Treasury Just Gutted the Stock Buyback Tax. Your Company Might Be Owed a Refund.

On Tuesday, the IRS published correcting amendments to the final stock buyback excise tax regulations. That's a technical fix to a much bigger story, one that hasn't gotten enough attention from the companies it actually affects.

Here's the short version: Treasury took the 1% stock buyback excise tax that Congress created in 2022, and in its final regulations, carved out so many transaction types that the tax barely resembles what the proposed rules described. LBOs, take-private deals, acquisitive reorganizations, preferred stock redemptions, complete liquidations: all excluded. The funding rule that would have dragged foreign-parented multinationals into the tax? Gone entirely.

If your company paid this tax under the earlier guidance, you may be entitled to a refund. The clock is running.

What Congress Created

The Inflation Reduction Act of 2022 added Section 4501 to the Internal Revenue Code: a 1% excise tax on the fair market value of stock repurchased by publicly traded domestic corporations, effective for repurchases after December 31, 2022. The Joint Committee on Taxation estimated the provision would raise $74 billion over ten years, making it the IRA's second-largest revenue raiser after the corporate alternative minimum tax.

The statute is relatively straightforward. A "covered corporation" is any domestic corporation whose stock trades on an established securities market. The tax applies to the fair market value of all stock repurchased during the taxable year, reduced by stock issued during the same year (the "netting rule") and subject to a $1 million de minimis threshold under Section 4501(e)(3). The tax isn't deductible for corporate income tax purposes, so it hits dollar for dollar.

Where things got complicated: Treasury had to define "repurchase" beyond the obvious case of a company buying back its own shares on the open market.

What Treasury Changed in the Final Rules

On November 24, 2025, Treasury published final regulations (TD 10037) under Section 4501, codified at 26 CFR Sections 58.4501-1 through 58.4501-7. The final rules broke sharply from both the proposed regulations and the initial Notice 2023-2 guidance, narrowing the tax's reach considerably.

The funding rule is dead

The proposed regulations included a "funding rule" that would have treated a US subsidiary as making a stock repurchase if it "funded" its foreign parent corporation's buyback. In practice, this meant that ordinary intercompany cash movements (dividends, capital contributions, intercompany loans) between a US subsidiary and its foreign parent could trigger excise tax liability if the parent happened to repurchase stock within a two-year window.

Treasury killed the rule entirely. The preamble to TD 10037 acknowledged that the funding rule was "overly broad and burdensome" and would have captured "ordinary course cash management transactions" unrelated to actual buyback avoidance.

That matters. For foreign-parented multinationals with US operations, cash can now move between entities without triggering a tax that was never intended to reach those flows.

LBOs and take-private deals: excluded

This is the change that matters most for M&A.

Under the proposed regulations, when a public company was taken private through a leveraged buyout, the redemption of public shares could trigger the excise tax. Treasury reversed course. The final regulations provide that redemptions by a covered corporation occurring as part of a transaction in which the corporation ceases to be publicly traded aren't treated as repurchases.

Treasury's reasoning was direct: "Congress generally did not intend for the stock repurchase excise tax to apply to transactions... that fundamentally restructure corporate ownership or control."

Read that line again. It tells you Treasury views this tax as targeting capital return programs (share repurchases as an alternative to dividends), not structural M&A transactions. That distinction is doing a lot of work, and it's favorable work if you're in the deal business.

Acquisitive reorganizations: also out

The proposed regulations would have required multi-step calculations to figure excise tax liability in Section 368 reorganizations. The final rules swept all of that away. All exchanges in acquisitive reorganizations are excluded from the excise tax, including exchanges where shareholders receive taxable "boot" under Section 356.

This is a bigger deal than it sounds. Under the proposed rules, a strategic acquisition structured as a merger with partial cash consideration could have triggered the buyback tax on the cash component. Now it doesn't, regardless of whether the deal is fully tax-free or partially taxable. Treasury concluded that reorganizations "are not single-company transactions that distribute corporate value to shareholders in exchange for the surrender of corporate stock."

Complete liquidations, preferred stock, and more

The final rules also exclude:

• Complete liquidations under Sections 331 and 332
• Repurchases of "plain vanilla" non-voting preferred stock described in Section 1504(a)(4), which Treasury treated as more similar to debt than equity
• Mandatorily redeemable stock and stock with a unilateral put option issued before August 16, 2022, where the corporation no longer controls repurchase timing
• Additional Tier 1 preferred stock (regulatory capital instruments for banks)
• Farm Credit System entity preferred stock

What It Means

A much smaller tax than anyone expected

Our read: Treasury effectively conceded that Congress wrote a tax aimed at one thing (share buyback programs as a corporate cash return strategy) but drafted language broad enough to catch a lot of other things. The final regulations are Treasury's correction.

Look at the numbers. S&P 500 companies repurchased $942.5 billion in stock in 2024. A record. The JCT projected the tax would raise $7.9 billion in fiscal year 2024. Actual IRS collections came in well below that estimate, and the narrowed final regulations will likely widen the gap further. Meanwhile, 2025 buyback volume is on track to surpass $1 trillion. Whatever deterrent effect Congress was hoping for, it hasn't materialized.

The other side of this: some policy advocates will argue Treasury gave away the store. The original broad reading would have raised more revenue and arguably better achieved the IRA's goal of discouraging buybacks in favor of reinvestment. But Treasury's reading of congressional intent is grounded in the statutory text, and it's hard to argue that Congress intended to impose an excise tax on every M&A transaction that happens to involve a publicly traded target.

How this changes deal structuring

If you're on either side of a public company acquisition, these rules change the conversation.

Before the final regs, tax counsel in LBO transactions had to model the excise tax as a deal cost. On a $10 billion take-private, that's a potential $100 million hit that the buyer, seller, or both had to absorb.

That cost is now zero for transactions where the target ceases to be publicly traded.

For strategic acquirers, the exclusion of reorganization exchanges (even with boot) removes a structural bias that would have pushed deals toward all-stock consideration. Mixed cash-and-stock deals no longer carry an excise tax penalty.

If you closed a deal between January 2023 and November 2025 and paid the excise tax on any of these now-excluded transaction types, the refund math is straightforward.

The refund window

Companies that filed Form 7208 under the prior guidance (Notice 2023-2 or the proposed regulations) and reported excise tax on transactions now excluded under the final regulations can file for a refund.

The process: file Form 720-X (Amended Quarterly Federal Excise Tax Return) for each quarter where the original Form 720 was filed, attaching an amended Form 7208 marked "Amended" at the top. The IRS instructions for Form 7208 (revised December 2025) confirm this process.

The statute of limitations is three years from when the original Form 720 was filed, or two years from the date of payment, whichever is later. The first filing deadline for calendar-year taxpayers was October 31, 2024, a transition deadline set by the final procedural regulations published June 28, 2024, covering all repurchases from 2023 through mid-2024. That means the earliest refund claim deadline is October 2027. But there's no reason to wait.

One detail that matters: Form 720-X must contain "a detailed explanation of the legal basis for the adjustments" under Treasury Regulation Section 301.6402-2. Boilerplate won't cut it. Each claim needs to identify the specific transactions, the prior treatment, and the final regulation provision that excludes them.

Practical Takeaways

Actions your tax and legal teams can assign this week:

1. Audit every Form 7208 your company filed since October 2024. Pull the workpapers behind each filing. Identify every transaction treated as a repurchase under prior guidance that would now be excluded: LBOs, take-private transactions, reorganization exchanges, liquidations, preferred stock redemptions.
2. Quantify the refund opportunity. For each excluded transaction, calculate the excise tax that was paid. The tax is 1% of fair market value, so even modest transaction volumes can produce six- and seven-figure refund claims.
3. File Form 720-X with amended Form 7208 for each affected quarter. Include the detailed legal basis for each adjustment. Cite the specific final regulation section (26 CFR 58.4501-1 through 58.4501-7) that excludes the transaction.
4. Update your M&A deal models. If you're evaluating public company acquisitions, remove the buyback excise tax from LBO and reorganization cost assumptions. This changes IRR calculations, particularly for larger transactions.
5. Brief your treasury team on the funding rule elimination. If your company is a US subsidiary of a foreign-parented group, intercompany cash management no longer carries buyback excise tax risk. Dividend distributions, capital contributions, and intercompany lending are clean.
6. Revisit your capital return strategy. The excise tax now applies primarily to what it was designed to hit: open-market share repurchases by US public companies. If your board was considering alternative structures to minimize buyback tax exposure, the calculus may be simpler than you thought.
7. Review preferred stock programs. If your company has repurchased Section 1504(a)(4) preferred stock since January 2023 and paid excise tax on those repurchases, that's a refund claim.

The Tax Isn't Going Away. But It's a Lot Smaller Than It Was.

The stock buyback excise tax is still on the books. It still applies to the thing Congress was actually targeting: public companies returning capital to shareholders through repurchases rather than dividends or reinvestment. For most large-cap companies running regular buyback programs, 1% of fair market value is a manageable cost, and it hasn't changed behavior. S&P 500 repurchases hit a record in 2024 and are on pace to break it again.

What has changed is the perimeter. If your company was caught in the broader net that the proposed regulations and interim guidance cast, the final rules may have given you your money back. The refund window is open. Use it.

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This article is for informational purposes only and does not constitute legal or tax advice. For guidance on your specific situation, consult qualified legal and tax advisors.