Initial Guidance Regarding the Application of the Excise Tax on Repurchases of Corporate Stock under Section 4501 of the Internal Revenue Code

Part III – Administrative, Procedural, and Miscellaneous

Initial Guidance Regarding the Application of the Excise Tax on Repurchases of

Corporate Stock under Section 4501 of the Internal Revenue Code

Notice 2023-2

SECTION 1. OVERVIEW

This notice announces that the Department of the Treasury (Treasury Department)

and the Internal Revenue Service (IRS) intend to issue proposed regulations

(forthcoming proposed regulations) addressing the application of the new excise tax on

repurchases of corporate stock under § 4501 of the Internal Revenue Code (Code).1

Section 4501 was added to a new chapter 37 of the Code by the enactment of Public

Law 117-169, 136 Stat. 1818 (August 16, 2022), commonly referred to as the Inflation

Reduction Act of 2022 (IRA). To provide taxpayers with interim guidance until

publication of the forthcoming proposed regulations, this notice describes certain rules

and procedures that the Treasury Department and the IRS intend to include in those

regulations. Until the issuance of the forthcoming proposed regulations, taxpayers may

rely on the rules described in section 3 of this notice.

1 Unless otherwise specified, all “section” or “§” references are to sections of the Code or the Income Tax

Regulations (26 CFR part 1).

2

Section 2 of this notice provides a summary of relevant law underlying the guidance

set forth in section 3 of this notice. Section 3 of this notice describes certain operating

rules for purposes of the excise tax imposed by § 4501, including rules setting forth an

exclusive list of transactions that are repurchases and rules for determining the fair

market value of stock repurchased in such transactions, that the Treasury Department

and the IRS intend to include in the forthcoming proposed regulations. Section 4 of this

notice describes the anticipated rules for reporting and paying any liability for the excise

tax imposed by § 4501

s setting forth an

exclusive list of transactions that are repurchases and rules for determining the fair

market value of stock repurchased in such transactions, that the Treasury Department

and the IRS intend to include in the forthcoming proposed regulations. Section 4 of this

notice describes the anticipated rules for reporting and paying any liability for the excise

tax imposed by § 4501. Section 5 of this notice describes the anticipated applicability

date for the forthcoming proposed regulations. Section 6 of this notice requests

comments on issues addressed in this notice as well as specific issues not so

addressed. Section 7 of this notice provides drafting and contact information.

SECTION 2. BACKGROUND

.01 Overview.

(1) Excise tax imposed. Section 4501 imposes on each covered corporation (as

defined in § 4501(b)) an excise tax (stock repurchase excise tax) equal to 1 percent of

the fair market value of any stock of the corporation that is repurchased (as defined in

§ 4501(c)(1)) by the corporation during the taxable year. Section 4501(a).

(2) Covered corporation. For purposes of the stock repurchase excise tax, the

term covered corporation means any domestic corporation the stock of which is traded

on an established securities market (within the meaning of § 7704(b)(1)). Section

4501(b).

(3) No deductions allowed. No deduction is allowed for the payment of the stock

repurchase excise tax. See § 275(a)(6) (as amended by § 10201(b) of the IRA to add a

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reference to chapter 37 of the Code, which contains § 4501).

.02 Repurchase.

(1) Statutory scope. Section 4501(c)(1) expressly mandates that repurchases of

stock of a covered corporation to which the stock repurchase excise tax may apply

include the following two types of transactions:

ock

repurchase excise tax. See § 275(a)(6) (as amended by § 10201(b) of the IRA to add a

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reference to chapter 37 of the Code, which contains § 4501).

.02 Repurchase.

(1) Statutory scope. Section 4501(c)(1) expressly mandates that repurchases of

stock of a covered corporation to which the stock repurchase excise tax may apply

include the following two types of transactions:

(a) Section 317(b) redemptions. The term repurchase means a redemption

within the meaning of § 317(b) with regard to the stock of a covered corporation

(§ 317(b) redemption). Section 4501(c)(1)(A).

(b) Transactions economically similar to § 317(b) redemptions. In addition, the

term repurchase means any transaction determined by the Secretary of the Treasury or

her delegate (Secretary) to be economically similar to a § 317(b) redemption

(economically similar transaction). Section 4501(c)(1)(B).

(2) Specified affiliates of covered corporations. Section 4501(c)(2) provides a

special rule that treats certain acquisitions of the stock of a covered corporation by its

“specified affiliates” as repurchases during the taxable year with respect to which the

stock repurchase excise tax may be imposed on the covered corporation.

(a) Specified affiliate. For purposes of the stock repurchase excise tax, 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 interests of which is held, directly or indirectly, by the corporation. Section

4501(c)(2)(B).

cise tax, 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 interests of which is held, directly or indirectly, by the corporation. Section

4501(c)(2)(B).

(b) Deemed repurchase rule. The acquisition of any stock of a covered

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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, is treated as a

repurchase of the stock of the covered corporation by the covered corporation for

purposes of the stock repurchase excise tax. Section 4501(c)(2)(A).

.03 Adjustment to amount taken into account under § 4501(a).

(1) Overview. The stock repurchase excise tax is applied to the fair market value

of any repurchases of stock by a covered corporation during its taxable year. The

amount of these repurchases is reduced by (i) the fair market value of any repurchases

excluded by an exception listed in § 4501(e), and (ii) the fair market value of any

issuances of the covered corporation’s stock during its taxable year that, under

§ 4501(c)(3), offset the amount of any repurchases of the covered corporation’s stock

(netting rule).

(2) Netting rule. The netting rule provides that the amount taken into account

under § 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)

e 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).

.04 Special rules for acquisitions of stock of certain foreign corporations.

(1) Overview. Section 4501(d) provides special rules for acquisitions of stock of

applicable foreign corporations and covered surrogate foreign corporations.

(2) Defined terms for special rules. For purposes of § 4501(d):

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(a) Applicable foreign corporation. The term applicable foreign corporation

means any foreign corporation the stock of which is traded on an established securities

market. Section 4501(d)(3)(A).

(b) Covered surrogate foreign corporation. The term covered surrogate foreign

corporation means any surrogate foreign corporation (as determined under

§ 7874(a)(2)(B) 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

such corporation under § 7874(d)(1). Section 4501(d)(3)(B).

(c) Expatriated entity. The term expatriated entity has the meaning given the

term by § 7874(a)(2)(A).

(3) Acquisition of stock of applicable foreign corporations.

traded on an established securities market, but only with

respect to taxable years that include any portion of the applicable period with respect to

such corporation under § 7874(d)(1). Section 4501(d)(3)(B).

(c) Expatriated entity. The term expatriated entity has the meaning given the

term by § 7874(a)(2)(A).

(3) Acquisition of stock of applicable foreign corporations.

(a) Scope. 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.

(b) Operative rule. If § 4501(d)(1) applies, then for purposes of 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

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(iii) the adjustment under § 4501(c)(3) (that is, the netting rule) is determined

only with respect to stock issued or provided by the specified affiliate to employees of

the specified affiliate.

(4) Repurchase of stock of covered surrogate foreign corporations.

(a) Scope. Section 4501(d)(2) applies in the case of--

(i) a repurchase of stock of a covered surrogate foreign corporation by the

covered surrogate foreign corporation, or

(ii) an acquisition of stock of a covered surrogate foreign corporation by a

specified affiliate of such corporation.

(b) Operative rule. If § 4501(d)(2) applies, then for purposes of the stock

repurchase excise tax--

in the case of--

(i) a repurchase of stock of a covered surrogate foreign corporation by the

covered surrogate foreign corporation, or

(ii) an acquisition of stock of a covered surrogate foreign corporation by a

specified affiliate of such corporation.

(b) Operative rule. If § 4501(d)(2) applies, then for purposes of the stock

repurchase excise tax--

(i) the expatriated entity 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 § 4501(c)(3) is determined only with respect to stock

issued or provided by the expatriated entity to employees of the expatriated entity.

.05 Statutory exceptions to the application of § 4501(a).

(1) Overview. Section 4501(e) lists transactions that are statutorily excepted, in

whole or in part, from the application of § 4501(a) (each, a statutory exception).

(2) Excepted transaction list. As a result of the statutory exceptions, § 4501(a)

does not apply to a repurchase of a covered corporation’s stock--

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(a) to the extent that the repurchase is part of a reorganization (within the

meaning of § 368(a)) and no gain or loss is recognized on the repurchase by the

shareholder under chapter 1 of the Code by reason of the reorganization (§ 4501(e)(1)),

(b) 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 (§ 4501(e)(2)),

(c) in any case in which the total value of the stock repurchased during the

taxable year does not exceed $1,000,000 (§ 4501(e)(3)),

,

(b) 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 (§ 4501(e)(2)),

(c) in any case in which the total value of the stock repurchased during the

taxable year does not exceed $1,000,000 (§ 4501(e)(3)),

(d) under regulations prescribed by the Secretary, in cases in which the

repurchase is by a dealer in securities in the ordinary course of business (§ 4501(e)(4)),

(e) to repurchases by a regulated investment company (RIC), as defined in

§ 851, or by a real estate investment trust (REIT), as defined in § 856(a) (§ 4501(e)(5)),

or

(f) to the extent that the repurchase is treated as a dividend for purposes of the

Code (§ 4501(e)(6)).

.06 Regulations and other guidance.

(1) In general. Under § 4501(f), the Secretary is authorized to prescribe such

regulations and other guidance as are necessary or appropriate to carry out, and to

prevent the avoidance of, the purposes of the stock repurchase excise tax.

(2) Enumerated examples. Regulations or other guidance described in § 4501(f)

may include guidance--

(a) to prevent the abuse of the statutory exceptions,

(b) to address special classes of stock and preferred stock, and

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(c) for the application of the special rules for acquisitions of stock of certain

foreign corporations under § 4501(d).

.07 Applicability of stock repurchase excise tax provisions.

(1) Repurchases. Except to the extent that a statutory exception applies, the stock

repurchase excise tax applies to repurchases after December 31, 2022 (covered

repurchases), subject to the netting rule. See § 10201(d) of the IRA.

ecial rules for acquisitions of stock of certain

foreign corporations under § 4501(d).

.07 Applicability of stock repurchase excise tax provisions.

(1) Repurchases. Except to the extent that a statutory exception applies, the stock

repurchase excise tax applies to repurchases after December 31, 2022 (covered

repurchases), subject to the netting rule. See § 10201(d) of the IRA.

(2) Netting rule. In contrast to the December 31, 2022, effective date expressly

provided by § 10201(d) of the IRA with regard to covered repurchases, the netting rule

expressly takes into account any issuances by a covered corporation during the entirety

of its taxable year. See generally § 4501(c)(3). Specifically, under the netting rule, the

amount taken into account under § 4501(a) with respect to any covered repurchases is

“reduced by the fair market value of any stock issued by the covered corporation during

the taxable year.” Section 4501(c)(3) (emphasis added). Therefore, solely in the case

of a covered corporation that has a taxable year that both begins before January 1,

2023, and ends after December 31, 2022, that covered corporation may, solely with

regard to any covered repurchases during that taxable year to which the stock

repurchase excise tax applies, apply the netting rule to reduce the fair market value of

the covered corporation’s covered repurchases during that taxable year by the fair

market value of all issuances of its stock during the entirety of that taxable year.

SECTION 3. INTERIM GUIDANCE REGARDING THE APPLICATION OF § 4501

.01 Purpose. The Treasury Department and the IRS anticipate that the forthcoming

proposed regulations will be consistent with the guidance provided in this section 3

ered corporation’s covered repurchases during that taxable year by the fair

market value of all issuances of its stock during the entirety of that taxable year.

SECTION 3. INTERIM GUIDANCE REGARDING THE APPLICATION OF § 4501

.01 Purpose. The Treasury Department and the IRS anticipate that the forthcoming

proposed regulations will be consistent with the guidance provided in this section 3.

The Treasury Department and the IRS are issuing this interim guidance to provide

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clarity as to the calculation of the stock repurchase excise tax and the application of

§ 4501 to certain transactions and other events occurring prior to the issuance of the

forthcoming proposed regulations.

.02 Defined Terms. For purposes of this notice:

(1) Acquisitive reorganization. The term acquisitive reorganization means a

transaction that qualifies as a reorganization under § 368(a)(1)(A) (A reorganization)

(including by reason of § 368(a)(2)(D) or § 368(a)(2)(E)), § 368(a)(1)(C), or

§ 368(a)(1)(D) (D reorganization) (if the D reorganization satisfies the requirements of

§ 354(b)(1)).

(2) Applicable acquiror. The term applicable acquiror means--

(a) a specified affiliate of a covered corporation with regard to an acquisition

described in § 4501(c)(2),

(b) an applicable specified affiliate of an applicable foreign corporation with

regard to an acquisition described in § 4501(d)(1),

(c) a covered surrogate foreign corporation with regard to a repurchase

described in § 4501(d)(2), or

e acquiror means--

(a) a specified affiliate of a covered corporation with regard to an acquisition

described in § 4501(c)(2),

(b) an applicable specified affiliate of an applicable foreign corporation with

regard to an acquisition described in § 4501(d)(1),

(c) a covered surrogate foreign corporation with regard to a repurchase

described in § 4501(d)(2), or

(d) a specified affiliate of a covered surrogate foreign corporation with regard to

an acquisition described in § 4501(d)(2).

(3) Applicable foreign corporation. The term applicable foreign corporation has the

meaning given the term in section 2.04(2)(a) of this notice.

(4) Applicable specified affiliate. The term applicable specified affiliate means a

specified affiliate of an applicable foreign corporation, other than a foreign corporation or

a foreign partnership (unless the partnership has a domestic entity as a direct or indirect

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partner).

(5) Controlled corporation. The term controlled corporation has the meaning given

the term in § 355(a)(1)(A).

(6) Covered corporation. The term covered corporation has the meaning given the

term in section 2.01(2) of this notice.

(7) Covered surrogate foreign corporation. The term covered surrogate foreign

corporation has the meaning given the term in section 2.04(2)(b) of this notice.

(8) De minimis exception. The term de minimis exception has the meaning given

the term in section 3.03(2) of this notice.

(9) Distributing corporation. The term distributing corporation has the meaning

given the term in § 355(a)(1)(A).

(10) Economically similar transaction. The term economically similar transaction

has the meaning given the term in section 2.02(1)(b) of this notice, as implemented in

accordance with section 3.04 of this notice.

iven

the term in section 3.03(2) of this notice.

(9) Distributing corporation. The term distributing corporation has the meaning

given the term in § 355(a)(1)(A).

(10) Economically similar transaction. The term economically similar transaction

has the meaning given the term in section 2.02(1)(b) of this notice, as implemented in

accordance with section 3.04 of this notice.

(11) Employee. The term employee means an employee as defined in § 3401(c)

and § 31.3401(c)-1 of the Collection of Income Tax at Source Regulations (26 CFR part

31), or a former employee, of the covered corporation or specified affiliate, as

applicable.

(12) Employer-sponsored retirement plan. The term employer-sponsored

retirement plan means a retirement plan maintained by a covered corporation that is

qualified under § 401(a), including an employee stock ownership plan described in

§ 4975(e)(7).

(13) Established securities market. The term established securities market has the

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

(14) Expatriated entity. The term expatriated entity has the meaning given the

term in section 2.04(2)(c) of this notice.

(15) Netting rule. The term netting rule has the meaning given the term in section

2.03(1) of this notice, as implemented in accordance with section 3.08 of this notice.

(16) Qualifying property exception. The term qualifying property exception has the

meaning given the term in section 3.07(2) of this notice.

(17) Qualifying property repurchase. The term qualifying property repurchase has

the meaning given the term in section 3.07(2) of this notice.

(18) REIT. The term REIT has the meaning given the term in section 2.05(2)(e) of

this notice.

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

2.02(1) of this notice, as implemented in accordance with section 3.04 of this notice.

purchase. The term qualifying property repurchase has

the meaning given the term in section 3.07(2) of this notice.

(18) REIT. The term REIT has the meaning given the term in section 2.05(2)(e) of

this notice.

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

2.02(1) of this notice, as implemented in accordance with section 3.04 of this notice.

(20) RIC. The term RIC has the meaning given the term in section 2.05(2)(e) of

this notice.

(21) Section 317(b) redemption. The term § 317(b) redemption has the meaning

given the term in section 2.02(1)(a) of this notice.

(22) Specified affiliate. The term specified affiliate has the meaning given the term

in section 2.02(2)(a) of this notice.

(23) Split-off. The term split-off means a distribution qualifying under § 355 (and so

much of § 356 as relates to § 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

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(including securities of the controlled corporation) or money.

(24) Statutory exception. The term statutory exception has the meaning given the

term in section 2.05(1) of this notice, as implemented in accordance with section 3.07 of

this notice.

(25) Stock. The term stock means 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.

(26) Stock repurchase excise tax. The term stock repurchase excise tax has the

meaning given the term in section 2.01(1) of this notice.

(27) Stock repurchase excise tax base. The term stock repurchase excise tax

base has the meaning given the term in section 3.03(3)(a) of this notice.

ance,

regardless of whether the instrument is traded on an established securities market.

(26) Stock repurchase excise tax. The term stock repurchase excise tax has the

meaning given the term in section 2.01(1) of this notice.

(27) Stock repurchase excise tax base. The term stock repurchase excise tax

base has the meaning given the term in section 3.03(3)(a) of this notice.

(28) Taxable year. The term taxable year has the meaning given the term in

§ 7701(a)(23) and may include a fiscal year (as defined in § 7701(a)(24)). See

§ 7701(a)(23) and (24); see also §§ 441(b) and 443.

.03 Computation of excise tax liability.

(1) Imposition of tax. Except as provided in section 3.03(2) of this notice

(regarding the de minimis exception), the amount of stock repurchase excise tax

imposed on a covered corporation equals the product obtained by multiplying--

(a) one percent, by

(b) the stock repurchase excise tax base of the covered corporation determined

in accordance with section 3.03(3) of this notice.

(2) De minimis exception.

(a) In general. A covered corporation is not subject to the stock repurchase

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excise tax with regard to a taxable year if, during that taxable year, the aggregate fair

market value of the covered corporation’s repurchases of its stock does not exceed

$1,000,000 (de minimis exception).

(b) Determination. A determination of whether the de minimis exception applies

with regard to a taxable year is made before applying--

(i) any statutory exception under section 3.07 of this notice, and

(ii) any adjustments under the netting rule under section 3.08 of this notice.

(3) Stock repurchase excise tax base.

(a) In general. With regard to a covered corporation, the term stock repurchase

excise tax base means an amount (not less than zero) that is obtained by:

plying--

(i) any statutory exception under section 3.07 of this notice, and

(ii) any adjustments under the netting rule under section 3.08 of this notice.

(3) Stock repurchase excise tax base.

(a) In general. With regard to a covered corporation, the term stock repurchase

excise tax base means an amount (not less than zero) that is obtained by:

(i) Determining the aggregate fair market value of all repurchases (as

determined under sections 3.04 through 3.06 of this notice) of the covered corporation’s

stock by the covered corporation during its taxable year,

(ii) Reducing the amount determined under section 3.03(3)(a)(i) of this notice

by the fair market value of stock of the covered corporation repurchased during its

taxable year to the extent any statutory exceptions apply in accordance with section

3.07 of this notice, and then

(iii) Reducing the amount determined under section 3.03(3)(a)(ii) of this notice

by the aggregate fair market value of stock of the covered corporation issued or

provided by the covered corporation during its taxable year under the netting rule in

accordance with section 3.08 of this notice.

(b) Repurchases before January 1, 2023. Repurchases by a covered

corporation before January 1, 2023, as determined under section 3.06(1) of this notice,

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

tion issued or

provided by the covered corporation during its taxable year under the netting rule in

accordance with section 3.08 of this notice.

(b) Repurchases before January 1, 2023. Repurchases by a covered

corporation before January 1, 2023, as determined under section 3.06(1) of this notice,

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

(c) Taxable year determination. The determinations under section 3.03(3)(a) of

this notice are made separately to each covered corporation and to each taxable year of

the covered corporation. Reductions under section 3.03(3)(a)(ii) or (iii) of this notice in

excess of the amount determined under section 3.03(3)(a)(i) of this notice are not

carried forward or backward to preceding or succeeding taxable years of a covered

corporation.

.04 Redemptions and Economically Similar Transactions.

(1) Overview. This section 3.04 provides rules for determining whether a

transaction is a repurchase for purposes of the stock repurchase excise tax. Section

3.04(2) of this notice provides a general rule regarding the scope of the term

“repurchase.” Section 3.04(3) of this notice provides an exclusive list of transactions

that are treated as a § 317(b) redemption but are not repurchases. Section 3.04(4) of

this notice provides (i) an exclusive list of transactions that are economically similar

transactions, and (ii) a nonexclusive list of transactions that are not economically similar

transactions.

(2) Scope of repurchase. For purposes of the stock repurchase excise tax, a

repurchase means solely--

(a) a § 317(b) redemption, except as provided in section 3.04(3) of this notice, or

(b) an economically similar transaction described in section 3.04(4) of this notice.

(3) Certain § 317(b) redemptions not repurchases. This section 3.04(3) provides

an exclusive list of transactions that are § 317(b) redemptions but are not repurchases.

repurchase means solely--

(a) a § 317(b) redemption, except as provided in section 3.04(3) of this notice, or

(b) an economically similar transaction described in section 3.04(4) of this notice.

(3) Certain § 317(b) redemptions not repurchases. This section 3.04(3) provides

an exclusive list of transactions that are § 317(b) redemptions but are not repurchases.

(a) Section 304(a)(1) transactions.

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(i) Rule regarding deemed distributions. If § 304(a)(1) applies to an acquisition

of stock by an acquiring corporation (within the meaning of § 304(a)(1)), the acquiring

corporation’s deemed distribution in redemption of its stock (resulting from the

application of § 304(a)(1)) is not a repurchase.

(ii) Scope of rule. The rule described in section 3.04(3)(a)(i) of this notice

applies to a transaction described in that section regardless of whether § 302(a) or (d)

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

(iii) Rule regarding deemed issuances. For the rule addressing the treatment

of any stock deemed to be issued by the acquiring corporation as a result of the

application of § 304(a)(1), see section 3.08(4)(e) of this notice.

(b) Payment by covered corporation of cash in lieu of fractional shares. A

payment by a covered corporation of cash in lieu of a fractional share is not a

repurchase if--

arding deemed issuances. For the rule addressing the treatment

of any stock deemed to be issued by the acquiring corporation as a result of the

application of § 304(a)(1), see section 3.08(4)(e) of this notice.

(b) Payment by covered corporation of cash in lieu of fractional shares. A

payment by a covered corporation of cash in lieu of a fractional share is not a

repurchase if--

(i) the payment is carried out as part of a transaction that qualifies as a

reorganization under § 368(a) or as a distribution to which § 355 applies, or pursuant to

the settlement of an option or similar financial instrument (for example, a convertible

bond or convertible preferred share),

(ii) 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),

(iii) the payment is carried out solely for administrative convenience (and,

therefore, solely for non-tax reasons), and

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(iv) the amount of cash paid to the shareholder in lieu of a fractional share does

not exceed the value of one full share of the stock of the covered corporation.

(4) Economically similar transactions. Section 3.04(4)(a) of this notice provides an

exclusive list of transactions that are economically similar transactions. Section

3.04(4)(b) of this notice provides a nonexclusive list of specific transactions that are not

economically similar transactions.

(a) Transactions that are economically similar transactions.

red corporation.

(4) Economically similar transactions. Section 3.04(4)(a) of this notice provides an

exclusive list of transactions that are economically similar transactions. Section

3.04(4)(b) of this notice provides a nonexclusive list of specific transactions that are not

economically similar transactions.

(a) Transactions that are economically similar transactions.

(i) Acquisitive reorganizations. In the case of an acquisition of a target

corporation that is a covered corporation or a covered surrogate foreign corporation (as

appropriate) in an acquisitive reorganization, the exchange by the target corporation

shareholders of their target corporation stock as part of the acquisitive reorganization is

a repurchase by the target corporation.

(ii) Reorganizations under § 368(a)(1)(E). In the case of a recapitalization of a

covered corporation or a covered surrogate foreign corporation (each, a recapitalizing

corporation) that qualifies as a reorganization under § 368(a)(1)(E) (E reorganization),

an exchange by the recapitalizing corporation shareholders of their recapitalizing

corporation stock as part of the E reorganization is a repurchase by the recapitalizing

corporation.

(iii) Reorganizations under § 368(a)(1)(F). In the case of a transaction that

qualifies as a reorganization under § 368(a)(1)(F) (F reorganization) in which the

transferor corporation (as defined in § 1.368-2(m)(1)) is a covered corporation or a

covered surrogate foreign corporation (as appropriate), the exchange by the transferor

corporation shareholders of their transferor corporation stock as part of the

17

F reorganization is a repurchase by the transferor corporation.

fies as a reorganization under § 368(a)(1)(F) (F reorganization) in which the

transferor corporation (as defined in § 1.368-2(m)(1)) is a covered corporation or a

covered surrogate foreign corporation (as appropriate), the exchange by the transferor

corporation shareholders of their transferor corporation stock as part of the

17

F reorganization is a repurchase by the transferor corporation.

(iv) Split-offs. In the case of a split-off by a distributing corporation that is a

covered corporation or a covered surrogate foreign corporation (as appropriate), the

exchange by the distributing corporation shareholders of their distributing corporation

stock for controlled corporation stock and, if applicable, other property (including

securities of the controlled corporation) or money is a repurchase by the distributing

corporation.

(v) Complete liquidations to which both §§ 331 and 332 apply. In the case of a

complete liquidation of a covered corporation or a covered surrogate foreign corporation

(as appropriate) to which §§ 331 and 332(a) respectively apply to component

distributions of the complete liquidation--

(A) each distribution to which § 331 applies is a repurchase by the covered

corporation or the covered surrogate foreign corporation, and

(B) the distribution to which § 332(a) applies is not a repurchase by the

covered corporation or the covered surrogate foreign corporation. See section

3.04(4)(b)(i) of this notice.

(b) Transactions that are not economically similar transactions.

on to which § 331 applies is a repurchase by the covered

corporation or the covered surrogate foreign corporation, and

(B) the distribution to which § 332(a) applies is not a repurchase by the

covered corporation or the covered surrogate foreign corporation. See section

3.04(4)(b)(i) of this notice.

(b) Transactions that are not economically similar transactions.

(i) Complete liquidations.

(A) General rule. Except as provided in section 3.04(4)(a)(v) of this notice, a

distribution in complete liquidation of a covered corporation or a covered surrogate

foreign corporation (as appropriate) to which § 331 or § 332(a) applies is not a

repurchase by the covered corporation or the covered surrogate foreign corporation.

(B) Distributions during taxable year of complete liquidation and dissolution.

18

If a covered corporation or a covered surrogate foreign corporation (as appropriate)

completely liquidates and dissolves (within the meaning of § 1.331-1(d)(1)(ii)) during a

taxable year (that is, has a final distribution in complete liquidation to which § 331

applies during that taxable year), no distribution by that covered corporation or covered

surrogate foreign corporation during that taxable year is a repurchase.

(ii) Divisive transactions under § 355 other than split-offs. A distribution by a

distributing corporation of stock of a controlled corporation qualifying under § 355 that is

not a split-off is not a repurchase.

.05 Acquisitions by Specified Affiliates, Applicable Specified Affiliates, or Covered

Surrogate Foreign Corporations.

on during that taxable year is a repurchase.

(ii) Divisive transactions under § 355 other than split-offs. A distribution by a

distributing corporation of stock of a controlled corporation qualifying under § 355 that is

not a split-off is not a repurchase.

.05 Acquisitions by Specified Affiliates, Applicable Specified Affiliates, or Covered

Surrogate Foreign Corporations.

(1) Acquisitions of stock of a covered corporation by a specified affiliate. If a

specified affiliate of a covered corporation acquires stock of the covered corporation

from a person that is not the covered corporation or another specified affiliate of the

covered corporation, the acquisition is treated as a repurchase of the stock of the

covered corporation by the covered corporation.

(2) Certain acquisitions of foreign corporation stock.

(a) Acquisitions of applicable foreign corporation stock.

(i) In general. If an applicable specified affiliate of an applicable foreign

corporation acquires stock of the applicable foreign corporation from a person that is not

the applicable foreign corporation or another specified affiliate of such applicable foreign

corporation--

(A) the applicable specified affiliate is treated as a covered corporation with

regard to the acquisition, and

(B) the acquisition is treated as a repurchase of stock of a covered

19

corporation by the covered corporation.

on from a person that is not

the applicable foreign corporation or another specified affiliate of such applicable foreign

corporation--

(A) the applicable specified affiliate is treated as a covered corporation with

regard to the acquisition, and

(B) the acquisition is treated as a repurchase of stock of a covered

19

corporation by the covered corporation.

(ii) Acquisitions and repurchases funded by applicable specified affiliates.

(A) General rule. For purposes of applying § 4501(d)(1), an applicable

specified affiliate is treated as acquiring stock of an applicable foreign corporation if the

applicable specified affiliate funds by any means (including through distributions, debt,

or capital contributions) the acquisition or repurchase of stock of the applicable foreign

corporation by the applicable foreign corporation or a specified affiliate that is not also

an applicable specified affiliate, and such funding is undertaken for a principal purpose

of avoiding the stock repurchase excise tax. For purposes of the preceding sentence,

the fair market value of stock treated as acquired by the applicable specified affiliate is

limited to the amount funded by the applicable specified affiliate.

(B) Per se rule. A principal purpose described in section 3.05(2)(a)(ii)(A) of

this notice is deemed to exist if the applicable specified affiliate funds by any means,

other than through distributions, the applicable foreign corporation or a specified affiliate

that is not also an applicable specified affiliate, and such funded entity acquires or

repurchases stock of the applicable foreign corporation within two years of the funding.

ibed in section 3.05(2)(a)(ii)(A) of

this notice is deemed to exist if the applicable specified affiliate funds by any means,

other than through distributions, the applicable foreign corporation or a specified affiliate

that is not also an applicable specified affiliate, and such funded entity acquires or

repurchases stock of the applicable foreign corporation within two years of the funding.

(b) Repurchases or acquisitions of covered surrogate foreign corporation stock.

If a covered surrogate foreign corporation repurchases its stock, or if a specified affiliate

of the covered surrogate foreign corporation acquires stock of the covered surrogate

foreign corporation--

(i) the expatriated entity with respect to the covered surrogate foreign

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

acquisition, and

20

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

covered corporation by the covered corporation.

.06 Timing and Fair Market Value of Repurchased Stock.

(1) Time of repurchase.

(a) General rule. Stock is treated as repurchased at the time at which, for

Federal income tax purposes, ownership of the stock transfers to the covered

corporation or to the applicable acquiror (as appropriate).

(b) Repurchase pursuant to certain economically similar transactions. Stock

repurchased in an economically similar transaction described in section 3.04(4)(a) of

this notice is treated as repurchased at the time the shareholders of the covered

corporation or covered surrogate foreign corporation (as appropriate) exchange their

stock in the covered corporation or covered surrogate foreign corporation.

chase pursuant to certain economically similar transactions. Stock

repurchased in an economically similar transaction described in section 3.04(4)(a) of

this notice is treated as repurchased at the time the shareholders of the covered

corporation or covered surrogate foreign corporation (as appropriate) exchange their

stock in the covered corporation or covered surrogate foreign corporation.

(2) Fair market value of repurchased stock. The fair market value of repurchased

stock is the market price of the stock on the date the stock is repurchased. That is, if

the price at which the repurchased stock is purchased differs from the market price of

the stock on the date the stock is repurchased, the fair market value of the stock is the

market price on the date the stock is repurchased.

(a) Stock traded on an established securities market. If repurchased stock is

traded on an established securities market, the taxpayer must determine the market

price of the repurchased stock by applying one of the methods provided in section

3.06(2)(a)(i) of this notice. For purposes of this section 3.06(2), repurchased stock is

treated as traded on an established securities market if any stock of the same class and

issue of stock is so traded, regardless of whether the shares repurchased are so traded.

21

(i) Acceptable methods. The following are acceptable methods for determining

the market price of repurchased stock traded on an established securities market:

(A) The daily volume-weighted average price as determined on the date the

stock is repurchased;

(B) The closing price on the date the stock is repurchased;

(C) The average of the high and low prices on the date the stock is

repurchased; or

(D) The trading price at the time the stock is repurchased.

lished securities market:

(A) The daily volume-weighted average price as determined on the date the

stock is repurchased;

(B) The closing price on the date the stock is repurchased;

(C) The average of the high and low prices on the date the stock is

repurchased; or

(D) The trading price at the time the stock is repurchased.

(ii) Date of repurchase not a trading day. For purposes of each method

provided in section 3.06(2)(a)(i) of this notice, if the date the stock is repurchased is not

a trading day, the date on which the market price is determined is the immediately

preceding trading day.

(iii) Consistency requirement. The market price of repurchased stock that is

traded on an established securities market must be determined by consistently applying

one (but not more than one) of the methods provided in section 3.06(2)(a)(i) of this

notice to all repurchases throughout the covered corporation’s taxable year. That same

method also must be consistently applied to determine the market price of all stock

issued under the netting rule throughout the covered corporation’s taxable year, other

than stock issued to employees. See section 3.08(5)(a)(iii) of this notice.

(b) Stock not traded on an established securities market. If repurchased stock is

not traded on an established securities market, the market price of the stock is

determined as of the date of repurchase under the principles of § 1.409A-

1(b)(5)(iv)(B)(1).

22

the covered corporation’s taxable year, other

than stock issued to employees. See section 3.08(5)(a)(iii) of this notice.

(b) Stock not traded on an established securities market. If repurchased stock is

not traded on an established securities market, the market price of the stock is

determined as of the date of repurchase under the principles of § 1.409A-

1(b)(5)(iv)(B)(1).

22

(c) Market price of stock denominated in non-U.S. currency. The market price of

any stock that is denominated in a currency other than the United States dollar is

converted into United States dollars at the spot rate (as defined in § 1.988-1(d)(1)) on

the date that the stock is repurchased.

.07 Statutory Exceptions.

(1) Reduction of covered corporation’s stock repurchase excise tax base. The fair

market value of stock repurchased by a covered corporation in a repurchase described

in this section 3.07 is a reduction for purposes of computing the covered corporation’s

stock repurchase excise tax base. See section 3.03(3)(a)(ii) of this notice.

(2) Qualifying property exception. The fair market value of stock repurchased by a

covered corporation in a repurchase described in section 3.07(2)(a) through (d) of this

notice is a reduction for purposes of computing the covered corporation’s stock

repurchase excise tax base to the extent that such repurchase is for property permitted

by § 354 or § 355 to be received without the recognition of gain or loss (each, a

qualifying property repurchase):

(a) A repurchase by a target corporation as part of an acquisitive reorganization;

(b) A repurchase by a covered corporation or a covered surrogate foreign

corporation (as appropriate) as part of an E reorganization;

(c) A repurchase by a transferor corporation as part of an F reorganization; and

ition of gain or loss (each, a

qualifying property repurchase):

(a) A repurchase by a target corporation as part of an acquisitive reorganization;

(b) A repurchase by a covered corporation or a covered surrogate foreign

corporation (as appropriate) as part of an E reorganization;

(c) A repurchase by a transferor corporation as part of an F reorganization; and

(d) A repurchase by a distributing corporation as part of a split-off (whether or not

part of a D reorganization).

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

(a) In general. The fair market value of stock repurchased by a covered

23

corporation is a reduction for purposes of computing the covered corporation’s stock

repurchase excise tax base if the stock that is repurchased, or an amount of stock equal

to the fair market value of the stock repurchased, is contributed to an employer-

sponsored retirement plan.

(b) Classes of stock contributed to an employer-sponsored retirement plan. This

section 3.07(3) applies to a covered corporation’s contribution to an employer-

sponsored retirement plan of a class of stock that is the same class of stock that was

repurchased or a different class than the class of stock that was repurchased.

(c) Determination of the amount of the reduction to the stock repurchase excise

tax base. The amount of the reduction under section 3.07(3)(a) of this notice is

determined as follows:

on’s contribution to an employer-

sponsored retirement plan of a class of stock that is the same class of stock that was

repurchased or a different class than the class of stock that was repurchased.

(c) Determination of the amount of the reduction to the stock repurchase excise

tax base. The amount of the reduction under section 3.07(3)(a) of this notice is

determined as follows:

(i) Same class of stock repurchased and contributed. If a covered corporation

repurchases stock and contributes to an employer-sponsored retirement plan stock of

the same class, then the amount of the reduction under section 3.07(3)(a) of this notice

is equal to the aggregate fair market value of the stock repurchased during the taxable

year (as determined under section 3.06(2) of this notice) divided by the number of

shares repurchased multiplied by the number of shares contributed, but not in excess of

the aggregate fair market value of the stock of the same class that was repurchased

during the taxable year.

(ii) Different class of stock repurchased and contributed. If a covered

corporation contributes to an employer-sponsored retirement plan stock of a different

class than the class of stock that was repurchased, then the amount of the reduction

under section 3.07(3)(a) of this notice is equal to the fair market value of the stock at the

24

time that the stock is contributed to the employer-sponsored retirement plan. However,

the amount of the reduction under section 3.07(3)(a) of this notice must not exceed the

aggregate fair market value of stock of a different class repurchased during the taxable

year.

amount of the reduction

under section 3.07(3)(a) of this notice is equal to the fair market value of the stock at the

24

time that the stock is contributed to the employer-sponsored retirement plan. However,

the amount of the reduction under section 3.07(3)(a) of this notice must not exceed the

aggregate fair market value of stock of a different class repurchased during the taxable

year.

(d) Timing of contributions. The reduction in the stock repurchase excise tax

base, in accordance with section 3.07(3)(a) of this notice, for a taxable year applies for

stock contributions made by a covered corporation to an employer-sponsored

retirement plan during or on account of the covered corporation’s taxable year. For

purposes of the reduction in the stock repurchase excise tax base, a covered

corporation may treat stock contributions to an employer-sponsored retirement plan as

having been contributed in the prior taxable year if contributed by the filing deadline for

the IRS Form 720, Quarterly Federal Excise Tax Return that is due for the first full

quarter after the close of the taxpayer’s taxable year (see section 4 of this notice) and

on account of that taxable year within the meaning of § 404(a)(6). However, stock

contributions that are treated as having been contributed in the taxable year to which

the Form 720 applies cannot be treated as having been contributed for any other

taxable year.

(e) Interaction with netting rule. Stock contributions to an employer-sponsored

retirement plan under this section 3.07(3) are not treated as issued or provided to

employees of the covered corporation or a specified affiliate under section 3.08 of this

notice.

(4) Repurchases by a dealer in securities in the ordinary course of business.

ibuted for any other

taxable year.

(e) Interaction with netting rule. Stock contributions to an employer-sponsored

retirement plan under this section 3.07(3) are not treated as issued or provided to

employees of the covered corporation or a specified affiliate under section 3.08 of this

notice.

(4) Repurchases by a dealer in securities in the ordinary course of business.

(a) In general. Subject to section 3.07(4)(b) of this notice, the fair market value

25

of stock repurchased by a covered corporation or an applicable acquiror (as

appropriate) that is a dealer in securities (within the meaning of § 475(c)(1)) is a

reduction for purposes of computing the covered corporation’s stock repurchase excise

tax base to the extent the stock is acquired in the ordinary course of the dealer’s

business of dealing in securities.

(b) Applicability. The reduction described in section 3.07(4)(a) of this notice

applies solely to the extent that--

(i) the dealer accounts for the stock as securities held primarily for sale to

customers in the dealer’s ordinary course of business;

(ii) the dealer disposes of the stock within a period of time that is consistent

with the holding of the stock for sale to customers in the dealer’s ordinary course of

business, taking into account the terms of the stock and the conditions and practices

prevailing in the markets for similar stock during the period in which the stock is held;

and

(iii) the dealer (if it is a covered corporation) does not sell or otherwise transfer

the stock to an applicable acquiror, or the dealer (if it is an applicable acquiror) does not

sell or otherwise transfer the stock to the covered corporation or another applicable

acquiror, other than in a sale or transfer to a dealer that also satisfies the requirements

of this section 3.07(4).

(iii) the dealer (if it is a covered corporation) does not sell or otherwise transfer

the stock to an applicable acquiror, or the dealer (if it is an applicable acquiror) does not

sell or otherwise transfer the stock to the covered corporation or another applicable

acquiror, other than in a sale or transfer to a dealer that also satisfies the requirements

of this section 3.07(4).

(5) Repurchases by a RIC or REIT. 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.

(6) Repurchase treated as a dividend.

26

(a) General rule. In accordance with section 3.07(6)(b) of this notice, 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 § 301(c)(1) or § 356(a)(2).

(b) Rebuttable presumption of no dividend equivalence.

(i) Presumption. Subject to section 3.07(6)(b)(ii) of this notice, a repurchase to

which § 302 or § 356(a) applies is presumed to be subject to § 302(a) or § 356(a)(1),

respectively (and, therefore, is presumed ineligible for the exception in section

3.07(6)(a) of this notice).

(ii) Condition to rebut presumption. A covered corporation may rebut the

presumption described in section 3.07(6)(b)(i) of this notice with regard to a specific

shareholder solely by establishing with sufficient evidence that the shareholder treats

the repurchase as a dividend on the shareholder’s Federal income tax return.

the exception in section

3.07(6)(a) of this notice).

(ii) Condition to rebut presumption. A covered corporation may rebut the

presumption described in section 3.07(6)(b)(i) of this notice with regard to a specific

shareholder solely by establishing with sufficient evidence that the shareholder treats

the repurchase as a dividend on the shareholder’s Federal income tax return.

(iii) Sufficient evidence requirement. A covered corporation provides sufficient

evidence under section 3.07(6)(b)(ii) of this notice to establish that the shareholder

treats the repurchase as a dividend on the shareholder’s Federal income tax return if

the covered corporation--

(A) provides information reporting, as applicable, to the redeemed

shareholder, providing that the repurchase constitutes a dividend;

(B) obtains certification from the shareholder that the repurchase constitutes

a redemption treated as a § 301 distribution under § 302(d), or that the repurchase has

the effect of the distribution of a dividend under § 356(a)(2), including evidence that

applicable withholding occurred if required;

27

(C) has no knowledge of facts that would indicate that the certification is

incorrect; and

(D) demonstrates that the covered corporation has sufficient earnings and

profits to treat either the § 301 distribution, or the receipt of money or other property

under § 356, as a dividend.

.08 Netting Rule.

(1) In general. 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--

(a) issued or provided to employees of the covered corporation or employees of

a specified affiliate during the covered corporation’s taxable year, and

idend.

.08 Netting Rule.

(1) In general. 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--

(a) issued or provided to employees of the covered corporation or employees of

a specified affiliate during the covered corporation’s taxable year, and

(b) issued by the covered corporation to persons other than persons described in

section 3.08(1)(a) of this notice during the covered corporation’s taxable year.

(2) Time of issuance. Stock is treated as issued or provided by a covered

corporation at the time at which, for Federal income tax purposes, ownership of the

stock transfers to the recipient. See section 3.08(3)(b) of this notice for additional rules

regarding the time when stock is considered issued or provided to an employee.

(3) Stock issued or provided to employees.

(a) Arrangements that provide stock to an employee.

(i) In general. This section 3.08(3) applies to any arrangement under which

stock is issued or provided to an employee of a covered corporation or of a specified

affiliate as compensation for services performed as an employee. Such arrangements

include transfers of stock in connection with the performance of services described in

28

§ 83, including pursuant to a nonqualified stock option, or pursuant to a stock option

described in § 421.

(ii) Stock withholding. Stock withheld by a covered corporation or a specified

affiliate to satisfy an employer’s income tax withholding obligation described in § 3402,

or an employer’s withholding obligation described in § 3102, is not treated as stock

issued or provided to an employee by the covered corporation or specified affiliate.

nt to a stock option

described in § 421.

(ii) Stock withholding. Stock withheld by a covered corporation or a specified

affiliate to satisfy an employer’s income tax withholding obligation described in § 3402,

or an employer’s withholding obligation described in § 3102, is not treated as stock

issued or provided to an employee by the covered corporation or specified affiliate.

(iii) Net exercise. Stock withheld by a covered corporation or a specified

affiliate to satisfy the exercise price of a stock option is not treated as stock issued or

provided by the covered corporation or specified affiliate to an employee.

(iv) Sell-to-cover transactions. If a third party advances to an employee an

amount equal to the exercise price of a stock option or pays the exercise price of the

stock option on behalf of the employee, any stock transferred by the covered

corporation or specified affiliate to the employee or the third party upon exercise of the

option is treated as stock issued or provided to the employee. Similarly, if a third party

advances to the employee an amount equal to the withholding obligation described in

§ 3402 or § 3102 or pays an amount equal to that withholding obligation to the covered

corporation or specified affiliate on behalf of an employee, any stock transferred by the

covered corporation or specified affiliate to the employee or the third party is treated as

stock issued or provided to the employee.

(b) Time when stock is considered issued or provided to an employee.

in

§ 3402 or § 3102 or pays an amount equal to that withholding obligation to the covered

corporation or specified affiliate on behalf of an employee, any stock transferred by the

covered corporation or specified affiliate to the employee or the third party is treated as

stock issued or provided to the employee.

(b) Time when stock is considered issued or provided to an employee.

(i) In general. Stock is issued or provided by a covered corporation or a

specified affiliate to an employee as of the date that the employee is treated as the

beneficial owner of the stock for Federal income tax purposes. In general, an employee

29

is treated as the beneficial owner of the stock when the stock is transferred by the

covered corporation (or the specified affiliate) to the employee and the stock is

substantially vested within the meaning of § 1.83-1(b). Thus, stock transferred pursuant

to a vested stock award or restricted stock unit is issued or provided when the covered

corporation or specified affiliate initiates payment of the stock. Stock transferred that

that is not substantially vested within the meaning of § 1.83-3(b) is not issued or

provided to the employee until it vests, except as provided in section 3.08(3)(b)(iii) of

this notice.

(ii) Stock options and stock appreciation rights. Stock transferred to an

employee pursuant to an option described in § 1.83-7 or § 421 or a stock appreciation

right is issued or provided to the employee as of the date the employee exercises the

option or stock appreciation right.

(iii) Stock on which a § 83(b) election is made. Stock that is transferred to an

employee that is not substantially vested within the meaning of § 1.83-3(b) but on which

the employee makes a valid election under § 83(b) is treated as issued or provided to

the employee as of the transfer date.

mployee as of the date the employee exercises the

option or stock appreciation right.

(iii) Stock on which a § 83(b) election is made. Stock that is transferred to an

employee that is not substantially vested within the meaning of § 1.83-3(b) but on which

the employee makes a valid election under § 83(b) is treated as issued or provided to

the employee as of the transfer date.

(c) Fair market value of stock issued or provided to an employee. The fair

market value of stock issued or provided to an employee is the fair market value of the

stock, as determined under § 83, as of the date the stock is issued or provided to the

employee, as described in section 3.08(3)(b) of this notice.

(4) Issuances that are disregarded for purposes of applying the netting rule.

(a) Overview. This section 3.08(4) lists the sole circumstances in which an

issuance of stock is disregarded for purposes of the netting rule.

30

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

corporation distributed by the covered corporation to its shareholders with respect to its

stock is not treated as issued.

(c) Issuances to a specified affiliate. Stock issued by a covered corporation to a

specified affiliate of the covered corporation is not treated as issued.

(d) No double benefit for issuances that are part of a transaction to which the

qualifying property exception applies. Stock issued as part of a transaction qualifying as

a reorganization under § 368(a) or a distribution under § 355 is not treated as issued by

the issuing corporation if--

ed corporation to a

specified affiliate of the covered corporation is not treated as issued.

(d) No double benefit for issuances that are part of a transaction to which the

qualifying property exception applies. Stock issued as part of a transaction qualifying as

a reorganization under § 368(a) or a distribution under § 355 is not treated as issued by

the issuing corporation if--

(i) the stock constitutes property permitted to be received under § 354 or § 355

without the recognition of gain,

(ii) the stock is used by a covered corporation to repurchase its stock in a

transaction that is a repurchase under section 3.04(4)(a)(i), (ii), (iii), or (iv) of this notice,

and

(iii) the repurchase is not included in the covered corporation’s stock

repurchase excise tax base because that repurchase is a qualifying property

repurchase.

(e) Deemed issuances under § 304(a)(1). Any stock treated as issued by the

acquiring corporation by reason of the application of § 304(a)(1) to a transaction (as

more fully described in section 3.04(3)(a) of this notice) is not treated as issued.

(f) Deemed issuance of a fractional share. Any fractional share deemed to be

issued for Federal income tax purposes (in a payment described in section 3.04(3)(b) of

this notice) is not treated as issued.

31

(g) Issuance by a covered corporation that is a dealer in securities. Any stock

issued by a covered corporation that is a dealer in securities is not treated as issued to

the extent the stock is issued, or otherwise is used to satisfy obligations to customers

arising, in the ordinary course of the dealer’s (or an applicable acquiror’s) business of

dealing in securities.

sued.

31

(g) Issuance by a covered corporation that is a dealer in securities. Any stock

issued by a covered corporation that is a dealer in securities is not treated as issued to

the extent the stock is issued, or otherwise is used to satisfy obligations to customers

arising, in the ordinary course of the dealer’s (or an applicable acquiror’s) business of

dealing in securities.

(h) Issuance by the target corporation in a transaction qualifying under

§ 368(a)(2)(E). Any target corporation stock that is issued by the target corporation to

the merged corporation (within the meaning of § 368(a)(2)(E)) in exchange for

consideration that includes the stock of the controlling corporation (within the meaning

of § 368(a)(2)(E)) in a transaction qualifying as an A reorganization by reason of

§ 368(a)(2)(E) is not treated as issued.

(5) Fair market value of issued stock. With respect to the issuance of stock that is

not subject to section 3.08(3)(c) of this notice, the fair market value of stock issued is

the market price of the stock on the date the stock is issued.

(a) Stock traded on an established securities market. If stock issued is traded on

an established securities market, the taxpayer must determine the market price of the

issued stock by applying one of the methods provided in section 3.08(5)(a)(i) of this

notice.

(i) Acceptable methods. The following are acceptable methods for determining

the market price of stock issued that is traded on an established securities market:

(A) The daily volume-weighted average price as determined on the date the

stock is issued;

(B) The closing price on the date the stock is issued;

32

(C) The average of the high and low prices on the date the stock is issued; or

(D) The trading price at the time the stock is issued.

raded on an established securities market:

(A) The daily volume-weighted average price as determined on the date the

stock is issued;

(B) The closing price on the date the stock is issued;

32

(C) The average of the high and low prices on the date the stock is issued; or

(D) The trading price at the time the stock is issued.

(ii) Date of issuance not a trading day. For purposes of each method provided

in section 3.08(5)(a)(i) of this notice, if the date the stock is issued is not a trading day,

the date on which the market price is determined is the immediately preceding trading

day.

(iii) Consistency requirement. The market price of stock issued that is traded

on an established securities market must be determined by consistently applying one

(but not more than one) of the methods provided in section 3.08(5)(a)(i) of this notice to

all stock issued throughout the covered corporation’s taxable year. That same method

also must be consistently applied to determine the market price of all stock repurchased

throughout the covered corporation’s taxable year. See section 3.06(2)(a)(iii) of this

notice.

(b) Stock not traded on an established securities market. If stock issued is not

traded on an established securities market, the market price of the stock is determined

as of the date the stock is issued under the principles of § 1.409A-1(b)(5)(iv)(B)(1).

price of all stock repurchased

throughout the covered corporation’s taxable year. See section 3.06(2)(a)(iii) of this

notice.

(b) Stock not traded on an established securities market. If stock issued is not

traded on an established securities market, the market price of the stock is determined

as of the date the stock is issued under the principles of § 1.409A-1(b)(5)(iv)(B)(1).

(c) Market price of stock denominated in non-U.S. currency. The market price of

any stock that is denominated in a currency other than the United States dollar is

converted into United States dollars at the spot rate (as defined in § 1.988-1(d)(1)) on

the date that the stock is issued.

.09 Examples. The following examples illustrate the application of this section 3.

For purposes of the following examples, unless otherwise stated: Each of

Corporation X and unrelated Target is a covered corporation that is organized in State A

33

and is a calendar-year taxpayer; Corporation X’s and Target’s only outstanding stock is

a single class of common stock that is traded on an established securities market; any

shareholder whose stock is redeemed in a § 317(b) redemption qualifies for sale or

exchange treatment under § 302(a); and the receipt of money or other property by any

shareholder whose stock is repurchased in an acquisitive reorganization or an

E reorganization is not treated as having the effect of a distribution of a dividend under

§ 356(a)(2).

(1) Example 1: Redemption of preferred stock--(a) Facts. Corporation X has

outstanding common stock that is traded on an established securities market, as well as

mandatorily redeemable preferred stock that is not traded on an established securities

market. The preferred stock is stock for Federal tax purposes. On January 1, 2023,

Corporation X redeems the preferred stock pursuant to its terms.

ample 1: Redemption of preferred stock--(a) Facts. Corporation X has

outstanding common stock that is traded on an established securities market, as well as

mandatorily redeemable preferred stock that is not traded on an established securities

market. The preferred stock is stock for Federal tax purposes. On January 1, 2023,

Corporation X redeems the preferred stock pursuant to its terms.

(b) Analysis. The redemption by Corporation X of its mandatorily redeemable

preferred stock is a repurchase because (i) Corporation X redeemed an instrument that

is stock for Federal tax purposes (that is, mandatorily redeemable preferred stock

issued by Corporation X), and (ii) the redemption by Corporation X is a § 317(b)

redemption. See section 3.04(2)(a) of this notice.

(2) Example 2: Valuation of repurchase--(a) Facts. On April 15, 2023, when

Corporation X’s common stock is trading at $0.70x per share, Corporation X purchases

50x shares of its common stock for $35x from one of its shareholders.

(b) Analysis. Corporation X’s purchase of 50x shares of Corporation X common

stock is a repurchase because the transaction is a § 317(b) redemption. See section

3.04(2)(a) of this notice. For purposes of calculating Corporation X’s stock repurchase

excise tax base, the fair market value of the 50x shares of common stock repurchased

on April 15, 2023, is the aggregate market price of those shares on that repurchase

date, or $35x ($0.70x per share x 50x shares = $35x). See section 3.06(2)(a) of this

notice. Accordingly, the repurchase by Corporation X increases its stock repurchase

excise tax base for the 2023 taxable year by $35x.

ase

excise tax base, the fair market value of the 50x shares of common stock repurchased

on April 15, 2023, is the aggregate market price of those shares on that repurchase

date, or $35x ($0.70x per share x 50x shares = $35x). See section 3.06(2)(a) of this

notice. Accordingly, the repurchase by Corporation X increases its stock repurchase

excise tax base for the 2023 taxable year by $35x.

(c) Application of netting rule. The facts are the same as in section 3.09(2)(a) of

this notice (this Example 2), except that, on August 1, 2023, Corporation X issues 20x

shares of its common stock to an unrelated party, at which time ownership of the stock

transfers to the unrelated party for Federal income tax purposes. On that date, the

common stock of Corporation X is trading at $0.50x per share. For purposes of

calculating Corporation X’s stock repurchase excise tax base, Corporation X is treated

as issuing its 20x shares of common stock on August 1, 2023 (the date on which

34

ownership of the stock transfers to the recipient for Federal income tax purposes). See

section 3.08(2) of this notice. In addition, the fair market value of that issued stock is its

aggregate market price on the date of issuance by Corporation X, or $50x ($0.50x per

share x 20x shares = $10x). See sections 3.03(3)(a) and 3.08(5)(a) of this notice.

Accordingly, the net increase in Corporation X’s stock repurchase excise tax base for its

2023 taxable year is $25x ($35x repurchase - $10x issuance = $25x). See section

3.08(1) of this notice.

e of that issued stock is its

aggregate market price on the date of issuance by Corporation X, or $50x ($0.50x per

share x 20x shares = $10x). See sections 3.03(3)(a) and 3.08(5)(a) of this notice.

Accordingly, the net increase in Corporation X’s stock repurchase excise tax base for its

2023 taxable year is $25x ($35x repurchase - $10x issuance = $25x). See section

3.08(1) of this notice.

(3) Example 3: Acquisition partially funded by the target corporation--(a) Facts.

On May 30, 2023, Corporation X acquires all of Target’s outstanding stock (Target

Stock Acquisition). To effectuate the Target Stock Acquisition, Corporation X causes

the following transaction steps to occur: (i) Corporation X contributes $40x to a newly

formed corporation (Merger Sub); and (ii) Merger Sub merges into Target, with Target

surviving the merger (Subsidiary Merger). At the time of the Subsidiary Merger, the

stock of Target has an aggregate fair market value of $100x. In the Subsidiary Merger,

Target’s shareholders exchange all their Target stock for $100x of cash, of which $60x

is funded by Target and $40x is funded by Corporation X. For Federal income tax

purposes, the transitory existence of Merger Sub is disregarded, and Target is treated

as if Target redeemed 60% of its outstanding stock for $60x as part of the Subsidiary

Merger. (This treatment results from the fact that Target funded $60x of the

consideration received by Target’s shareholders in exchange for their Target stock.)

nd $40x is funded by Corporation X. For Federal income tax

purposes, the transitory existence of Merger Sub is disregarded, and Target is treated

as if Target redeemed 60% of its outstanding stock for $60x as part of the Subsidiary

Merger. (This treatment results from the fact that Target funded $60x of the

consideration received by Target’s shareholders in exchange for their Target stock.)

(b) Analysis. Target’s redemption of 60% of its outstanding stock is a § 317(b)

redemption. In addition, Target’s redemption is not included in the exclusive list of

transactions under section 3.04(3) of this notice that are treated as a § 317(b)

redemption but are not a repurchase. Accordingly, the redemption is a repurchase.

See section 3.04(2)(a) of this notice. Therefore, as a result of the Target Stock

Acquisition, Target’s stock repurchase excise tax base for its 2023 taxable year is

increased by $60x. See section 3.03(3)(a) of this notice.

(4) Example 4: Leveraged buyout--(a) Facts. The facts are the same as in section

3.09(3)(a) of this notice (Example 3), except that $60x of the consideration received by

Target’s shareholders in exchange for their Target stock is funded by a $60x loan to

Merger Sub from an unrelated lender (Loan). In the Subsidiary Merger, Target

assumes Merger Sub’s obligation on the $60x Loan. As a result of the disregarded

transitory existence of Merger Sub, the Target Stock Acquisition is treated for Federal

income tax purposes as though Target (i) directly borrowed $60x from the unrelated

lender, and then (ii) used the Loan proceeds to redeem $60x of its stock from the Target

shareholders.

an). In the Subsidiary Merger, Target

assumes Merger Sub’s obligation on the $60x Loan. As a result of the disregarded

transitory existence of Merger Sub, the Target Stock Acquisition is treated for Federal

income tax purposes as though Target (i) directly borrowed $60x from the unrelated

lender, and then (ii) used the Loan proceeds to redeem $60x of its stock from the Target

shareholders.

(b) Analysis. The analysis and Federal income tax consequences are the same

as in Example 3.

(5) Example 5: Pro rata stock split--(a) Facts. On October 1, 2023, Corporation X

distributes three shares of Corporation X common stock with respect to each existing

share of its outstanding common stock (Corporation X Stock Split).

35

(b) Analysis. The common stock distributed by Corporation X to its shareholders

through the Corporation X Stock Split is not an issuance because Corporation X

distributed the stock to its shareholders with respect to its outstanding common stock.

See section 3.08(4)(b) of this notice. Therefore, the stock distributed by Corporation X

is not taken into account for purposes of the netting rule. See section 3.08(4)(a) of this

notice (disregarding such types of issuances). Accordingly, Corporation X’s stock

repurchase excise tax base for its 2023 taxable year is not reduced by the Corporation

X Stock Split.

(6) Example 6: Acquisition of a target corporation in an acquisitive reorganization--

(a) Facts. On October 1, 2023, Target merges into Corporation X (Target Merger). The

Target Merger qualifies as an A reorganization. On the date of the Target Merger, the

fair market value of Target’s outstanding stock is $100x. In the Target Merger, Target’s

shareholders exchange $60x of their Target stock for Corporation X common stock, and

$40x of their Target stock for $40x of cash.

-

(a) Facts. On October 1, 2023, Target merges into Corporation X (Target Merger). The

Target Merger qualifies as an A reorganization. On the date of the Target Merger, the

fair market value of Target’s outstanding stock is $100x. In the Target Merger, Target’s

shareholders exchange $60x of their Target stock for Corporation X common stock, and

$40x of their Target stock for $40x of cash.

(b) Analysis regarding repurchase treatment, timing, and amount. The exchange

by the Target shareholders of their Target stock for the consideration received in the

Target Merger is a repurchase by Target because that exchange is an economically

similar transaction. See section 3.04(4)(a)(i) of this notice. This repurchase occurs on

October 1, 2023 (that is, the date on which the Target shareholders exchange their

Target shares as part of the Target Merger). See section 3.06(1)(b) of this notice. The

amount of this repurchase by Target is $100x, which equals the aggregate fair market

value of the Target stock at the time that stock is exchanged by the Target shareholders

as part of the Target Merger (that is, October 1, 2023). See section 3.06(2)(a) of this

notice.

(c) Analysis regarding impact of Target Merger on Target’s stock repurchase

excise tax base. Target’s stock repurchase excise tax base for its 2023 taxable year is

initially increased by $100x on account of the Target Merger. Under the qualifying

property exception, the fair market value of the Target stock exchanged by the Target

shareholders for Corporation X stock in the Target Merger (that is, $60x of Target stock)

is a qualifying property repurchase that reduces Target’s stock repurchase excise tax

base. See sections 3.03(3)(a) and 3.07(2)(a) of this notice (regarding acquisitive

reorganizations). However, the fair market value of the Target stock exchanged by the

Target shareholders for the $40x of cash in the Target Merger does not qualify for the

qualifying property exception

$60x of Target stock)

is a qualifying property repurchase that reduces Target’s stock repurchase excise tax

base. See sections 3.03(3)(a) and 3.07(2)(a) of this notice (regarding acquisitive

reorganizations). However, the fair market value of the Target stock exchanged by the

Target shareholders for the $40x of cash in the Target Merger does not qualify for the

qualifying property exception. See sections 3.03(3)(a) and 3.07(2)(a) of this notice.

Therefore, Target’s stock repurchase excise tax base for its 2023 taxable year is

increased by $40x ($100x repurchase - $60x exception = $40x).

(d) Analysis regarding Corporation X’s stock repurchase excise tax base.

Corporation X’s transfer of Corporation X stock to Target in the Target Merger is not an

issuance for purposes of the netting rule because Corporation X’s issuance of that stock

is part of a transaction to which the qualifying property exception applies. See generally

section 3.08(4)(d) of this notice. Specifically, Corporation X’s transfer of Corporation X

36

stock to Target is not an issuance for purposes of the netting rule because (i) the

Corporation X stock constitutes property permitted to be received under § 354 without

the recognition of gain, (ii) the Corporation X stock is used by a covered corporation

(that is, Target) to repurchase its stock in a transaction that is a repurchase under

section 3.04(4)(a)(i) of this notice, and (iii) the repurchase by Target is not included in

Target’s stock repurchase excise tax base because it is a qualifying property

repurchase. See section 3.08(4)(d) of this notice. Therefore, Corporation X does not

take into account any of the $60x of its stock transferred to Target in the Target Merger

to reduce its stock repurchase excise tax base for Corporation X’s 2023 taxable year.

See section 3.08(4)(a) of this notice (disregarding such types of issuances).

e excise tax base because it is a qualifying property

repurchase. See section 3.08(4)(d) of this notice. Therefore, Corporation X does not

take into account any of the $60x of its stock transferred to Target in the Target Merger

to reduce its stock repurchase excise tax base for Corporation X’s 2023 taxable year.

See section 3.08(4)(a) of this notice (disregarding such types of issuances).

(7) Example 7: Cash paid in lieu of fractional shares--(a) Facts. The facts are the

same as in section 3.09(6)(a) of this notice (Example 6). Additionally, the exchange

ratio in the Target Merger is 1.25 shares of Corporation X stock for each share of Target

stock. As part of the Target Merger, Shareholder A, who owns two shares of Target

stock, receives two shares of Corporation X stock as well as additional cash in lieu of a

0.5 fractional share in Corporation X. The payment by Corporation X to Shareholder A

of cash in lieu of a fractional share of Corporation X stock (i) was not separately

bargained-for consideration (that is, the cash paid by Corporation X in lieu of a fractional

Corporation X share represented a mere rounding off of the two Corporation X shares

issued in the exchange), (ii) was carried out solely due to administrative necessity (and

therefore, solely for non-tax reasons), and (iii) was for an amount of cash with regard to

a fractional share of Corporation X stock that did not exceed the value of one share.

aid by Corporation X in lieu of a fractional

Corporation X share represented a mere rounding off of the two Corporation X shares

issued in the exchange), (ii) was carried out solely due to administrative necessity (and

therefore, solely for non-tax reasons), and (iii) was for an amount of cash with regard to

a fractional share of Corporation X stock that did not exceed the value of one share.

(b) Analysis. The payment by Corporation X of cash to Shareholder A in lieu of a

fractional share of Corporation X stock is treated for Federal income tax purposes as

though the 0.5 fractional share were (i) distributed by Corporation X to Shareholder A as

part of the Target Merger, and then (ii) redeemed by Corporation X for cash.

Corporation X’s deemed redemption of the fractional share treated as received by

Shareholder A in the Target Merger is not a repurchase because, in addition to the facts

described in section 3.09(7)(a) of this notice (this Example 7), the payment of cash by

Corporation X is carried out as part of a transaction that qualifies as an acquisitive

reorganization (that is, the Target Merger). See section 3.04(3)(b) of this notice. In

addition, Corporation X’s deemed issuance of the fractional share to Shareholder A is

not taken into account for purposes of the netting rule. See section 3.08(4)(f) of this

notice.

(8) Example 8: Two-step asset acquisition--(a) Facts. Corporation X acquires the

assets of Target through the following transactions, each of which occurs pursuant to an

integrated plan to effect the acquisition. First, on September 30, 2023, Corporation X

contributes $60x of Corporation X stock and $40x of cash to a newly formed subsidiary

(Merger Sub). Second, on October 1, 2023, Merger Sub merges into Target in a

statutory merger, with Target surviving (Reverse Merger). Third, on October 15, 2023,

Target merges into Corporation X in a statutory merger (Upstream Merger)

to effect the acquisition. First, on September 30, 2023, Corporation X

contributes $60x of Corporation X stock and $40x of cash to a newly formed subsidiary

(Merger Sub). Second, on October 1, 2023, Merger Sub merges into Target in a

statutory merger, with Target surviving (Reverse Merger). Third, on October 15, 2023,

Target merges into Corporation X in a statutory merger (Upstream Merger). On the

date of the Reverse Merger, the fair market value of Target’s outstanding stock is

$100x. In the Reverse Merger, $60x of Target stock is exchanged for Corporation X

37

stock, and $40x of Target stock is exchanged for $40x of cash. For Federal income tax

purposes, the Reverse Merger and the Upstream Merger are integrated into a single

statutory merger of Target into Acquiring that qualifies as an A reorganization.

(b) Analysis. The analysis is the same as in section 3.09(6) of this notice

(Example 6).

(9) Example 9: E reorganization--(a) Facts. On November 1, 2023, Corporation X

issues new common stock, with an aggregate fair market value of $100x (New Common

Stock), to Corporation X’s shareholders in exchange for their outstanding common stock

in Corporation X (Old Common Stock). The exchange (Recapitalization) qualifies as an

E reorganization. At the time of the Recapitalization, the fair market value of

Corporation X’s outstanding common stock is $100x.

(b) Analysis regarding repurchase treatment, timing, and amount. The exchange

by the Corporation X shareholders of their Corporation X stock (that is, the Old

Common Stock) for New Common Stock is a repurchase by Corporation X because that

exchange is an economically similar transaction. See section 3.04(4)(a)(ii) of this

notice. This repurchase occurs on November 1, 2023 (that is, the date on which the

Target shareholders exchange their Old Common Stock as part of the Recapitalization).

See section 3.06(1)(b) of this notice

ck (that is, the Old

Common Stock) for New Common Stock is a repurchase by Corporation X because that

exchange is an economically similar transaction. See section 3.04(4)(a)(ii) of this

notice. This repurchase occurs on November 1, 2023 (that is, the date on which the

Target shareholders exchange their Old Common Stock as part of the Recapitalization).

See section 3.06(1)(b) of this notice. The amount of this repurchase by Corporation X is

$100x, which equals the aggregate fair market value of the Old Common Stock at the

time that stock is exchanged by the Corporation X shareholders as part of the

Recapitalization (that is, November 1, 2023). See section 3.06(2) of this notice.

(c) Analysis regarding impact of repurchase of Old Common Stock on

Corporation X’s stock repurchase excise tax base. Corporation X’s stock repurchase

excise tax base for its 2023 taxable year is initially increased by $100x on account of

the Recapitalization. Under the qualifying property exception, the fair market value of

the Old Common Stock exchanged by the Corporation X shareholders for New

Common Stock in the Recapitalization (that is, $100x of Old Common Stock) is a

qualifying property repurchase that reduces Corporation X’s stock repurchase excise

tax base. See sections 3.03(3)(a) and 3.07(2)(b) of this notice (regarding

E reorganizations). Consequently, because all the Old Common Stock was exchanged

by the Corporation X shareholders for New Common Stock, the Recapitalization does

not increase Corporation X’s stock repurchase excise tax base for its 2023 taxable year

($100x repurchase - $100x exception = $0).

stock repurchase excise

tax base. See sections 3.03(3)(a) and 3.07(2)(b) of this notice (regarding

E reorganizations). Consequently, because all the Old Common Stock was exchanged

by the Corporation X shareholders for New Common Stock, the Recapitalization does

not increase Corporation X’s stock repurchase excise tax base for its 2023 taxable year

($100x repurchase - $100x exception = $0).

(d) Analysis regarding impact of issuance of New Common Stock on Corporation

X’s stock repurchase excise tax base. Corporation X’s issuance of the New Common

Stock is not an issuance for purposes of the netting rule because Corporation X’s

issuance of that stock is part of a transaction to which the qualifying property exception

applies. See generally section 3.08(4)(d) of this notice. Specifically, Corporation X’s

issuance of its New Common Stock to Corporation X’s shareholders is not an issuance

for purposes of the netting rule because (i) the New Common Stock constitutes property

permitted to be received under § 354 without the recognition of gain, (ii) the New

38

Common Stock is used by a covered corporation (that is, Corporation X) to repurchase

its stock in a transaction that is a repurchase under section 3.04(4)(a)(ii) of this notice,

and (iii) the repurchase by Corporation X is not included in Corporation X’s stock

repurchase excise tax base for its 2023 taxable year because it is a qualifying property

repurchase. See section 3.08(4)(d) of this notice. Therefore, Corporation X does not

take into account any of the $100x of New Common Stock issued to Corporation X’s

shareholders to reduce its stock repurchase excise tax base for Corporation X’s 2023

taxable year. See section 3.08(4)(a) of this notice (disregarding such types of

issuances).

taxable year because it is a qualifying property

repurchase. See section 3.08(4)(d) of this notice. Therefore, Corporation X does not

take into account any of the $100x of New Common Stock issued to Corporation X’s

shareholders to reduce its stock repurchase excise tax base for Corporation X’s 2023

taxable year. See section 3.08(4)(a) of this notice (disregarding such types of

issuances).

(10) Example 10: F reorganization--(a) Facts. In order to reorganize under the

laws of State B, on November 15, 2023, Corporation X forms Corporation Y, a State B

corporation, and merges into Corporation Y (Corporation X Merger). The Corporation X

Merger qualifies as an F Reorganization. On the date of the Corporation X Merger, the

fair market value of Corporation X’s stock is $100x. Shareholder A owns $25x of

Corporation X’s outstanding stock. In the Corporation X Merger, Shareholder A

transfers its $25x of Corporation X stock to Corporation X in exchange for $25x of cash,

which is treated for Federal income tax purposes as an unrelated, separate transaction

from the F Reorganization to which § 302(a) applies (Shareholder A Redemption). See

§ 1.368-2(m)(3)(iii). The remaining Corporation X shareholders exchange their

Corporation X stock for Corporation Y stock as part of the F Reorganization.

(b) Analysis regarding repurchase treatment, timing, and amount. The exchange

by Shareholder A of their Corporation X stock is a repurchase by Corporation X in the

amount of $25x because it is a § 317(b) redemption. See section 3.04(2)(a) of this

notice. In addition, the exchange by Corporation X’s other shareholders of their

Corporation X stock for Corporation Y stock is a repurchase by Corporation X in the

amount of $75x because that exchange is an economically similar transaction. See

section 3.04(4)(a)(iii) of this notice

by Corporation X in the

amount of $25x because it is a § 317(b) redemption. See section 3.04(2)(a) of this

notice. In addition, the exchange by Corporation X’s other shareholders of their

Corporation X stock for Corporation Y stock is a repurchase by Corporation X in the

amount of $75x because that exchange is an economically similar transaction. See

section 3.04(4)(a)(iii) of this notice. These repurchases occur on November 15, 2023

(that is, the date on which the Corporation X shareholders transfer their Corporation X

stock to Corporation X as part of the Corporation X Merger). See section 3.06(1)(a) and

(b) of this notice. The total amount of these repurchases by Corporation X is $100x,

which equals the sum of (i) the fair market value of the Corporation X stock redeemed in

the Shareholder A Redemption on the date of the redemption, and (ii) the aggregate fair

market value of the Corporation X stock at the time that stock is exchanged by the

Corporation X shareholders as part of the F Reorganization (that is, November 15,

2023). See section 3.06(2)(a) of this notice.

(c) Analysis regarding impact of Shareholder A Redemption and

F Reorganization on Corporation X’s stock repurchase excise tax base. Corporation X’s

stock repurchase excise tax base for its 2023 taxable year is initially increased by $100x

on account of the Shareholder A Redemption and F Reorganization. Under the

qualifying property exception, the fair market value of the Corporation X stock

exchanged by the Corporation X shareholders for Corporation Y stock in the

F Reorganization (that is, $75x of Corporation X stock) is a qualifying property

repurchase that reduces Corporation X’s stock repurchase excise tax base. See

39

sections 3.03(3)(a) and 3.07(2)(c) of this notice. Accordingly, Corporation X’s stock

repurchase excise tax base for its 2023 taxable year is increased by $25x ($25x

repurchase + ($75x repurchase - $75x exception) = $25x).

in the

F Reorganization (that is, $75x of Corporation X stock) is a qualifying property

repurchase that reduces Corporation X’s stock repurchase excise tax base. See

39

sections 3.03(3)(a) and 3.07(2)(c) of this notice. Accordingly, Corporation X’s stock

repurchase excise tax base for its 2023 taxable year is increased by $25x ($25x

repurchase + ($75x repurchase - $75x exception) = $25x).

(d) Analysis regarding Corporation Y’s stock repurchase excise tax base.

Corporation Y’s transfer of the $75x of its stock to Corporation X in the Corporation X

Merger is not an issuance for purposes of the netting rule because Corporation Y’s

issuance of that stock is part of a transaction to which the qualifying property exception

applies. See generally section 3.08(4)(d) of this notice. Specifically, Corporation Y’s

transfer of its stock to Corporation X is not an issuance for purposes of the netting rule

because (i) the Corporation Y stock constitutes property permitted to be received under

§ 354 without the recognition of gain, (ii) the Corporation Y stock is used by a covered

corporation (that is, Corporation X) to repurchase its stock in a transaction that is a

repurchase under section 3.04(4)(a)(iii) of this notice, and (iii) the repurchase by

Corporation X is not included in Corporation X’s stock repurchase excise tax base for its

2023 taxable year because it is a qualifying property repurchase. See section

3.08(4)(d) of this notice. Therefore, Corporation Y does not take into account any of the

$75x of its stock transferred to Corporation X to reduce its stock repurchase excise tax

base for Corporation Y’s 2023 taxable year. See section 3.08(4)(a) of this notice

(disregarding such types of issuances).

base for its

2023 taxable year because it is a qualifying property repurchase. See section

3.08(4)(d) of this notice. Therefore, Corporation Y does not take into account any of the

$75x of its stock transferred to Corporation X to reduce its stock repurchase excise tax

base for Corporation Y’s 2023 taxable year. See section 3.08(4)(a) of this notice

(disregarding such types of issuances).

(11) Example 11: Section 355 split-off--(a) Facts. A covered corporation

(Distributing) has outstanding common stock that is traded on an established securities

market. Distributing owns all the stock of a preexisting subsidiary (Controlled). On

December 1, 2023, Distributing distributes all the stock of Controlled and $20x of cash

to certain of its shareholders (Participating Shareholders) in exchange for $100x of

Distributing stock in a split-off (Participating Shareholders Split-Off). On the date of the

Participating Shareholders Split-Off, the Distributing stock has a fair market value of

$100x.

(b) Analysis regarding repurchase treatment, timing, and amount. The exchange

by the Participating Shareholders of their Distributing stock for the $80x of Controlled

stock and $20x of cash in the Participating Shareholders Split-Off is a repurchase by

Distributing because that exchange is an economically similar transaction. See section

3.04(4)(a)(iv) of this notice. This repurchase occurs on December 1, 2023 (that is, the

date on which the Participating Shareholders exchange their Distributing shares as part

of the Participating Shareholders Split-Off). See section 3.06(1)(b) of this notice. The

amount of this repurchase by Distributing is $100x, which equals the aggregate fair

market value of the Distributing stock at the time that stock is exchanged by the

Participating Shareholders in the Participating Shareholders Split-Off (that is, December

1, 2023). See section 3.06(2)(a) of this notice.

f the Participating Shareholders Split-Off). See section 3.06(1)(b) of this notice. The

amount of this repurchase by Distributing is $100x, which equals the aggregate fair

market value of the Distributing stock at the time that stock is exchanged by the

Participating Shareholders in the Participating Shareholders Split-Off (that is, December

1, 2023). See section 3.06(2)(a) of this notice.

(c) Analysis regarding impact of Distribution on Distributing’s stock repurchase

excise tax base. Distributing’s stock repurchase excise tax base for its 2023 taxable

year is initially $100x on account of the Participating Shareholders Split-Off. However,

under the qualifying property exception, the fair market value of the Distributing stock

40

exchanged by the Participating Shareholders for Controlled stock in the Participating

Shareholders Split-Off (that is, $80x of Distributing Stock) is a qualifying property

repurchase that reduces Distributing’s stock repurchase excise tax base. See sections

3.03(3)(a) and 3.07(2)(d) of this notice. However, the fair market value of the

Distributing stock exchanged by the Participating Shareholders for the $20x of cash in

the Participating Shareholders Split-Off does not qualify for the qualifying property

exception. See sections 3.03(3)(a) and 3.07(2)(d) of this notice. Therefore,

Distributing’s stock repurchase excise tax base for its 2023 taxable year is increased by

$20x.

(12) Example 12: Section 355 split-off as part of a D reorganization--(a) Facts.

The facts are the same as in section 3.09(11)(a) of this notice (Example 11), except that

the Participating Shareholders Split-Off is carried out as part of a transaction qualifying

as a D reorganization in which Distributing transfers assets to Controlled.

(b) General analysis. Except as provided in section 3.09(12)(c) of this notice, the

analysis and Federal income tax consequences are the same as in section 3.09(11) of

this notice (Example 11).

e 11), except that

the Participating Shareholders Split-Off is carried out as part of a transaction qualifying

as a D reorganization in which Distributing transfers assets to Controlled.

(b) General analysis. Except as provided in section 3.09(12)(c) of this notice, the

analysis and Federal income tax consequences are the same as in section 3.09(11) of

this notice (Example 11).

(c) Analysis regarding Controlled’s stock repurchase excise tax base.

Controlled’s transfer of the $80x of its stock to Distributing in the Participating

Shareholders Split-Off is not an issuance for purposes of the netting rule because

Controlled’s issuance of that stock is part of a transaction to which the qualifying

property exception applies. See generally section 3.08(4)(d) of this notice. Specifically,

Controlled’s transfer of its stock to Distributing is not an issuance for purposes of the

netting rule because (i) the Controlled stock constitutes property permitted to be

received under § 355 without the recognition of gain, (ii) the Controlled stock is used by

a covered corporation (that is, Distributing) to repurchase its stock in a transaction that

is a repurchase under section 3.04(4)(a)(iv) of this notice, and (iii) the repurchase by

Distributing is not included in Distributing’s stock repurchase excise tax base for its

2023 taxable year because it is a qualifying property repurchase. See section

3.08(4)(d) of this notice. Therefore, Controlled does not take into account any of the

$80x of its stock transferred to Distributing to reduce Controlled’s stock repurchase

excise tax base for Controlled’s 2023 taxable year. See section 3.08(4)(a) of this notice

(disregarding such types of issuances).

se for its

2023 taxable year because it is a qualifying property repurchase. See section

3.08(4)(d) of this notice. Therefore, Controlled does not take into account any of the

$80x of its stock transferred to Distributing to reduce Controlled’s stock repurchase

excise tax base for Controlled’s 2023 taxable year. See section 3.08(4)(a) of this notice

(disregarding such types of issuances).

(13) Example 13: Spin-off--(a) Facts. The facts are the same as in section

3.09(11)(a) of this notice (Example 11), except that Distributing distributes the

Controlled stock to its shareholders pro rata without the shareholders exchanging any

Distributing stock (Spin-Off).

(b) Analysis. The Spin-Off is not an economically similar transaction. See

section 3.04(4)(b)(ii) of this notice. Therefore, the Spin-Off is not a repurchase by

Distributing.

(14) Example 14: Section 355 spin-off as part of a D reorganization--(a) Facts.

41

The facts are the same as in section 3.09(13)(a) of this notice (Example 13), except that

the Spin-Off is carried out as part of a transaction qualifying as a D reorganization.

(b) Analysis. The analysis and Federal income tax consequences are the same

as in section 3.09(13) of this notice (Example 13).

(15) Example 15: Repurchase pursuant to an accelerated share repurchase

agreement--(a) Facts. On October 10, 2022, Corporation X entered into an accelerated

share repurchase (ASR) agreement with an investment bank (Bank). Under the terms

of the ASR agreement, Bank agrees to deliver a number of shares of Corporation X

stock to Corporation X during the term of the ASR, in an amount determined by

reference to the price of Corporation X stock on specified days during the term of the

ASR. Pursuant to the terms of the ASR agreement, Corporation X paid Bank a

prepayment amount. Bank borrowed 80x shares of Corporation X stock on the open

market

reement, Bank agrees to deliver a number of shares of Corporation X

stock to Corporation X during the term of the ASR, in an amount determined by

reference to the price of Corporation X stock on specified days during the term of the

ASR. Pursuant to the terms of the ASR agreement, Corporation X paid Bank a

prepayment amount. Bank borrowed 80x shares of Corporation X stock on the open

market. Pursuant to the terms of the ASR agreement, Bank then delivered 80x shares

of Corporation X stock to Corporation X on October 12, 2022. On final settlement of the

ASR, Bank may be required to deliver additional shares of Corporation X stock to

Corporation X or Corporation X may be required to make a payment to Bank. The

terms of the ASR agreement and the facts and circumstances cause ownership of the

80x shares to transfer from Bank to Corporation X for Federal income tax purposes at

the time of delivery (that is, October 12, 2022). The agreement will settle in 2023. On

February 1, 2023, Bank delivers an additional 20x shares to Corporation X in final

settlement of the ASR agreement. For Federal income tax purposes, ownership of

those 20x shares is treated as transferring from Bank to Corporation X at the time of

delivery (that is, February 1, 2023).

(b) Analysis. Corporation X is treated as repurchasing 80x shares of

Corporation X stock on October 12, 2022 (that is, the date on which ownership of the

80x shares delivered by Bank transferred from Bank to Corporation X for Federal

income tax purposes). See section 3.06(1)(a) of this notice. However, the repurchase

by Corporation X of the 80x shares of Corporation X stock does not increase

Corporation X’s stock repurchase excise tax base for its 2023 taxable year because the

repurchase occurred prior to January 1, 2023. See section 3.03(3)(b) of this notice; see

also § 10201(d) of the IRA (providing that the stock repurchase excise tax applies to

repurchases after December 31, 2022)

ver, the repurchase

by Corporation X of the 80x shares of Corporation X stock does not increase

Corporation X’s stock repurchase excise tax base for its 2023 taxable year because the

repurchase occurred prior to January 1, 2023. See section 3.03(3)(b) of this notice; see

also § 10201(d) of the IRA (providing that the stock repurchase excise tax applies to

repurchases after December 31, 2022). The delivery by Bank to Corporation X of 20x

shares of Corporation X stock on February 1, 2023, constitutes a repurchase because,

for Federal income tax purposes, the terms of the ASR agreement and the facts and

circumstances cause ownership of those shares to transfer from Bank to Corporation X

on that date. See section 3.06(1)(a) of this notice. Therefore, the repurchase by

Corporation X of those 20x shares of Corporation X stock increases Corporation X’s

stock repurchase excise tax base for its 2023 taxable year.

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

Facts. Corporation X adopts a plan of complete liquidation that becomes effective on

March 1, 2023 (Corporation X Liquidation). Corporation X has 100x shares of common

stock outstanding. On April 1, 2023, all shareholders of Corporation X receive a

42

liquidating distribution by Corporation X in full payment for their Corporation X common

stock. At the time at which Corporation X distributes all of its corporate assets to its

shareholders in complete liquidation (that is, April 1, 2023), Corporation X stock trades

at $1x per share. Each distribution in complete liquidation is subject to § 331.

shareholders of Corporation X receive a

42

liquidating distribution by Corporation X in full payment for their Corporation X common

stock. At the time at which Corporation X distributes all of its corporate assets to its

shareholders in complete liquidation (that is, April 1, 2023), Corporation X stock trades

at $1x per share. Each distribution in complete liquidation is subject to § 331.

(b) Analysis. A distribution in complete liquidation of a covered corporation (that

is, Corporation X) to which § 331 (but not § 332(a)) applies is not a repurchase by the

covered corporation. See section 3.04(4)(b)(i) of this notice. Therefore, none of the

distributions by Corporation X in complete liquidation is a repurchase by Corporation X,

and Corporation X’s stock repurchase excise tax for its 2023 taxable year is not

increased as a result of the Corporation X Liquidation.

(17) Example 17: Complete liquidation of a covered corporation to which both

§§ 331 and 332(a) apply--(a) Facts. The facts are the same as in section 3.09(16)(a) of

this notice (Example 16), except that one of Corporation X’s shareholders is a

corporation (Corporation Z). As of the date of adoption of the plan of liquidation of

Corporation X (that is March 1, 2023), Corporation Z has continued to be at all times

until the receipt of the Corporation X liquidating distribution the owner of 80x shares of

Corporation X common stock. In other words, Corporation Z has continued to be at all

times until the receipt of the Corporation X liquidating distribution the owner of stock in

Corporation X meeting the requirements of § 1504(a)(2) (that is, Corporation Z is an 80-

percent distributee within the meaning of § 337(c)). Therefore, the liquidating

distribution by Corporation X to Corporation Z as part of the Corporation X Liquidation

qualifies as a liquidation under § 332(a)

all

times until the receipt of the Corporation X liquidating distribution the owner of stock in

Corporation X meeting the requirements of § 1504(a)(2) (that is, Corporation Z is an 80-

percent distributee within the meaning of § 337(c)). Therefore, the liquidating

distribution by Corporation X to Corporation Z as part of the Corporation X Liquidation

qualifies as a liquidation under § 332(a). The liquidating distributions by Corporation X

to the other shareholders described in section 3.09(16)(a) of this notice (Example 16)

are distributions in liquidation subject to § 331.

(b) Analysis. In the case of a complete liquidation of a covered corporation, if

§§ 331 and 332(a), respectively, apply to component distributions of the complete

liquidation, (i) a distribution to which § 331 applies is a repurchase by the covered

corporation, and (ii) the distribution to which § 332(a) applies is not a repurchase by the

covered corporation. See section 3.04(4)(a)(v) of this notice. Therefore, as a result of

the component liquidating distributions of the Corporation X Liquidation to which § 331

applies, Corporation X repurchased 20x shares of its stock on April 1, 2023.

Accordingly, the Corporation X Liquidation results in a $20x increase in Corporation X’s

stock repurchase excise tax base for its 2023 taxable year because the fair market

value of Corporation X’s stock at the time of repurchase (that is, April 1, 2023) was $1x

per share (20x shares x $1x = $20x). See section 3.06(2)(a) of this notice.

(18) Example 18: Acquisition by disregarded entity--(a) Facts. Corporation X

owns all the interests in LLC, a domestic limited liability company that is disregarded as

an entity separate from its owner for Federal tax purposes (disregarded entity) under

§ 301.7701-3 of the Procedure and Administration Regulations (26 CFR part 301). On

May 31, 2023, LLC purchases shares of Corporation X’s stock for cash from an

unrelated shareholder.

43

--(a) Facts. Corporation X

owns all the interests in LLC, a domestic limited liability company that is disregarded as

an entity separate from its owner for Federal tax purposes (disregarded entity) under

§ 301.7701-3 of the Procedure and Administration Regulations (26 CFR part 301). On

May 31, 2023, LLC purchases shares of Corporation X’s stock for cash from an

unrelated shareholder.

43

(b) Analysis. Because LLC is a disregarded entity, the May 31, 2023, acquisition

of Corporation X stock is treated as an acquisition by Corporation X. Accordingly, the

acquisition is a § 317(b) redemption and is therefore a repurchase. See section 3.04(2)

of this notice. Section 301.7701-2(c)(2)(v) (treating disregarded entities as corporations

for purposes of certain excise taxes) does not apply to treat LLC as a corporation

because § 4501 is not described in § 301.7701-2(c)(2)(v)(A).

(19) Example 19: Acquisitive reorganization qualifying under § 368(a)(2)(E)--(a)

Facts. On October 1, 2023, Corporation X acquires all of Target’s outstanding stock

(Target Stock Acquisition). To effectuate the Target Stock Acquisition, Corporation X

causes the following transaction steps to occur: (i) Corporation X contributes $80x of

Corporation X common stock and $20x of cash (Merger Consideration) to a newly

formed corporation (Merger Sub); and (ii) Merger Sub merges into Target in a statutory

merger, with Target surviving (Reverse Merger). The Reverse Merger qualifies as an

A reorganization by reason of § 368(a)(2)(E). On the date of the Reverse Merger, the

fair market value of Target’s outstanding stock is $100x. In the Reverse Merger, $80x

of Target stock is exchanged for Corporation X stock, and $20x of Target stock is

exchanged for $20x of cash.

into Target in a statutory

merger, with Target surviving (Reverse Merger). The Reverse Merger qualifies as an

A reorganization by reason of § 368(a)(2)(E). On the date of the Reverse Merger, the

fair market value of Target’s outstanding stock is $100x. In the Reverse Merger, $80x

of Target stock is exchanged for Corporation X stock, and $20x of Target stock is

exchanged for $20x of cash.

(b) Analysis regarding repurchase treatment, timing, and amount. The exchange

by the Target shareholders of their Target stock for the consideration received in the

Reverse Merger is a repurchase by Target because that exchange is an economically

similar transaction. See section 3.04(4)(a)(i) of this notice. This repurchase occurs on

October 1, 2023 (that is, the date on which the Target shareholders exchange their

Target shares as part of the Reverse Merger). See section 3.06(1)(b) of this notice.

The amount of this repurchase by Target is $100x, which equals the aggregate fair

market value of the Target stock at the time that stock is exchanged by the Target

shareholders as part of the Reverse Merger (that is, October 1, 2023). See section

3.06(2)(a) of this notice.

(c) Analysis regarding impact of Reverse Merger on Target’s stock repurchase

excise tax base. Target’s stock repurchase excise tax base for its 2023 taxable year is

initially increased by $100x on account of the Reverse Merger. Under the qualifying

property exception, the fair market value of the Target stock exchanged by the Target

shareholders for Corporation X stock in the Reverse Merger (that is, $80x of Target

stock) is a qualifying property repurchase that reduces Target’s stock repurchase excise

tax base. See sections 3.03(3)(a) and 3.07(2)(a) of this notice (regarding acquisitive

reorganizations). However, the fair market value of the Target stock exchanged by the

Target shareholders for the $20x of cash in the Reverse Merger does not qualify for the

qualifying property exception

80x of Target

stock) is a qualifying property repurchase that reduces Target’s stock repurchase excise

tax base. See sections 3.03(3)(a) and 3.07(2)(a) of this notice (regarding acquisitive

reorganizations). However, the fair market value of the Target stock exchanged by the

Target shareholders for the $20x of cash in the Reverse Merger does not qualify for the

qualifying property exception. See sections 3.03(3)(a) and 3.07(2)(a) of this notice. In

addition, any Target stock that is deemed to be issued by Target to Merger Sub in

exchange for the Merger Consideration is not treated as issued for purposes of

computing Target’s stock repurchase excise tax base. See section 3.08(4)(h) of this

notice. Therefore, Target’s stock repurchase excise tax base for its 2023 taxable year

is increased by $20x ($100x repurchase - $80x exception = $20x).

44

(d) Analysis regarding Corporation X’s stock repurchase excise tax base.

Corporation X’s issuance of Corporation X stock in the Reverse Merger is not an

issuance for purposes of the netting rule because Corporation X’s issuance of that stock

is part of a transaction to which the qualifying property exception applies. See generally

section 3.08(4)(d) of this notice. Specifically, Corporation X’s issuance of Corporation X

stock is not an issuance for purposes of the netting rule because (i) the Corporation X

stock constitutes property permitted to be received under § 354 without the recognition

of gain, (ii) the Corporation X stock is used by a covered corporation (that is, Target) to

repurchase its stock in a transaction that is a repurchase under section 3.04(4)(a)(i) of

this notice, and (iii) the repurchase by Target is not included in Target’s stock

repurchase excise tax base because it is a qualifying property repurchase. See section

3.08(4)(d) of this notice

t the recognition

of gain, (ii) the Corporation X stock is used by a covered corporation (that is, Target) to

repurchase its stock in a transaction that is a repurchase under section 3.04(4)(a)(i) of

this notice, and (iii) the repurchase by Target is not included in Target’s stock

repurchase excise tax base because it is a qualifying property repurchase. See section

3.08(4)(d) of this notice. Therefore, Corporation X does not take into account any of the

$80x of its stock issued in the Reverse Merger to reduce its stock repurchase excise tax

base for Corporation X’s 2023 taxable year. See section 3.08(4)(a) of this notice

(disregarding such types of issuances).

(20) Example 20: Multiple repurchases and contributions of same class of stock--

(a) Facts. On January 15, 2023, Corporation X repurchases 100x shares of its Class A

stock that have an aggregate fair market value of $1,000x. Corporation X repurchases

50x shares of its Class A stock on September 15, 2023, that have an aggregate fair

market value of $200x. Corporation X contributes to its employee stock ownership plan

75x shares of its Class A stock on March 15, 2023, and 75x shares of its Class A stock

on October 15, 2023.

(b) Analysis. The amount of the reduction to Corporation X’s stock repurchase

excise tax base is determined by dividing the aggregate fair market value of shares of

Class A stock repurchased by the number of shares repurchased ($1,200x/150x shares

= $8/share) and multiplying the number of shares contributed by the average price of

repurchased shares (150x shares x $8/share = $1,200x). See section 3.07(3)(c)(i) of

this notice. Therefore, Corporation X’s stock repurchase excise tax base for its 2023

taxable year is $0 ($1,200x repurchase - $1,200x exception = $0).

ock repurchased by the number of shares repurchased ($1,200x/150x shares

= $8/share) and multiplying the number of shares contributed by the average price of

repurchased shares (150x shares x $8/share = $1,200x). See section 3.07(3)(c)(i) of

this notice. Therefore, Corporation X’s stock repurchase excise tax base for its 2023

taxable year is $0 ($1,200x repurchase - $1,200x exception = $0).

(21) Example 21: Multiple repurchases and contributions of different class from

repurchased shares--(a) Facts. On January 15, 2023, Corporation X repurchases 100x

shares of its Class A stock that have an aggregate fair market value of $1,000x.

Corporation X repurchases 50x shares of its Class A stock on September 15, 2023, that

have an aggregate fair market value of $200x. Corporation X contributes to its

employee stock ownership plan 75x shares of its Class B stock on October 15, 2023,

that have an aggregate fair market value of $1,000x. Corporation X contributes to its

employee stock ownership plan 25x shares of its Class B stock on December 15, 2023,

that have an aggregate fair market value of $500x.

(b) Analysis. The amount of the reduction to Corporation X’s stock repurchase

excise tax base is equal to the sum of the fair market values of the different class of

stock at the time that the stock is contributed to the employer-sponsored retirement plan

($1,000x + $500x = $1,500x). However, the amount of the reduction must not exceed

45

the aggregate fair market value of stock of a different class repurchased during the

taxable year by Corporation X (that is, $1,200x). See section 3.07(3)(c)(ii) of this notice.

Therefore, Corporation X’s stock repurchase excise tax base for its 2023 taxable year is

$0 ($1,200x repurchase - $1,200x exception = $0).

$500x = $1,500x). However, the amount of the reduction must not exceed

45

the aggregate fair market value of stock of a different class repurchased during the

taxable year by Corporation X (that is, $1,200x). See section 3.07(3)(c)(ii) of this notice.

Therefore, Corporation X’s stock repurchase excise tax base for its 2023 taxable year is

$0 ($1,200x repurchase - $1,200x exception = $0).

(22) Example 22: Restricted stock provided to employee--(a) Facts. Employee M

is an employee of Corporation X. In 2024, as compensation for Employee M’s services,

Corporation X transfers to Employee M 100x shares of Corporation X restricted stock,

when the fair market value of each share is $50x. The shares vest in 2027. Employee

M does not make an election under § 83(b). In 2027, when the shares vest, the shares

have a fair market value of $70x per share. In 2027, Corporation X withholds from

Employee M’s other wages amounts that are required to pay its income tax and

employment tax withholding obligations arising from the stock transfer.

(b) Analysis. 100x shares of Corporation X stock are treated as issued or

provided to Employee M when they become substantially vested in 2027. See section

3.08(3)(b)(i) of this notice. Therefore, Corporation X’s stock repurchase excise tax base

for its 2027 taxable year is reduced by $7,000x (100x shares x $70x per share =

$7,000x).

(23) Example 23: Restricted stock provided to employee with § 83(b) election--(a)

Facts. The facts are the same as in section 3.09(22) of this notice (Example 22), except

that Employee M elects under § 83(b) to include the fair market value of the shares of

restricted stock in gross income when the shares are transferred.

duced by $7,000x (100x shares x $70x per share =

$7,000x).

(23) Example 23: Restricted stock provided to employee with § 83(b) election--(a)

Facts. The facts are the same as in section 3.09(22) of this notice (Example 22), except

that Employee M elects under § 83(b) to include the fair market value of the shares of

restricted stock in gross income when the shares are transferred.

(b) Analysis. 100x shares of Corporation X stock are treated as issued or

provided to Employee M when the shares are transferred in 2024. See section

3.08(3)(b)(iii) of this notice. Therefore, Corporation X’s stock repurchase excise tax

base for its 2024 taxable year is reduced by $5,000x (100x shares x $50x per share =

$5,000x). No shares of Corporation X stock are treated as issued or provided to

Employee M when the shares vest in 2027.

(24) Example 24: Vested stock provided to an employee with share withholding--

(a) Facts. Employee N is an employee of Corporation X. In 2024, as compensation for

Employee N’s services, Corporation X grants Employee N 100x restricted stock units

(RSUs). Pursuant to the RSUs, if Employee N remains employed by Corporation X

through December 31, 2026, Corporation X will transfer 100x shares of Corporation X

stock to Employee N in January 2027. Employee N remains employed by Corporation

X through December 31, 2026. In January 2027, when the shares have a fair market

value of $50x per share, Corporation X initiates the transfer of 60x shares of

Corporation X stock to Employee N and withholds 40x shares to satisfy its income tax

and employment tax withholding obligations.

shares of Corporation X

stock to Employee N in January 2027. Employee N remains employed by Corporation

X through December 31, 2026. In January 2027, when the shares have a fair market

value of $50x per share, Corporation X initiates the transfer of 60x shares of

Corporation X stock to Employee N and withholds 40x shares to satisfy its income tax

and employment tax withholding obligations.

(b) Analysis. 60x shares of Corporation X stock are treated as issued or

provided to Employee N when the shares are transferred in 2027. See section

3.08(3)(a)(ii) of this notice. Therefore, Corporation X’s stock repurchase excise tax

46

base for its 2027 taxable year is reduced by $3,000x (60x shares x $50x per share =

$3,000x).

(25) Example 25: Stock option net exercise--(a) Facts. Employee O is an

employee of Corporation X. In 2024, Corporation X transfers to Employee O options to

purchase 100x shares of Corporation X stock with an exercise price of $40x per share.

The options are described in § 1.83-7 and do not have a readily ascertainable fair

market value. Employee O exercises the option to purchase 100x shares in 2025 when

the fair market value is $50x per share. Corporation X withholds 80x shares to pay the

exercise price.

(b) Analysis. 20x shares of Corporation X stock are treated as issued or

provided to Employee O when the options are exercised in 2025. See section

3.08(3)(a)(iii) of this notice. Therefore, Corporation X’s stock repurchase excise tax

base for its 2025 taxable year is reduced by $1,000x (20x shares x $50x per share =

$1,000x).

withholds 80x shares to pay the

exercise price.

(b) Analysis. 20x shares of Corporation X stock are treated as issued or

provided to Employee O when the options are exercised in 2025. See section

3.08(3)(a)(iii) of this notice. Therefore, Corporation X’s stock repurchase excise tax

base for its 2025 taxable year is reduced by $1,000x (20x shares x $50x per share =

$1,000x).

(26) Example 26: Broker-assisted net exercise--(a) Facts. The facts are the same

as section 3.09(25) of this notice (Example 25), except that instead of Corporation X

withholding shares to pay the exercise price, a third-party broker pays an amount equal

to the exercise price to Corporation X. Corporation X transfers 100x shares of

Corporation X stock to the third-party broker, who then deposits the 100x shares into

Employee O’s account. The third-party broker then immediately sells 80x shares to

recover the exercise price paid to Corporation X.

(b) Analysis. 100x shares of Corporation X stock are treated as issued or

provided to Employee O when the shares are transferred to the broker in 2025. See

section 3.08(3)(a)(iv) of this notice. Therefore, Corporation X’s stock repurchase excise

tax base for its 2025 taxable year is reduced by $5,000x (100x shares x $50x per share

= $5,000x).

SECTION 4. REPORTING AND PAYMENT OF STOCK REPURCHASE EXCISE TAX

The Treasury Department and the IRS anticipate that the forthcoming proposed

regulations will provide that the stock repurchase excise tax must be reported on IRS

Form 720, Quarterly Federal Excise Tax Return. To facilitate the computation of the

stock repurchase excise tax, the IRS also intends to issue an additional form that

taxpayers will be required to attach to the Form 720

E TAX

The Treasury Department and the IRS anticipate that the forthcoming proposed

regulations will provide that the stock repurchase excise tax must be reported on IRS

Form 720, Quarterly Federal Excise Tax Return. To facilitate the computation of the

stock repurchase excise tax, the IRS also intends to issue an additional form that

taxpayers will be required to attach to the Form 720.

Although the Form 720 is filed quarterly, the Treasury Department and the IRS

expect the forthcoming proposed regulations to provide that the stock repurchase

47

excise tax will be reported once per taxable year on the Form 720 that is due for the first

full quarter after the close of the taxpayer’s taxable year. For example, a taxpayer with

a taxable year ending on December 31, 2023, would report its stock repurchase excise

tax on the Form 720 for the first quarter of 2024, due on April 30, 2024. The Treasury

Department and the IRS expect the forthcoming proposed regulations to provide that

the deadline for payment of the stock repurchase excise tax is the same as the filing

deadline, and that no extensions are permitted for reporting or paying the stock

repurchase excise tax owed.

SECTION 5. APPLICABILITY DATES

.01 In general. It is anticipated that the forthcoming proposed regulations will

provide that rules consistent with the rules described in section 3 of this notice generally

apply to repurchases of stock of a covered corporation made after December 31, 2022,

and to issuances of stock made during a taxable year ending after December 31, 2022.

.02 Funded Purchases. It is anticipated that the forthcoming proposed regulations

will provide that rules consistent with the rules described in section 3.05(2)(a)(ii) of this

notice apply to repurchases and acquisitions of stock made after December 31, 2022,

that are funded on or after [INSERT DATE OF PUBLIC RELEASE].

.03 Reliance

ing a taxable year ending after December 31, 2022.

.02 Funded Purchases. It is anticipated that the forthcoming proposed regulations

will provide that rules consistent with the rules described in section 3.05(2)(a)(ii) of this

notice apply to repurchases and acquisitions of stock made after December 31, 2022,

that are funded on or after [INSERT DATE OF PUBLIC RELEASE].

.03 Reliance. Until the date of issuance of the forthcoming proposed regulations, a

taxpayer may rely on the rules set forth in section 3 of this notice.

SECTION 6. REQUEST FOR COMMENTS

.01 Comments regarding rules included in notice. The Treasury Department and the

IRS request comments on the rules described in this notice. In particular, the Treasury

Department and the IRS request comments that address the following specific

48

questions:

(1) Are there circumstances under which special rules should be provided for

redeemable preferred stock or other special classes of stock or debt (including debt with

features that allow the debt, whether by the issuer, the holder, or otherwise, to be

converted into stock)? If so, please provide objectively verifiable criteria that such

special rules should incorporate to provide certainty for taxpayers and the IRS.

(2) Should the fair market value of stock repurchased be an amount other than the

market price of such stock in determining the amount of a covered corporation’s

repurchases?

(3) For purposes of the netting rule, should the fair market value of stock issued or

provided be an amount other than the market price of such stock in determining the

amount of a covered corporation’s issuances?

(4) Should the definition of an employer-sponsored retirement plan include plans

other than plans that are qualified under § 401(a)?

red corporation’s

repurchases?

(3) For purposes of the netting rule, should the fair market value of stock issued or

provided be an amount other than the market price of such stock in determining the

amount of a covered corporation’s issuances?

(4) Should the definition of an employer-sponsored retirement plan include plans

other than plans that are qualified under § 401(a)?

(5) With regard to contributions of repurchased stock by a covered corporation to

an employer-sponsored retirement plan, what additional provisions (if any) would be

helpful to address fact patterns in which multiple classes of stock are both repurchased

and contributed by that covered corporation?

(6) Should a method be provided for determining the market price of stock that is

traded on multiple established securities markets? If so, what modifications to the rules

in sections 3.06(2)(a)(i) and 3.08(5)(a)(i) of this notice would be required?

49

(7) Should there be additional methods to rebut the presumption in section

3.07(6)(b)(i) of this notice? If so, what modifications to section 3.07(6)(b) of this notice

would be required?

.02 Comments regarding rules not included in notice. The Treasury Department and

the IRS request comments on other questions arising under § 4501 that should be

addressed in guidance. Commenters are encouraged to specify the issues on which

guidance is needed most quickly as well as the most important issues on which

guidance is needed. In addition to general comments regarding § 4501, the Treasury

Department and the IRS request comments that address the following questions that

are anticipated to be addressed in the forthcoming proposed regulations:

(1) What factors should the Treasury Department and the IRS consider in

developing guidance regarding indirect ownership for purposes of determining whether

a corporation or a partnership is a specified affiliate?

501, the Treasury

Department and the IRS request comments that address the following questions that

are anticipated to be addressed in the forthcoming proposed regulations:

(1) What factors should the Treasury Department and the IRS consider in

developing guidance regarding indirect ownership for purposes of determining whether

a corporation or a partnership is a specified affiliate?

(2) When should a corporation be treated as becoming or ceasing to be a covered

corporation, and how should repurchases and issuances by a corporation during a

taxable year that are prior to the date the corporation becomes a covered corporation or

after the date the corporation ceases to be a covered corporation be treated?

(3) Should special rules be provided for bankrupt or troubled companies? For

example, should a § 317(b) redemption occurring as part of a restructuring of a

bankrupt or troubled company be excluded from the definition of “repurchase”?

(4) Should any additional rules with regard to financial arrangements, such as

options or other similar financial instruments, be added to prevent avoidance of the

stock repurchase excise tax? If so, please describe how such additional rules should

50

apply consistently for purposes of determining a covered corporation’s repurchases and

issuances.

(5) How should the stock repurchase excise tax be allocated among expatriated

entities if there are multiple expatriated entities treated as a covered corporation with

respect to a covered surrogate foreign corporation? Are other special rules necessary

or appropriate in such a case?

(6) If the applicable specified affiliate is a foreign partnership that has a domestic

entity as a direct or indirect partner and is treated as a covered corporation:

(a) Should the foreign partnership or its domestic entity partner, or both, be

required to file Form 720?

vered surrogate foreign corporation? Are other special rules necessary

or appropriate in such a case?

(6) If the applicable specified affiliate is a foreign partnership that has a domestic

entity as a direct or indirect partner and is treated as a covered corporation:

(a) Should the foreign partnership or its domestic entity partner, or both, be

required to file Form 720?

(b) Should the foreign partnership or its domestic entity partner be required to

pay the stock repurchase excise tax? If the foreign partnership is required to pay the

tax, should special rules or procedures apply to collect the tax?

(c) Should other special rules or procedures apply in this case, including if there

are multiple domestic entities that are direct or indirect partners?

(7) What factors should the Treasury Department and the IRS consider in

determining whether a domestic entity is an indirect partner in a foreign partnership?

(8) For purposes of the special netting rules in § 4501(d):

(a) Should stock issued or provided to any employees of the foreign partnership

be taken into account, or should the netting rule be limited to stock issued or provided

only to employees of the domestic entity that is a direct or indirect partner, in cases of a

foreign partnership that is the applicable specified affiliate?

(b) Are there any circumstances in which stock of the applicable specified affiliate

51

or expatriated entity, as relevant, should be taken into account in addition to, or in lieu

of, stock of the applicable foreign corporation or covered surrogate foreign corporation,

respectively?

or indirect partner, in cases of a

foreign partnership that is the applicable specified affiliate?

(b) Are there any circumstances in which stock of the applicable specified affiliate

51

or expatriated entity, as relevant, should be taken into account in addition to, or in lieu

of, stock of the applicable foreign corporation or covered surrogate foreign corporation,

respectively?

(9) Should the definition of “established securities market” be revised to clarify

which regulatory requirements under the Securities Exchange Act of 1934 are most

relevant to the determination of whether a foreign securities market is treated as an

established securities market? If so, what type of U.S. securities exchange (including

which tier of an exchange with multiple tiers) should be the baseline for comparison?

(10) How should the trading of stock through depository receipts be treated for

purposes of determining whether a corporation is a covered corporation, or whether

repurchased stock is traded on an established securities market?

.03 Procedures for submitting comments.

(1) Deadline. Written comments should be submitted by [INSERT DATE 60 DAYS

AFTER DATE OF PUBLICATION]. Consideration will also be given to any written

comment submitted after [INSERT DATE 60 DAYS AFTER DATE OF PUBLICATION],

though such comments may not be considered in the development of the forthcoming

proposed regulations if such consideration would delay the issuance of the forthcoming

proposed regulations

(2) Form and manner. The subject line for the comments should include a

reference to Notice 2023-2. All commenters are strongly encouraged to submit

comments electronically. Comments may be submitted in one of two ways:

(a) Electronically via the Federal eRulemaking Portal at www.regulations.gov

(type IRS-2023-0002 in the search field on the www.regulations.gov homepage to find

52

this notice and submit comments); or

r the comments should include a

reference to Notice 2023-2. All commenters are strongly encouraged to submit

comments electronically. Comments may be submitted in one of two ways:

(a) Electronically via the Federal eRulemaking Portal at www.regulations.gov

(type IRS-2023-0002 in the search field on the www.regulations.gov homepage to find

52

this notice and submit comments); or

(b) By mail to: Internal Revenue Service, CC:PA:LPD:PR (Notice 2023-2), Room

5203, P.O. Box 7604, Ben Franklin Station, Washington, D.C., 20044.

(3) Publication of comments. The Treasury Department and the IRS will publish

for public availability any comment submitted electronically and on paper to its public

docket on www.regulations.gov.

SECTION 7. DRAFTING AND CONTACT INFORMATION

The principal author of this notice is Samuel G. Trammell of the Office of the

Associate Chief Counsel (Corporate). However, other personnel from the Treasury

Department and the IRS participated in its development. For further information on

rules concerning stock issued or provided to employees under § 4501(c)(3), please

contact William L. McNally of the Office the Associate Chief Counsel (Employee

Benefits, Exempt Organizations, and Employment Taxes) at (202) 317-5600 (not a toll-

free number). For further information on rules concerning § 4501(d), please contact

Arielle M. Borsos of the Office the Associate Chief Counsel (International) at (202) 317-

6937 (not a toll-free number). For further information on rules concerning § 4501(e)(2),

please contact Naomi Lehr of the Office the Associate Chief Counsel (Employee

Benefits, Exempt Organizations, and Employment Taxes) at (202) 317-4102 (not a toll-

free number). For further information on rules concerning § 4501(e)(4) and (5), please

contact Jonathan A. LaPlante of the Office the Associate Chief Counsel (Financial

Institutions & Products) at (202) 317-5102 (not a toll-free number)

ase contact Naomi Lehr of the Office the Associate Chief Counsel (Employee

Benefits, Exempt Organizations, and Employment Taxes) at (202) 317-4102 (not a toll-

free number). For further information on rules concerning § 4501(e)(4) and (5), please

contact Jonathan A. LaPlante of the Office the Associate Chief Counsel (Financial

Institutions & Products) at (202) 317-5102 (not a toll-free number). For further

information on all other rules, please contact Mr. Trammell at (202) 317-5024 (not a toll-

free number).