and (ii)

issuances and provisions of stock of a

covered corporation occurring during

taxable years ending after December

31, 2022. See §58.4501-6(a). However,

§58.4501-6(b)(1) provides that certain

rules in §§58.4501-2 through 58.4501-4

that were not described in Notice 2023-2

apply to (i) repurchases of stock of a

covered corporation occurring after

April 12, 2024 (the date of publication

of the proposed computational regulations in the Federal Register), and (ii)

issuances and provisions of stock of a

covered corporation occurring after

April 12, 2024. Nevertheless, §58.45016(b)(2) provides that so long as a covered corporation consistently applies

the provisions of §§58.4501-1 through

58.4501-5, the covered corporation may

choose to apply these final regulations

with respect to the provisions described

in §58.4501-6(b)(1) to (i) repurchases of

stock of the covered corporation occurring on or before April 12, 2024, and

after December 31, 2022, and (ii) issuances and provisions of stock of the covered corporation occurring on or before

April 12, 2024, and during taxable years

ending after December 31, 2022.

Except with respect to the rules under

§58.4501-7(p)(2) and (3), the rules of

§58.4501-7 apply to transactions that

occur after April 12, 2024. See §58.45017(p)(1). Section 58.4501-7(p)(2) provides a transition rule for the foreign

partnership de minimis rule, allowing a

section 4501(d) covered corporation to

apply §58.4501-7(g)(5) by replacing the

phrase “10 percent” with “five percent”

for transactions that occur after April 12,

2024, but before November 24, 2025.

Alternatively, a section 4501(d) covered

corporation may apply the final rules of

§58.4501-7 for transactions that occur

after December 31, 2022, provided that

the section 4501(d) covered corporation

applies all those rules consistently. See

§58.4501-7(p)(3).

December 15, 2025

Special Analyses

I. Regulatory Planning and Review

The Office of Information and Regulatory Analysis (OIRA) of the Office

of Management and Budget (OMB) has

determined that these final regulations

are not significant and are not subject to

review under section 6(b) of Executive

Order 12866. Therefore, a regulatory

impact analysis is not required.

II. Paperwork Reduction Act

The Paperwork Reduction Act of 1995

(44 U.S.C. 3501-3520) (PRA) generally

requires that a Federal agency obtain the

approval of the OMB before collecting

information from the public, whether that

collection of information is mandatory,

voluntary, or required to obtain or retain

804

a benefit. An agency may not conduct or

sponsor, and a person is not required to

respond to, a collection of information

unless it displays a valid control number

assigned by the OMB.

The collections of information in these

regulations contain reporting, third-party

disclosure, and recordkeeping requirements in §§58.4501-3(g) and 58.4501‑7(l)

(6). This information is necessary for the

IRS to accurately determine the stock

repurchase excise tax due and is required

by law to comply with the provisions of

section 4501 of the Code as enacted by

section 10201 of the Inflation Reduction

Act of 2022. The likely respondents are

corporations and partnerships. The burdens associated with these information

collections are included in Form 7208 and

its instructions and approved with OMB

control number 1545-2323 in accordance with PRA procedures under 5 CFR

1320.10.

Books or records relating to a collection of information must be retained as

long as their contents may become material in the administration of any internal

revenue law. Generally, tax returns and

tax return information are confidential, as

required by section 6103.

III. Regulatory Flexibility Act

Pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6), it is hereby

certified that these regulations do not

have a significant economic impact on a

substantial number of small entities. This

certification is based on the fact that these

regulations only apply to publicly traded

corporations, which tend to consist of

larger businesses. Specifically, based on

the most recent data available to the IRS

for tax year 2023, approximately 3,800

corporations reported publicly traded

common stock. Of those corporations,

approximately 3,210 (over 84 percent)

reported total assets over $100 million,

and approximately 3,750 (over 98 percent)

reported total assets over $10 million.

Meanwhile, for tax year 2023, the IRS

received 8,269,075 Corporation Income

Tax Returns. IRS Publication 6292, Fiscal Year Projections for the United States:

2024-2031, Fall 2024, Table 2. Of these

corporation returns, 8,009,010 reported

total assets below $10 million. Thus, the

Bulletin No. 2025–51

number of corporations affected by these

regulations that reported total assets below

$10 million is less than one thousandth of

one percent of the total number of corporations that reported total assets below

$10 million. Therefore, these regulations

do not create additional obligations for, or

impose an economic impact on, a substantial number of small entities. Accordingly,

a regulatory flexibility analysis under the

Regulatory Flexibility Act is not required.

IV. Section 7805(f)

Pursuant to section 7805(f) of the

Code, the notice of proposed rulemaking

was submitted to the Chief Counsel for the

Office of Advocacy of the Small Business

Administration for comment on its impact

on small business, and no comments were

received.

V. Unfunded Mandates Reform Act

Section 202 of the Unfunded Mandates

Reform Act of 1995 requires that agencies

assess anticipated costs and benefits and

take certain other actions before issuing a

final rule that includes any Federal mandate that may result in expenditures in any

one year by a State, local, or Tribal government, in the aggregate, or by the private sector, of $100 million in 1995 dollars, updated annually for inflation. These

regulations do not include any Federal

mandate that may result in expenditures

by State, local, or Tribal governments,

or by the private sector in excess of that

threshold.

VI. Executive Order 13132: Federalism

Executive Order 13132 (Federalism)

prohibits an agency from publishing any

rule that has federalism implications if

the rule either imposes substantial, direct

compliance costs on State and local governments, and is not required by statute,

or preempts State law, unless the agency

meets the consultation and funding

requirements of section 6 of the Executive order. These regulations do not have

federalism implications and do not impose

substantial direct compliance costs on

State and local governments or preempt

State law within the meaning of the Executive order.

Bulletin No. 2025–51

VII. Congressional Review Act

PART 1—INCOME TAXES

Pursuant to the Congressional Review

Act (5 U.S.C. 801 et seq.), the Office of

Information and Regulatory Affairs designated this rule as not a major rule, as

defined by 5 U.S.C. 804(2).

Paragraph 1. The authority citation for

part 1 continues to read in part as follows:

Authority: 26 U.S.C. 7805 * * *

Par. 2. Section 1.1275-6 is amended

by adding paragraph (f)(12)(iii) to read as

follows:

Statement of Availability of IRS

Documents

Any IRS Revenue Procedure, Revenue Ruling, Notice, or other guidance

cited in this document is published in the

Internal Revenue Bulletin (or Cumulative

Bulletin) and is available from the Superintendent of Documents, U.S. Government Publishing Office, Washington, DC

20402, or by visiting the IRS website at

https://www.irs.gov.

Drafting Information

The principal authors of these regulations are Kailee H. Hock of the Office

of Associate Chief Counsel (Corporate),

Naomi Lehr and Robert C. Weedman of

the Office of Associate Chief Counsel

(Employee Benefits, Exempt Organizations, and Employment Taxes), Lucas

J. Eberhart of the Office of Associate

Chief Counsel (Financial Institutions

and Products), and Brittany N. Dobi of

the Office of Associate Chief Counsel

(International). However, other personnel from the Treasury Department and

the IRS participated in their development.

§1.1275-6 Integration of qualifying

debt instruments.

*****

(f) * * *

(12) * * *

(iii) Excise tax on repurchase of corporate stock—(A) Application. If a taxpayer

enters into an integrated transaction (for

example, a convertible debt instrument integrated with one or more §1.1275-6 hedges

consisting of an option on the taxpayer’s

own stock), then, solely for purposes of section 4501 of the Code and the stock repurchase excise tax regulations (as defined in

§58.4501-1(b)(37) of this chapter), the taxpayer must apply the rules that would apply

on a separate basis to the components of the

integrated transaction, rather than the rules

that otherwise would apply to the integrated

transaction under this section.

(B) Applicability date. Notwithstanding paragraph (j) of this section, paragraph

(f)(12)(iii)(A) of this section applies to an

integrated transaction outstanding after

December 31, 2022 (regardless of when

such integrated transaction was entered

into by the taxpayer).

*****

PART 58—STOCK REPURCHASE

EXCISE TAX

List of Subjects

26 CFR Part 1

Income taxes, Reporting and recordkeeping requirements.

26 CFR Part 58

Excise taxes, Stocks, Reporting and

recordkeeping requirements.

Adoption of Amendments to the

Regulations

Accordingly, the Treasury Department

and the IRS amend 26 CFR parts 1 and 58

as follows:

805

Par. 3. The authority citation for part

58 continues to read in part as follows:

Authority: 26 U.S.C. 4501(f) and 7805.

*****

Par. 4. Subpart A is added to read as

follows:

Subpart A—Excise Tax on Stock

Repurchases

Sec.

58.4501-0 Table of contents.

58.4501-1 Excise tax on stock repurchases.

December 15, 2025

58.4501-2 General rules regarding excise

tax on stock repurchases.

58.4501-3 Exceptions.

58.4501-4 Application of netting rule.

58.4501-5 Examples.

58.4501-6 Applicability dates.

58.4501-7 Special rules for acquisitions

or repurchases of stock of certain foreign

corporations.

Subpart A—Excise Tax on Stock

Repurchases

§58.4501-0 Table of contents.

This section lists the major captions that

appear in §§58.4501-1 through 58.4501‑7.

§58.4501-1 Excise tax on stock

repurchases.

(a) Excise tax imposed.

(b) Definitions.

(1) Acquisitive reorganization.

(2) Applicable percentage.

(3) Cessation date.

(4) Clawback.

(5) Code.

(6) Controlled corporation.

(7) Covered corporation.

(8) Covered holder.

(9) Covered non-stock instrument.

(10) De minimis exception.

(11) Distributing corporation.

(12) E reorganization.

(13) Economically similar transaction.

(14) Employee.

(15) Employer-sponsored retirement

plan.

(16) Established securities market.

(17) F reorganization.

(18) Forfeiture.

(19) Gross repurchase amount.

(20) Initiation date.

(21) IRS.

(22) Netting rule.

(23) Non-RIC ’40 Act fund.

(24) Non-stock instrument.

(25) Recapitalizing corporation.

(26) REIT.

(27) Reorganization exception.

(28) Repurchase.

(29) RIC.

(30) SEC.

(31) Section 317(b) redemption.

(32) Specified affiliate.

(33) Split-off.

December 15, 2025

(34) Stock.

(35) Stock repurchase excise tax.

(36) Stock repurchase excise tax base.

(37) Stock repurchase excise tax regulations.

(38) Taxable year.

(39) Treasury stock.

(c) No application for any purposes of

chapter 1 of the Code.

(d) Status as a domestic or foreign corporation.

(e) F reorganizations.

§58.4501-2 General rules regarding

excise tax on stock repurchases.

(a) Scope.

(b) Computation of excise tax liability.

(1) Imposition of tax.

(2) De minimis exception.

(c) Stock repurchase excise tax base.

(1) In general.

(2) Taxable year determination.

(3) Repurchases before January 1,

2023.

(d) Duration of covered corporation status.

(1) Initiation date.

(2) Cessation date.

(3) Inbound and outbound F reorganizations.

(e) Repurchase.

(1) Overview.

(2) Scope of repurchase.

(3) Certain section 317(b) redemptions

that are not repurchases.

(4) Economically similar transactions.

(5) Transactions that are not repurchases.

(f) Specified affiliates.

(1) Acquisitions of stock of a covered

corporation by a specified affiliate treated

as a repurchase.

(2) Determination of specified affiliate

status.

(g) Date of repurchase.

(1) General rule.

(2) Regular-way sale.

(h) Fair market value of repurchased

stock.

(1) In general.

(2) Stock traded on an established

securities market.

(3) Stock not traded on an established

securities market.

(4) Market price of stock denominated

in non-U.S. currency.

806

§58.4501-3 Exceptions.

(a) Scope.

(b) Reduction of covered corporation’s

stock repurchase excise tax base.

(1) In general.

(2) Coordination of exceptions.

(c) Reorganization exception.

(d) Stock contributions to an employer-sponsored retirement plan.

(1) Reductions in computing covered

corporation’s stock repurchase excise tax

base.

(2) Classes of stock contributed to an

employer-sponsored retirement plan.

(3) Same class of stock repurchased

and contributed.

(4) Different class of stock repurchased

and contributed.

(5) Timing of contributions.

(6) Contributions before January 1, 2023.

(e) Repurchases or acquisitions by a

dealer in securities in the ordinary course

of business.

(1) In general.

(2) Applicability.

(f) Repurchases by a RIC or a REIT.

(g) Repurchase treated as a dividend.

(1) In general.

(2) Rebuttable presumption of no dividend equivalence.

(3) Sufficient evidence requirement.

(4) Documentation of sufficient evidence.

(h) Repurchases by a non-RIC ’40 Act

fund.

§58.4501-4 Application of netting rule.

(a) Scope.

(b) Issuances and provisions of stock

that are a reduction in computing the stock

repurchase excise tax base.

(1) General rule.

(2) Stock issued or provided outside

period of covered corporation status.

(3) Issuances or provisions before January 1, 2023.

(c) Stock issued or provided in connection with the performance of services.

(1) In general.

(2) Sale of shares to cover exercise

price and withholding.

(d) Date of issuance.

(1) In general.

(2) Stock issued or provided in connection with the performance of services.

Bulletin No. 2025–51

(e) Fair market value of issued or provided stock.

(1) In general.

(2) Stock traded on an established

securities market.

(3) Stock not traded on an established

securities market.

(4) Market price of stock denominated

in non-U.S. currency.

(5) Stock issued or provided in connection with the performance of services.

(f) Issuances that are disregarded for

purposes of applying the netting rule.

(1) Distributions by a covered corporation of its own stock.

(2) Issuances to a specified affiliate.

(3) Issuances in an E reorganization or

an F reorganization.

(4) Deemed issuances under section

304(a)(1).

(5) Deemed issuance of a fractional

share.

(6) Issuance by a covered corporation

that is a dealer in securities.

(7) Issuance by the target corporation

in a reverse triangular merger.

(8) Issuance as part of a section 1036(a)

exchange.

(9) Issuance as part of a distribution

under section 355.

(10) Stock contributions to an employer-sponsored retirement plan.

(11) Net exercises and share withholding.

(12) Settlement other than in stock.

(13) Instrument not in the legal form of

stock.

§58.4501-5 Examples.

(a) Scope.

(b) In general.

(1) Example 1: Redemption of preferred stock not subject to an exception.

(2) Example 2: Debt-for-debt exchange.

(3) Example 3: Valuation of repurchase.

(4) Example 4: Acquisition partially

funded by the target corporation.

(5) Example 5: Pro rata stock split.

(6) Example 6: Acquisition of a target

corporation in an acquisitive reorganization.

(7) Example 7: E reorganization.

(8) Example 8: E reorganization with

non-qualifying property.

(9) Example 9: Cash paid in lieu of

fractional shares.

Bulletin No. 2025–51

(10) Example 10: F reorganization.

(11) Example 11: Section 355 split-off.

(12) Example 12: Section 355 split-off

as part of a D reorganization.

(13) Example 13: Section 355 spin-off.

(14) Example 14: Section 355 spin-off

as part of a D reorganization.

(15) Example 15: Repurchase pursuant

to an accelerated share repurchase agreement.

(16) Example 16: Distribution in complete liquidation of a covered corporation.

(17) Example 17: Complete liquidation

of a covered corporation to which sections 331 and 332(a) both apply.

(18) Example 18: Acquisition by disregarded entity.

(19) Example 19: Multiple repurchases

and contributions of same class of stock.

(20) Example 20: Multiple repurchases

and contributions of different classes of

stock.

(21) Example 21: Treatment of contributions after the taxable year.

(22) Example 22: Becoming a covered

corporation.

(23) Example 23: Actual pro rata

redemption in partial liquidation.

(24) Example 24: Constructive redemption in partial liquidation.

(25) Example 25: Non-pro rata redemption in partial liquidation.

(26) Example 26: Physical settlement

of call option contract.

(27) Example 27: Net cash settlement

of call option contract.

(28) Example 28: Physical settlement

of put option contract.

(29) Example 29: Net cash settlement

of put option contract.

(30) Example 30: Indirect ownership.

(31) Example 31: Restricted stock provided to a service provider.

(32) Example 32: Restricted stock provided to a service provider with section

83(b) election.

(33) Example 33: Forfeiture of

restricted stock provided to a service provider with section 83(b) election.

(34) Example 34: Vested stock provided to a service provider with share

withholding.

(35) Example 35: Stock option net

exercise.

(36) Example 36: Net share settlement

not in connection with performance of

services.

807

(37) Example 37: Broker-assisted net

exercise.

(38) Example 38: Stock provided by a

specified affiliate to an employee.

(39) Example 39: Stock provided by a

specified affiliate to a non-employee.

(40) Example 40: Corporation treated

as a domestic corporation under section

7874(b).

§58.4501-6 Applicability dates.

(a) In general.

(b) Exceptions.

(1) Applicability date for certain rules.

(2) Early application.

(c) Special rules for acquisitions or

repurchases of stock of certain foreign

corporations.

§58.4501-7 Special rules for acquisitions

or repurchases of stock of certain foreign

corporations.

(a) Scope.

(b) Definitions.

(1) Application of definitions in

§58.4501-1(b).

(2) Section 4501(d) definitions.

(c) Computation of section 4501(d)

excise tax liability for a section 4501(d)

covered corporation.

(1) Imposition of tax.

(2) Section 4501(d) de minimis exception.

(3) Section 4501(d) excise tax base.

(4) Section 4501(d)(1) repurchases or

section 4501(d)(2) repurchases before

January 1, 2023.

(d) Section 4501(d)(2) coordination

rules.

(1) Coordination rule for section

4501(d)(1) repurchases and section

4501(d)(2) repurchases.

(2) Coordination rule for multiple section 4501(d) covered corporations.

(e) Status as applicable foreign corporation or covered surrogate foreign corporation.

(1) Initiation date.

(2) Cessation date.

(3) Rules regarding F reorganizations.

(f) Status as an applicable specified

affiliate or a specified affiliate of a covered

surrogate foreign corporation.

(1) Timing of determination.

December 15, 2025

(2) Determination of indirect ownership.

(g) Foreign partnerships that are applicable specified affiliates.

(1) In general.

(2) Direct or indirect partner.

(3) Control of a foreign corporation.

(4) Indirect interests held through

applicable foreign corporations.

(5) De minimis domestic entity (direct

or indirect) partner.

(h) CSFC repurchase.

(1) Overview.

(2) Scope of CSFC repurchases.

(3) Certain section 317(b) redemptions

that are not CSFC repurchases.

(4) Section 4501(d) economically similar transactions.

(5) Transactions that are not CSFC

repurchases.

(i) [Reserved]

(j) Date of section 4501(d)(1) repurchase or section 4501(d)(2) repurchase.

(1) General rule.

(2) Regular-way sale.

(k) Fair market value of stock of an

applicable foreign corporation or a covered surrogate foreign corporation that is

repurchased or acquired.

(1) In general.

(2) Stock traded on an established

securities market.

(3) Stock not traded on an established

securities market.

(4) Market price of stock denominated

in non-U.S. currency.

(l) Section 4501(d) exceptions.

(1) In general.

(2) Section 4501(d) reorganization

exception.

(3) Stock contributions to an employer-sponsored retirement plan.

(4) Repurchases or acquisitions by a

dealer in securities in the ordinary course

of business.

(5) Repurchases by a RIC or REIT.

(6) CSFC repurchase treated as a dividend.

(7) Repurchases by a non-RIC ’40 Act

fund.

(m) Application of section 4501(d) netting rule.

(1) In general.

(2) Stock issued or provided outside

period of applicable foreign corporation

or covered surrogate foreign corporation

status.

December 15, 2025

(3) Issuances or provisions before January 1, 2023.

(4) Stock Issued or provided in connection with the performance of services.

(5) Date of issuance or provision for

section 4501(d) netting rule.

(6) Fair market value of stock of an

applicable foreign corporation or a covered surrogate foreign corporation that is

issued or provided to employees.

(7) Issuances that are disregarded for

purposes of applying the section 4501(d)

netting rule.

(n) Section 4501(d)(1) examples.

(1) Example 1: Section 4501(d) netting

rule with respect to a single applicable

specified affiliate.

(2) Example 2: Section 4501(d) netting

rule with respect to multiple applicable

specified affiliates.

(3) Example 3: Foreign partnership

that is an applicable specified affiliate.

(4) Example 4: Foreign partnership

that is not an applicable specified affiliate.

(5) Example 5: Foreign partnership that

is directly owned by foreign corporations

and is an applicable specified affiliate.

(o) Section 4501(d)(2) examples.

(1) Example 1: Section 4501(d) netting

rule with respect to an expatriated entity.

(2) Example 2: Section 4501(d)(2)

repurchase from the covered surrogate

foreign corporation or another specified

affiliate of the covered surrogate foreign

corporation.

(3) Example 3: Liability with respect to

multiple expatriated entities.

(p) Applicability dates.

(1) In general.

(2) Transition rule for foreign partnership de minimis rule.

(3) Early application.

§58.4501-1 Excise tax on stock

repurchases.

(a) Excise tax imposed. Section

4501(a) of the Code imposes a stock

repurchase excise tax on each covered

corporation equal to the applicable percentage of the fair market value of any

stock of the corporation that is repurchased by the corporation during the taxable year. This section and §58.4501-2

provide generally applicable definitions

and operating rules regarding the application of the stock repurchase excise tax

808

and the computation of the stock repurchase excise tax liability of a covered

corporation. Section 58.4501-3 provides

rules regarding the application of the

exceptions in section 4501(e) (other than

the de minimis exception described in

section 4501(e)(3), which is addressed

in §58.4501-2(b)(2)) and related exceptions. Section 58.4501-4 provides rules

regarding the application of section

4501(c)(3). Section 58.4501-5 provides

examples that illustrate the application

of section 4501 and the stock repurchase

excise tax regulations. Section 58.4501-6

provides applicability dates for the stock

repurchase excise tax regulations (other

than §58.4501-7). For special rules and

examples regarding the application of

section 4501(d) to acquisitions or repurchases of stock of certain foreign corporations, see §58.4501-7.

(b) Definitions. The following definitions apply for purposes of this section

and §§58.4501-2 through 58.4501-6, and,

to the extent provided in §58.4501-7(b),

for purposes of §58.4501-7:

(1) Acquisitive reorganization. The

term acquisitive reorganization means a

transaction that qualifies as a reorganization under—

(i) Section 368(a)(1)(A) of the Code,

including by reason of section 368(a)(2)

(D) or (a)(2)(E);

(ii) Section 368(a)(1)(C);

(iii) Section 368(a)(1)(D), if the reorganization satisfies the requirements of

section 354(b)(1) of the Code; or

(iv) Section 368(a)(1)(G), if the reorganization satisfies the requirements of

section 354(b)(1).

(2) Applicable percentage. The term

applicable percentage means the percentage provided in section 4501(a).

(3) Cessation date. The term cessation

date means the date on which all stock of a

covered corporation ceases to be traded on

an established securities market.

(4) Clawback. The term clawback

means a surrender of stock pursuant to

a contractual provision that requires an

employee to return vested stock.

(5) Code. The term Code means the

Internal Revenue Code.

(6) Controlled corporation. The term

controlled corporation has the meaning

given the term in section 355(a)(1)(A) of

the Code.

Bulletin No. 2025–51

(7) Covered corporation. The term

covered corporation means any domestic

corporation (including within the meaning

of paragraph (d) of this section) the stock

of which is traded on an established securities market.

(8) Covered holder. The term covered

holder has the meaning given the term in

§58.4501-4(f)(13)(ii)(C).

(9) Covered non-stock instrument. The

term covered non-stock instrument has the

meaning given the term in §58.4501-4(f)

(13)(ii)(B).

(10) De minimis exception. The term de

minimis exception has the meaning given

the term in §58.4501-2(b)(2)(i).

(11) Distributing corporation. The

term distributing corporation has the

meaning given the term in section 355(a)

(1)(A).

(12) E reorganization. The term E

reorganization means a transaction that

qualifies as a reorganization under section

368(a)(1)(E).

(13) Economically similar transaction.

The term economically similar transaction means a transaction described in

§58.4501-2(e)(4).

(14) Employee. The term employee

means an employee as defined in section 3401(c) of the Code and §31.3401(c)-1

of this chapter, or a former employee, of a

covered corporation or a specified affiliate

of the covered corporation (as appropriate).

(15) Employer-sponsored retirement

plan—(i) In general. The term employer-sponsored retirement plan means a

plan that includes a trust that is qualified

under section 401(a) of the Code and

maintained by a covered corporation or

a specified affiliate of the covered corporation.

(ii) ESOPs included. For the purposes

of these regulations, the term employer-sponsored retirement plan includes an

employee stock ownership plan defined

in section 4975(e)(7) of the Code (ESOP)

that is maintained by a covered corporation or a specified affiliate of the covered

corporation.

(16) Established securities market. The

term established securities market has the

meaning given the term in §1.7704-1(b) of

this chapter.

(17) F reorganization. The term F

reorganization means a transaction that

Bulletin No. 2025–51

qualifies as a reorganization under section

368(a)(1)(F).

(18) Forfeiture. The term forfeiture

means a surrender of stock to the issuing

corporation for no consideration.

(19) Gross repurchase amount. The term

gross repurchase amount has the meaning

given the term in §58.4501-2(c)(1)(i).

(20) Initiation date. The term initiation date means the date on which stock

of a corporation begins to be traded on an

established securities market.

(21) IRS. The term IRS means the Internal Revenue Service.

(22) Netting rule. The term netting

rule has the meaning given the term in

§58.4501-4(a).

(23) Non-RIC ’40 Act fund. The term

non-RIC ’40 Act fund has the meaning

given the term in §58.4501-3(h).

(24) Non-stock instrument. The term

non-stock instrument has the meaning

given the term in §58.4501-4(f)(13)(ii)

(A).

(25) Recapitalizing corporation. The

term recapitalizing corporation means the

corporation recapitalizing its stock in an E

reorganization.

(26) REIT. The term REIT has the

meaning given the term real estate investment trust in section 856(a) of the Code.

(27) Reorganization exception. The

term reorganization exception means the

exception provided in §58.4501-3(c).

(28) Repurchase. The term repurchase has the meaning given the term in

§58.4501-2(e)(2).

(29) RIC. The term RIC has the meaning given the term regulated investment

company in section 851 of the Code.

(30) SEC. The term SEC means the

U.S. Securities and Exchange Commission.

(31) Section 317(b) redemption. The

term section 317(b) redemption means a

redemption within the meaning of section 317(b) of the Code with regard to the

stock of a covered corporation.

(32) Specified affiliate. The term specified affiliate means, 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 inter-

809

ests of which is held, directly or indirectly,

by the corporation.

(33) Split-off. The term split-off means

a distribution qualifying under section 355

(or so much of section 356 of the Code

as relates to section 355) by a distributing

corporation pursuant to which the shareholders of the distributing corporation

exchange stock of the distributing corporation for stock of the controlled corporation and, if applicable, other property

(including securities of the controlled corporation) or money.

(34) Stock—(i) In general. Except as

provided in paragraph (b)(34)(ii) or (iii)

of this section, the term stock means any

instrument issued by a corporation that is

stock (including treasury stock) or that is

treated as stock for Federal tax purposes at

the time of issuance, regardless of whether

the instrument is traded on an established

securities market.

(ii) Additional tier 1 capital. The term

stock does not include preferred stock

that—

(A) Qualifies as additional tier 1 capital (within the meaning of 12 CFR 3.20(c),

217.20(c), 217.608(a)(2), 324.20(c), or

628.20(c)); and

(B) Does not qualify as common equity

tier 1 capital (within the meaning of 12

CFR 3.20(b), 217.20(b), 217.608(a)(3),

324.20(b), or 628.20(b)).

(iii) Section 1504(a)(4) stock. The term

stock does not include preferred stock

described in section 1504(a)(4) of the

Code.

(35) Stock repurchase excise tax. The

term stock repurchase excise tax means

the excise tax imposed by section 4501(a)

on each covered corporation equal to the

applicable percentage of the fair market

value of any stock of the corporation that

is repurchased by the corporation during

the taxable year.

(36) Stock repurchase excise tax base.

The term stock repurchase excise tax

base has the meaning given the term in

§58.4501-2(c)(1).

(37) Stock repurchase excise tax regulations. The term stock repurchase excise

tax regulations means—

(i) Subparts A and B of this part; and

(ii) Section 1.1275-6(f)(12)(iii) of this

chapter (providing that the integration of

a qualifying debt instrument with a hedge

pursuant to §1.1275-6 of this chapter is not

December 15, 2025

taken into account in determining whether

and when stock is repurchased or issued).

(38) Taxable year. The term taxable

year has the meaning given the term in

section 7701(a)(23) of the Code.

(39) Treasury stock. The term treasury

stock means treasury stock within the

meaning of section 317(b).

(c) No application for any purposes of

chapter 1 of the Code. The rules of this

part have no application for purposes of

chapter 1 of the Code.

(d) Status as a domestic or foreign corporation. If a corporation is, or is treated

as, a domestic corporation for purposes

of the Code or for purposes that include

chapter 37 of the Code, then the corporation is a domestic corporation for purposes of the stock repurchase excise tax

regulations. A corporation that is not a

domestic corporation for purposes of the

stock repurchase excise tax regulations is

a foreign corporation for such purposes.

(e) F reorganizations. For purposes

of the stock repurchase excise tax regulations, the transferor corporation and

the resulting corporation (each as defined

in §1.368‑2(m)(1) of this chapter) in an

F reorganization are treated as the same

corporation.

§58.4501-2 General rules regarding

excise tax on stock repurchases.

(a) Scope. This section provides general

rules regarding the application of the stock

repurchase excise tax and the computation

of the stock repurchase excise tax liability

of a covered corporation. Paragraphs (b)

and (c) of this section provide rules for

computing a covered corporation’s stock

repurchase excise tax liability. Paragraph

(d) of this section provides rules for determining whether a corporation is a covered

corporation. Paragraph (e) of this section

provides rules for determining whether a

transaction is a repurchase. Paragraph (f)

of this section provides rules for acquisitions of stock of a covered corporation by

a specified affiliate of the covered corporation. Paragraph (g) of this section provides rules for determining when stock is

repurchased. Paragraph (h) of this section

provides rules for determining the fair

market value of repurchased stock.

(b) Computation of excise tax liability—(1) Imposition of tax. Except as pro-

December 15, 2025

vided in paragraph (b)(2) of this section

(regarding the de minimis exception), the

amount of stock repurchase excise tax

imposed by section 4501(a) on a covered

corporation for a taxable year equals the

product obtained by multiplying—

(i) The applicable percentage; by

(ii) The stock repurchase excise tax

base of the covered corporation for the

taxable year determined in accordance

with paragraph (c)(1) of this section.

(2) De minimis exception—(i) In general. A covered corporation is not subject

to the stock repurchase excise tax with

regard to a taxable year if, during that taxable year, the aggregate fair market value

of the stock described in paragraphs (b)

(2)(i)(A) and (B) of this section does not

exceed $1,000,000 (de minimis exception):

(A) The stock of the covered corporation that is repurchased by the covered

corporation (as determined under paragraph (e) of this section).

(B) The stock of the covered corporation that is acquired by a specified affiliate

of the covered corporation (as determined

under paragraph (f) of this section).

(ii) Determination. A determination of

whether the de minimis exception applies

with regard to a taxable year is made

before applying—

(A) Any exception under §58.4501-3;

and

(B) Any adjustments pursuant to the

netting rule under §58.4501-4.

(c) Stock repurchase excise tax base—

(1) In general. With regard to a covered

corporation, the term stock repurchase

excise tax base means the dollar amount

(not less than zero) that is obtained by—

(i) Determining (in accordance with

paragraphs (e) through (h) of this section) the aggregate fair market value of

the stock of the covered corporation that

is repurchased by the covered corporation

or acquired by a specified affiliate of the

covered corporation during the covered

corporation’s taxable year (gross repurchase amount);

(ii) Reducing the gross repurchase

amount by the fair market value of the

stock of the covered corporation repurchased by the covered corporation or

acquired by a specified affiliate of the covered corporation during the covered corporation’s taxable year to the extent the

810

repurchase or acquisition qualifies for an

exception in accordance with §58.4501-3;

and then

(iii) Further reducing the gross repurchase amount by the aggregate fair market

value of stock of the covered corporation

issued by the covered corporation or provided by a specified affiliate of the covered corporation during the covered corporation’s taxable year under the netting

rule in accordance with §58.4501-4.

(2) Taxable year determination—(i) In

general. The determinations under paragraph (c)(1)(i) of this section are made

separately for each covered corporation

and for each taxable year of the covered

corporation.

(ii) No carrybacks or carryforwards.

Reductions under paragraphs (c)(1)(ii)

and (iii) of this section in excess of the

gross repurchase amount may not be carried forward or backward to preceding or

succeeding taxable years of the covered

corporation.

(3) Repurchases before January 1,

2023. Stock of a covered corporation

repurchased by the covered corporation

or acquired by a specified affiliate of the

covered corporation before January 1,

2023 (as determined under paragraphs (e)

through (g) of this section) is neither—

(i) Included in the stock repurchase

excise tax base of the covered corporation; nor

(ii) Taken into account in determining

the applicability of the de minimis exception.

(d) Duration of covered corporation

status—(1) Initiation date. A corporation

becomes a covered corporation at the

beginning of the corporation’s initiation

date (that is, the date on which stock of

the corporation begins to be traded on an

established securities market).

(2) Cessation date. A corporation

ceases to be a covered corporation at the

end of the corporation’s cessation date

(that is, the date on which all stock of

the corporation ceases to be traded on an

established securities market).

(3) Inbound and outbound F reorganizations—(i) Inbound F reorganization.

In the case of a foreign corporation that

transfers its assets or that is treated as

transferring its assets to a domestic corporation in an F reorganization (as described

in §1.367(b)-2(f) of this chapter), the cor-

Bulletin No. 2025–51

poration is not treated as a domestic corporation until the day after the reorganization.

(ii) Outbound F reorganization. In the

case of a domestic corporation that transfers its assets or that is treated as transferring its assets to a foreign corporation

in an F reorganization (as described in

§1.367(a)-1(e) of this chapter), the corporation is not treated as a foreign corporation until the day after the reorganization.

(e) Repurchase—(1) Overview. This

paragraph (e) provides rules for determining whether a transaction is a repurchase.

Paragraph (e)(2) of this section provides

a general rule regarding the scope of the

term repurchase for purposes of the stock

repurchase excise tax. Paragraph (e)(3)

of this section provides an exclusive list

of transactions that are section 317(b)

redemptions but are not repurchases.

Paragraph (e)(4) of this section provides

an exclusive list of transactions that are

economically similar transactions. Paragraph (e)(5) of this section provides a

non-exclusive list of transactions that are

not repurchases.

(2) Scope of repurchase. A repurchase

means solely—

(i) A section 317(b) redemption, except

as provided in paragraph (e)(3) of this section; or

(ii) An economically similar transaction described in paragraph (e)(4) of this

section.

(3) Certain section 317(b) redemptions

that are not repurchases. This paragraph

(e)(3) provides an exclusive list of section

317(b) redemptions that are not repurchases for purposes of the stock repurchase excise tax regulations.

(i) Section 304(a)(1) transactions—

(A) Rule regarding deemed distributions.

The deemed distribution by an acquiring

corporation (within the meaning of section 304(a)(1) of the Code) that is a covered corporation in redemption of stock of

the acquiring corporation (resulting from

the application of section 304(a)(1) to an

acquisition of stock by such acquiring corporation), regardless of whether section

302(a) or (d) of the Code applies to the

acquiring corporation’s deemed distribution in redemption of its stock.

(B) Rule regarding deemed issuances.

For the rule addressing the treatment of

any stock deemed to be issued by the

Bulletin No. 2025–51

acquiring corporation as a result of the

application of section 304(a)(1), see

§58.4501-4(f)(4).

(ii) Leveraged buyouts and take-private transactions. A redemption by a covered corporation that occurs as part of a

transaction in which the covered corporation ceases to be a covered corporation.

(iii) Stock issued prior to August 16,

2022. A redemption by a covered corporation of stock of the covered corporation

issued prior to August 16, 2022, if, at the

time such stock was issued and continuing

until the time of the redemption, the stock

was subject to—

(A) Mandatory redemption by the covered corporation; or

(B) A unilateral put option by the

holder of such stock.

(iv) Payment by a covered corporation

of cash in lieu of fractional shares. A payment by a covered corporation of cash in

lieu of a fractional share of the covered

corporation’s stock, if—

(A) The payment is carried out as part

of a transaction that qualifies as a reorganization under section 368(a) of the Code

or a distribution to which section 355 of

the Code applies, or pursuant to the settlement of an option or a similar financial

instrument (for example, a convertible

debt instrument or convertible preferred

share);

(B) The cash received by the shareholder entitled to the fractional share is

not separately bargained-for consideration

(that is, the cash paid by the covered corporation in lieu of the fractional share represents a mere rounding off of the shares

issued in the exchange or settlement);

(C) The payment is carried out solely

for administrative convenience (and,

therefore, solely for non-tax reasons); and

(D) The amount of cash paid to the

shareholder in lieu of a fractional share

does not exceed the fair market value of

one full share of the class of stock of the

covered corporation with respect to which

the payment of cash in lieu of a fractional

share is made.

(4) Economically similar transactions.

This paragraph (e)(4) provides an exclusive list of transactions that are economically similar to section 317(b) redemptions solely for purposes of the stock

repurchase excise tax (that is, economically similar transactions) and, therefore,

811

are taken into account as repurchases for

purposes of the stock repurchase excise

tax regulations.

(i) E reorganizations—(A) In general.

Except as provided in paragraph (e)(4)(i)

(B) of this section, in the case of an E reorganization in which the recapitalizing corporation is a covered corporation, solely

the recapitalizing corporation’s acquisition of its stock pursuant to the plan of

reorganization in exchange for property

that is not permitted to be received by the

recapitalizing corporation’s shareholders

under section 354 of the Code without the

recognition of gain.

(B) Exception. Paragraph (e)(4)(i)(A)

of this section does not apply to the extent

that—

(1) The distribution of such property is

treated as a distribution with respect to the

recapitalizing corporation’s stock under

§1.301-1(j) of this chapter; or

(2) The exchange is with respect to preferred stock with dividends in arrears that

is treated under §1.305-7(c)(2) or 1.3682(e)(5) of this chapter as a deemed distribution to which sections 301 and 305(b)

(4) of the Code apply.

(ii) Split-offs. In the case of a splitoff by a distributing corporation that is a

covered corporation, the acquisition by

the distributing corporation of its stock in

exchange for property.

(iii) Certain forfeitures and clawbacks

of stock—(A) In general. In the case of a

forfeiture or clawback of stock of a covered corporation pursuant to a legal or

contractual obligation, the forfeiture to

or clawback by the covered corporation

or a specified affiliate of the covered corporation (as appropriate) on the date of

forfeiture or clawback (as appropriate) if

the stock was treated as issued or provided

under §58.4501-4(b) and the forfeiture or

clawback of the stock (as appropriate) is

described in paragraph (e)(4)(iii)(B), (C),

or (D) of this section.

(B) Stock subject to post-closing price

adjustments. The stock was issued pursuant to an acquisition of a target entity

or its business, and the forfeiture of the

stock was in accordance with the terms of

the documents governing the transaction

(for example, to compensate the acquiring corporation for breaches of representations or warranties made by the target

entity, or because the business of the target

December 15, 2025

entity did not achieve certain performance

benchmarks agreed upon in the transaction documents).

(C) Stock for which a section 83(b) election was made. The stock was subject to

a substantial risk of forfeiture within the

meaning of section 83(a) of the Code on the

date the stock was issued or provided, the

service provider made a valid election under

section 83(b) with regard to the stock, and

the forfeiture resulted from the service provider failing to meet the vesting condition.

(D) Clawbacks. On the date the stock

was issued or provided, the stock was

subject to a clawback agreement, and a

clawback of the stock resulted from the

occurrence of an event specified in the

clawback agreement.

(5) Transactions that are not repurchases. This paragraph (e)(5) provides a

non-exclusive list of transactions each of

which is not a repurchase for purposes of

the stock repurchase excise tax regulations.

(i) Complete liquidations. A distribution by a covered corporation—

(A) In complete liquidation of the covered corporation to which section 331 or

332(a) (or both) applies;

(B) Pursuant to a resolution or plan of

dissolution of the covered corporation that

is reported on an original (but not a supplemented or an amended) IRS Form 966,

Corporate Dissolution or Liquidation (or

any successor form); or

(C) Pursuant to a deemed dissolution

of the covered corporation (for instance,

pursuant to a deemed liquidation under

§301.7701-3 of this chapter).

(ii) Distributions during taxable year of

complete liquidation or dissolution. A distribution by a covered corporation during

a taxable year of the covered corporation,

if the covered corporation—

(A) Completely liquidates during the

taxable year (that is, has a final distribution during the taxable year in a complete

liquidation to which section 331 or 332(a)

(or both) applies);

(B) Dissolves during the taxable year

pursuant to a resolution or plan of dissolution as reported on an original (but not

a supplemented or an amended) IRS Form

966, Corporate Dissolution or Liquidation (or any successor form); or

(C) Is deemed to dissolve during the

taxable year (for instance, pursuant to a

December 15, 2025

deemed liquidation under §301.7701-3 of

this chapter).

(iii) Divisive transactions under section 355 other than split-offs—(A) In general. Subject to paragraph (e)(5)(iii)(B) of

this section, a distribution by a distributing corporation that is a covered corporation of stock of a controlled corporation

qualifying under section 355 that is not a

split-off.

(B) Exception regarding non-qualifying property in spin-offs. A distribution by

a distributing corporation that is a covered

corporation of other property or money in

exchange for stock of the distributing corporation is a repurchase by the distributing corporation if it occurs in pursuance of

a transaction qualifying under section 355

in which the distribution by the distributing corporation of stock of the controlled

corporation is with respect to stock of the

distributing corporation.

(iv) Non-redemptive distributions subject to section 301(c)(2) or (3). A distribution to which section 301 applies by a

covered corporation to a distributee, if the

distribution—

(A) Is subject to section 301(c)(2) or

(3); and

(B) The distributee does not exchange

stock of the covered corporation (and

is not treated as exchanging stock of the

covered corporation for Federal income

tax purposes).

(v) Acquisitive reorganizations. In the

case of an acquisitive reorganization in

which the target corporation is a covered

corporation, the acquisition by the target

corporation of its stock pursuant to the

plan of reorganization in exchange for

property that is permitted to be received

by the target corporation’s shareholders

under section 354 or 356 of the Code.

(vi) Net cash settlement of an option

contract or other derivative financial

instrument—(A) In general. Subject to

paragraph (e)(5)(vi)(B) of this section, the

net cash settlement of an option contract

or other derivative financial instrument

with respect to stock of a covered corporation.

(B) Exception regarding net cash settlement of an option contract or other

derivative financial instrument treated as

stock. The net cash settlement of an instrument in the legal form of an option contract or other derivative fi

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