us-irs-notices-irb-2024-20-pdf•Internal Revenue Bulletin 2024-20 (PDF rendition): IRS Notices
Internal Revenue Bulletin 2024-20 (PDF rendition): IRS Notices
us-irs-notices-irb-2024-20-pdfInternal Revenue Bulletin 2024-20 (PDF rendition): IRS NoticesGuidance
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Bulletin No. 2024–20 May 13, 2024 HIGHLIGHTS OF THIS ISSUE These synopses are intended only as aids to the reader in identifying the subject matter covered. They may not be relied upon as authoritative interpretations. EXCISE TAX REG-115710-22, page 1070. These proposed regulations provide guidance addressing the application of the stock repurchase excise tax added to section 4501 of the Internal Revenue 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. The proposed regulations in REG-115710-22 contain oper- ative rules that provide taxpayers with guidance on how to calculate the amount of stock repurchase excise tax owed. REG-118499-23, page 1167. These proposed regulations provide guidance addressing the application of the stock repurchase excise tax added to section 4501 of the Internal Revenue 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. The proposed regulations in REG-118499-23 provide proce- dural rules that prescribe the manner of reporting and paying the stock repurchase excise tax. Finding Lists begin on page ii. The IRS Mission Provide America’s taxpayers top-quality service by helping them understand and meet their tax responsibilities and enforce the law with integrity and fairness to all. Introduction The Internal Revenue Bulletin is the authoritative instrument of the Commissioner of Internal Revenue for announcing offi- cial rulings and procedures of the Internal Revenue Service and for publishing Treasury Decisions, Executive Orders, Tax Conventions, legislation, court decisions, and other items of general interest. It is published weekly. It is the policy of the Service to publish in the Bulletin all sub- stantive rulings necessary to promote a uniform application of the tax laws, including all rulings that supersede, revoke, modify, or amend any of those previously published in the Bulletin. All published rulings apply retroactively unless other- wise indicated. Procedures relating solely to matters of inter- nal management are not published; however, statements of internal practices and procedures that affect the rights and duties of taxpayers are published. Revenue rulings represent the conclusions of the Service on the application of the law to the pivotal facts stated in the revenue ruling. In those based on positions taken in rul- ings to taxpayers or technical advice to Service field offices, identifying details and information of a confidential nature are deleted to prevent unwarranted invasions of privacy and to comply with statutory requirements. Rulings and procedures reported in the Bulletin do not have the force and effect of Treasury Department Regulations, but they may be used as precedents. Unpublished rulings will not be relied on, used, or cited as precedents by Service personnel in the disposition of other cases. In applying published rulings and procedures, the effect of subsequent legislation, regulations, court decisions, rulings, and procedures must be considered, and Service personnel and others concerned are cautioned against reaching the same conclusions in other cases unless the facts and circumstances are substantially the same. The Bulletin is divided into four parts as follows: Part I.—1986 Code. This part includes rulings and decisions based on provisions of the Internal Revenue Code of 1986. Part II.—Treaties and Tax Legislation. This part is divided into two subparts as follows: Subpart A, Tax Conventions and Other Related Items, and Subpart B, Legislation and Related Committee Reports. Part III.—Administrative, Procedural, and Miscellaneous. To the extent practicable, pertinent cross references to these subjects are contained in the other Parts and Subparts. Also included in this part are Bank Secrecy Act Administrative Rulings. Bank Secrecy Act Administrative Rulings are issued by the Department of the Treasury’s Office of the Assistant Secretary (Enforcement). Part IV.—Items of General Interest. This part includes notices of proposed rulemakings, disbar- ment and suspension lists, and announcements. The last Bulletin for each month includes a cumulative index for the matters published during the preceding months. These monthly indexes are cumulated on a semiannual basis, and are published in the last Bulletin of each semiannual period. The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate. May 13, 2024 Bulletin No. 2024–20 Part IV Excise Tax on Repurchase of Corporate Stock REG-115710-22 AGENCY: Internal Revenue Service (IRS), Treasury. ACTION: Notice of proposed rulemak- ing. SUMMARY: This document contains proposed regulations that would provide guidance regarding the application of the new excise tax on repurchases of corpo- rate stock made after December 31, 2022. The proposed regulations would affect certain publicly traded corporations that repurchase their stock or whose stock is acquired by certain specified affiliates. Another notice of proposed rulemaking (REG-118499-23) on this topic is pub- lished in the Proposed Rules section of this issue of the Federal Register to pro- pose rules on procedure and administra- tion applicable to this new excise tax. DATES: Written or electronic comments and requests for a public hearing must be received by June 11, 2024. ADDRESSES: Commenters are strongly encouraged to submit public comments electronically. Submit electronic submis- sions via the Federal eRulemaking Portal at https://www.regulations.gov (indicate IRS and REG-115710-22) by following the online instructions for submitting com- ments. Requests for a public hearing must be submitted as prescribed in the “Com- ments and Requests for a Public Hear- ing” section. Once submitted to the Federal eRulemaking Portal, comments cannot be edited or withdrawn. The Department of the Treasury (Treasury Department) and the IRS will publish for public availability any comment submitted electronically or on paper to its public docket. Send paper submissions to: CC:PA:01:PR (REG-115710-22), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044. FOR FURTHER INFORMATION CONTACT: Concerning proposed §§58.4501-1 through 58.4501-6, Samuel G. Trammell at (202) 317-6975; concern- ing proposed §58.4501-7, Brittany N. Dobi at (202) 317-5469; concerning pro- posed §1.1275-6(f)(12)(iii), Jonathan A. LaPlante at (202) 317-3900; concerning submissions of comments and requests for a public hearing, Vivian Hayes at (202) 317-6901 (not toll-free numbers) or by email at publichearings@irs.gov (pre- ferred). SUPPLEMENTARY INFORMATION: Background This notice of proposed rulemaking proposes regulations under section 4501 of the Internal Revenue Code (Code) that would implement the new excise tax on repurchases of corporate stock (stock repurchase excise tax) imposed by section 4501 for repurchases made after December 31, 2022. As proposed in this notice of proposed rulemaking, the regulations are proposed to be added as proposed subpart A of new 26 CFR part 58 (Stock Repurchase Excise Tax Regu- lations), which is proposed to be added to subchapter D of 26 CFR chapter I (Mis- cellaneous Excise Taxes). This notice of proposed rulemaking also proposes to amend regulations under section 1275 of the Code in 26 CFR part 1 (Income Tax Regulations) to implement the pro- visions of section 4501. Another notice of proposed rulemaking published in the Proposed Rules section of this issue of the Federal Register relating to the stock repurchase excise tax proposes rules on procedure and administration applica- ble to the reporting and payment of the stock repurchase excise tax that would be added as proposed subpart B of 26 CFR part 58. I. Overview of Section 4501 A. In general Section 4501 was added to a new chap- ter 37 of the Code by the enactment of section 10201 of Public Law 117-169, 136 Stat. 1818 (August 16, 2022), commonly referred to as the Inflation Reduction Act of 2022 (IRA). Section 4501 imposes the stock repurchase excise tax on each cov- ered corporation for repurchases made after December 31, 2022. The stock repur- chase excise tax is equal to one percent of the fair market value of any stock of the corporation that is repurchased by the corporation during the taxable year. Sec- tion 4501(a). For purposes of the stock repurchase excise tax, the term “covered corporation” means any domestic cor- poration the stock of which is traded on an established securities market (within the meaning of section 7704(b)(1) of the Code). Section 4501(b). Section 4501(c)(1) provides that repur- chases of covered corporation stock to which the stock repurchase excise tax may apply include the following two types of transactions. First, the term “repurchase” means a redemption within the meaning of section 317(b) of the Code with regard to the stock of a covered corporation (sec- tion 317(b) redemption). Section 4501(c) (1)(A). Second, the term “repurchase” also means any transaction determined by the Secretary of the Treasury or her dele- gate (Secretary) to be economically sim- ilar to a section 317(b) redemption (eco- nomically similar transaction). Section 4501(c)(1)(B). B. Specified affiliates For purposes of the stock repurchase excise tax, section 4501(c)(2)(A) provides a special rule that treats the acquisition of stock of a covered corporation by a spec- ified affiliate of the covered corporation, from a person who is not the covered corporation or a specified affiliate of the covered corporation, as a repurchase of the stock of the covered corporation by the covered corporation. For this purpose, the term “specified affiliate” means, with regard to any corporation, (i) any corpo- ration 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 per- cent of the capital interests or profits inter- May 13, 2024 1070 Bulletin No. 2024–20 ests of which is held, directly or indirectly, by the corporation. Section 4501(c)(2)(B). C. Adjustment to amount taken into account under section 4501(a) The stock repurchase excise tax is applied to the fair market value of any stock of the covered corporation repur- chased by the covered corporation during its taxable year. However, the amount of these repurchases is reduced by the fair market value of any issuances of the cov- ered corporation’s stock during the cov- ered corporation’s taxable year (netting rule). Specifically, the netting rule provides that the amount taken into account under section 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 pro- vided to employees of the covered corpo- ration or employees of a specified affili- ate of the covered corporation during the taxable year (whether or not the stock is issued or provided in response to the exer- cise of an option to purchase the stock). Section 4501(c)(3). D. Special rules for certain acquisitions and repurchases of stock of certain foreign corporations Section 4501(d) provides special rules for the imposition of the stock repurchase excise tax on acquisitions of stock of appli- cable foreign corporations and covered surrogate foreign corporations. For pur- poses of section 4501(d), the term “appli- cable foreign corporation” means any foreign corporation the stock of which is traded on an established securities market. Section 4501(d)(3)(A). The term “covered surrogate foreign corporation” means any surrogate foreign corporation (as deter- mined under section 7874(a)(2)(B) of the Code by substituting “September 20, 2021” for “March 4, 2003” each place it appears) the stock of which is traded on an established securities market, but only with respect to taxable years that include any portion of the applicable period with respect to that corporation under section 7874(d)(1). Section 4501(d)(3)(B). Section 4501(d)(1) applies in the case of an acquisition of stock of an applica- ble foreign corporation by a specified affiliate of the corporation (other than a foreign corporation or a foreign partner- ship (unless the partnership has a domes- tic entity as a direct or indirect partner)) from a person that is not the applicable foreign corporation or a specified affil- iate of the applicable foreign corpora- tion. If section 4501(d)(1) applies, then for purposes of determining the stock repurchase excise tax: (i) the specified affiliate is treated as a covered corpora- tion with respect to the acquisition; (ii) the acquisition is treated as a repurchase of stock of a covered corporation by the covered corporation; and (iii) the adjust- ment under section 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. Section 4501(d)(2) applies in the case of either a repurchase of stock of a cov- ered surrogate foreign corporation by the covered surrogate foreign corporation, or an acquisition of stock of a covered sur- rogate foreign corporation by a specified affiliate of such corporation. If section 4501(d)(2) applies, then for purposes of determining the stock repurchase excise tax: (i) the expatriated entity (within the meaning of section 7874(a)(2)(A)) with respect to the covered surrogate foreign corporation is treated as a covered cor- poration with respect to the repurchase or acquisition; (ii) the repurchase or acqui- sition is treated as a repurchase of stock of a covered corporation by the covered corporation; and (iii) the adjustment under section 4501(c)(3) is determined only with respect to stock issued or provided by the expatriated entity to employees of the expatriated entity. E. Statutory exceptions to the application of section 4501(a) Section 4501(e) lists transactions that are statutorily excepted, in whole or in part, from the application of sec- tion 4501(a), each referred to as a “stat- utory exception” in this preamble. As a result of the statutory exceptions, section 4501(a) does not apply to a repurchase of a covered corporation’s stock: (1) To the extent that the repurchase is part of a reorganization (within the meaning of section 368(a) of the Code) and no gain or loss is recognized on the repurchase by the shareholder under chapter 1 of the Code (chapter 1) by reason of the reorganization (sec- tion 4501(e)(1)); (2) 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 owner- ship plan (ESOP), or similar plan (section 4501(e)(2)); (3) In any case in which the total value of the stock repurchased during the tax- able year does not exceed $1,000,000 (section 4501(e)(3)); (4) Under regulations prescribed by the Secretary, in cases in which the repurchase is by a dealer in securities in the ordinary course of business (section 4501(e)(4)); (5) By a regulated investment company (RIC), as defined in section 851 of the Code, or by a real estate investment trust (REIT), as defined in section 856(a) of the Code (section 4501(e)(5)); or (6) To the extent that the repurchase is treated as a dividend for purposes of the Code (section 4501(e)(6)). F. Regulations and other guidance Under section 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. Regulations or other guidance described in section 4501(f) may include guidance: (i) to pre- vent the abuse of the statutory exceptions; (ii) to address special classes of stock and preferred stock; and (iii) for the applica- tion of the special rules for acquisitions of stock of certain foreign corporations under section 4501(d). G. Applicability of stock repurchase excise tax provisions Except to the extent that a statutory exception applies, the stock repurchase excise tax applies to repurchases after December 31, 2022, subject to the netting rule. See section 10201(d) of the IRA. Bulletin No. 2024–20 1071 May 13, 2024 May 13, 2024 1072 Bulletin No. 2024–20 In contrast to the December 31, 2022, effective date expressly provided by section 10201(d) of the IRA with regard to repur- chases, the netting rule expressly takes into account any issuances by a covered corpo- ration during the entirety of its taxable year. See generally section 4501(c)(3). Specifi- cally, under the netting rule, the amount taken into account under section 4501(a) with respect to any repurchases is “reduced by the fair market value of any stock issued by the covered corporation during the tax- able year.” Section 4501(c)(3) (emphasis added). Therefore, a covered corporation with a taxable year that both began before January 1, 2023, and ended after Decem- ber 31, 2022, may apply the netting rule to reduce the fair market value of the covered corporation’s repurchases of stock during the portion of that taxable year beginning on January 1, 2023, by the fair market value of all issuances of its stock during the entirety of that taxable year. H. No deduction for payment of stock repurchase excise tax No deduction is allowed for the pay- ment of the stock repurchase excise tax. See section 275(a)(6) of the Code (as amended by section 10201(b) of the IRA to add a reference to chapter 37, which contains section 4501). II. Notice 2023-2 On January 17, 2023, the Treasury Department and the IRS published Notice 2023-2, 2023-3 I.R.B. 374, to provide ini- tial guidance regarding the application of the stock repurchase excise tax. Specif- ically, the Treasury Department and the IRS published Notice 2023-2 to facilitate administration of the stock repurchase excise tax by describing rules expected to be provided in forthcoming proposed regulations for determining the amount of stock repurchase excise tax owed, along with anticipated rules for reporting and paying any liability for the tax. Under those rules, the amount of stock repurchase excise tax imposed on a covered corporation equals the product obtained by multiplying one percent by the stock repurchase excise tax base of the covered corporation. The “stock repur- chase excise tax base” is the amount (not less than zero) obtained by: (i) determin- ing the aggregate fair market value of all repurchases of the covered corporation’s stock by the covered corporation during its taxable year; (ii) reducing that amount by the fair market value of stock of the covered corporation repurchased during its taxable year to the extent any statutory exceptions apply; and then (iii) further reducing that amount by the aggregate fair market value of stock of the covered corporation issued or provided by the cov- ered corporation during its taxable year under the netting rule. The Treasury Department and the IRS have received feedback on the stock repur- chase excise tax, including in response to Notice 2023-2. Based on the feedback received, and based on further consider- ation of section 4501 and Notice 2023-2, the Treasury Department and the IRS are proposing these regulations under section 4501 to be added as a new part 58 under the Miscellaneous Excise Taxes, as well as adding new §1.1275-6(f)(12)(iii) to 26 CFR part 1. The issues related to section 4501 and Notice 2023-2 with respect to which stakeholders have provided feedback, as well as issues that the Treasury Depart- ment and the IRS have considered after the publication of Notice 2023-2, are dis- cussed in the following Explanation of Provisions. Explanation of Provisions Subpart A of new part 58 would pro- vide operative rules under section 4501. Proposed §58.4501-1 would provide an overview of the stock repurchase excise tax, generally applicable definitions, the scope of the regulations implementing that tax, and certain operating rules applicable to those regulations. Proposed §58.4501-2 would provide general rules regarding the application and computation of the stock repurchase excise tax and proposed §58.4501-7 would provide rules specifi- cally relating to the application of section 4501(d). Except as provided in proposed §58.4501-7, proposed §58.4501-3 would provide rules regarding the application of the exceptions in section 4501(e) (other than the de minimis exception described in section 4501(e)(3) and to which proposed §58.4501-2(b)(2) applies), and proposed §58.4501-4 would provide rules regard- ing the application of section 4501(c) (3). Proposed §58.4501-5 would provide examples that illustrate the application of section 4501, other than the provisions of proposed §58.4501-7 (which are illus- trated by examples in §58.4501-7(p) and (q)), and proposed §58.4501-6 would pro- vide applicability dates (other than for the rules in §58.4501-7). I. Statutory Effective Date; Transition Relief A. Repurchases by a fiscal-year taxpayer prior to the statutory effective date A covered corporation is not subject to the stock repurchase excise tax with regard to a taxable year if, during that taxable year, the aggregate fair market value of the covered corporation’s repurchases of its stock does not exceed $1,000,000 (de minimis exception). See section 4501(e) (3); see also section 3.03(2)(a) of Notice 2023-2. One stakeholder requested that the pro- posed regulations make clear that repur- chases of stock by a fiscal-year taxpayer prior to the January 1, 2023, effective date of section 4501 are not taken into account for purposes of applying the de minimis exception. According to the stakeholder, the plain language of the statute requires that repurchases by a fiscal-year taxpayer prior to January 1, 2023, not be taken into account for any purpose under section 4501, including for purposes of applying the de minimis exception. The Treasury Department and the IRS have interpreted section 4501 in the same manner. The rule described in sec- tion 3.03(3)(b) of Notice 2023-2 provides that repurchases by a covered corporation before January 1, 2023, are not included in the covered corporation’s stock repurchase excise tax base. The proposed regulations would clarify that repurchases before Jan- uary 1, 2023, are not taken into account for purposes of applying the de minimis excep- tion. See proposed §58.4501-2(c)(3). B. Issuances by a fiscal-year taxpayer prior to the effective date One stakeholder recommended that stock issued by a fiscal-year taxpayer Bulletin No. 2024–20 1073 May 13, 2024 prior to January 1, 2023, should not be taken into account for purposes of the net- ting rule, because such an approach would create a mismatch between the treatment of issuances for purposes of the netting rule and the treatment of repurchases for purposes of the de minimis exception. See part I.A of this Explanation of Provisions. Another stakeholder recommended that fiscal-year taxpayers be permitted to use only net issuances (that is, issuances net of repurchases) from the portion of their taxable year prior to January 1, 2023, because, according to the stakeholder, tax- payers arguably should not be permitted to offset gross issuances during the portion of a fiscal year before January 1, 2023, against repurchases during the portion of a fiscal year beginning on January 1, 2023. The Treasury Department and the IRS disagree with the stakeholders’ recommen- dations. Section 4501(c)(3) expressly pro- vides that the amount taken into account under section 4501(a) with respect to any stock repurchased by a covered corpora- tion is reduced by the fair market value of any stock issued by the covered corpora- tion “during the taxable year.” Moreover, although section 10201(d) of the IRA expressly provides that the stock repur- chase excise tax applies to repurchases after December 31, 2022, it does not con- tain similar language for issuances. There- fore, the Treasury Department and the IRS are of the view that, in the case of a cov- ered corporation that has a taxable year that both begins before January 1, 2023, and ends after December 31, 2022, that cov- ered corporation may apply the netting rule to reduce the fair market value of the cov- ered corporation’s repurchases during that taxable year by the fair market value of all issuances of its stock during the entirety of that taxable year. See proposed §58.4501- 4(b)(3). Thus, the proposed regulations would not adopt these recommendations. C. Contributions by fiscal-year taxpayer to employer-sponsored retirement plan prior to effective date A stakeholder also recommended that stock contributed by a fiscal-year taxpayer to an employer-sponsored retirement plan prior to the January 1, 2023, effective date of section 4501, should not be taken into account for purposes of the statutory exception in section 4501(e)(2) because, according to the stakeholder, such an approach would create a mismatch between this exception and the de mini- mis exception. However, as discussed in part I.B of this Explanation of Provisions, the effective date in section 10201(d) of the IRA expressly applies to repurchases (and not to issuances or contributions). Therefore, the Treasury Department and the IRS are of the view that contributions to an employer-sponsored retirement plan during the 2022 portion of a taxable year beginning before January 1, 2023, and ending after December 31, 2022, should be taken into account for purposes of sec- tion 4501(e)(2). See proposed §58.4501- 3(d)(5). D. Trade date or settlement date A stakeholder asked whether the date of repurchase of stock occurs on (i) the trade date for the sale or purchase of that stock (that is, the date a broker executes the trade), or (ii) the settlement date with regard to that stock (that is, the date the shares are delivered). The stakeholder asked this question for purposes of deter- mining whether a repurchase occurs after the effective date of section 4501. The stakeholder requested that the proposed regulations clarify that the trade date for the sale or purchase of that stock consti- tutes the date of repurchase. The proposed regulations would clar- ify that the date of repurchase for a reg- ular-way sale of stock on an established securities market (that is, a transaction in which a trade order is placed on the trade date, and settlement of the transaction, including payment and delivery of the stock, occurs a standardized number of days after the trade date) is the trade date. See proposed §58.4501-2(g)(2). For rules regarding the date of repurchase generally, see part III.B.1 of this Explanation of Pro- visions. E. Transition relief for certain transactions entered into prior to enactment date Several stakeholders requested transi- tion relief (that is, an exemption from the stock repurchase excise tax) for certain repurchases that occur after the January 1, 2023, effective date of section 4501, pursuant to a binding commitment entered into before the August 16, 2022, enact- ment date of section 4501. For example, one stakeholder requested an exemption for redemptions of stock issued before the enactment date and redeemed pursuant to the terms of the stock after the effec- tive date, on the grounds that the stock repurchase excise tax did not exist when the terms of that stock were negotiated. Another stakeholder suggested that can- didates for transition relief could include: (i) redemptions by, and liquidations of, a special purpose acquisition company (SPAC) formed prior to the enactment date (to the extent the SPAC is contrac- tually obligated to offer redemption rights to its shareholders as agreed prior to the enactment date); (ii) payments in connec- tion with merger and acquisition (M&A) transactions pursuant to a binding com- mitment entered into prior to the enact- ment date; (iii) redemptions of non-partic- ipating, non-convertible preferred stock, and complete redemptions of tracking stock, issued prior to the enactment date; (iv) repurchases pursuant to accelerated share repurchase agreements if com- pleted pursuant to a binding commitment entered into prior to the enactment date; and (v) liquidating distributions subject to section 331 of the Code pursuant to a plan of liquidation adopted prior to the enact- ment date. The plain language of section 10201(d) of the IRA provides that the amendments made by section 10201 of the IRA apply to repurchases of stock after December 31, 2022. That section contains no refer- ence to repurchases that occur pursuant to a binding commitment entered into prior to the enactment date. As a result, the Treasury Department and the IRS are of the view that transition relief would not be appropriate. The proposed regulations accordingly would not adopt the stake- holders’ recommendation. II. Application of the Stock Repurchase Excise Tax to Various Types of Financial Instruments A. Definition of “stock” For purposes of Notice 2023-2, “stock” would be defined as any instrument issued May 13, 2024 1074 Bulletin No. 2024–20 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. See section 3.02(25) of Notice 2023-2. The proposed regulations generally would maintain this definition of “stock.” See proposed §58.4501-1(b)(29). How- ever, the proposed definition of “stock” would not include “additional tier 1 pre- ferred stock,” which the proposed regu- lations would define to mean preferred stock that qualifies as additional tier 1 capital (within the meaning of 12 CFR 3.20(c), 217.20(c), or 324.20(c)) and does not qualify as common equity tier 1 capital (within the meaning of 12 CFR 3.20(b), 217.20(b), or 324.20(b)). See proposed §58.4501-1(b)(29)(ii). There- fore, unless the limited-scope exception regarding additional tier 1 preferred stock applies, the stock repurchase excise tax would apply to preferred stock in the same manner as to common stock. Like- wise, the stock repurchase excise tax would apply to repurchases of instru- ments that are not in the legal form of stock but that are treated as stock for Fed- eral tax purposes at the time of issuance. In contrast, the stock repurchase excise tax would not apply to repurchases of instruments treated as debt for Federal tax purposes. The proposed regulations would include the foregoing definition of “stock” for the following reasons. First, the plain language of section 4501 repeatedly refers to “stock” and does not, for example, refer solely to “common stock.” See, for exam- ple, section 4501(a) (imposing an excise tax “equal to 1 percent of the fair market value of any stock of the corporation”); section 4501(b) (defining the term cov- ered corporation to mean “any domestic corporation the stock of which is traded on an established securities market”); section 4501(c)(1)(A) (defining the term repur- chase to mean a redemption within the meaning of section 317(b) “with regard to the stock of a covered corporation”). Second, if the stock repurchase excise tax were implemented to be applicable solely to common stock, then taxpayers could avoid the tax simply by repurchasing other classes of stock (or other instruments treated as stock for Federal tax purposes). Section 4501(f)(2) authorizes the Sec- retary to issue 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, including guidance “to address special classes of stock and preferred stock.” Accordingly, in section 6.01(1) of Notice 2023-2, the Treasury Depart- ment and the IRS requested comments on whether there are 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 to be converted into stock) and, if so, what objectively verifiable criteria should be incorporated into such special rules to pro- vide certainty for taxpayers and the IRS. 1. Straight Preferred Stock; Mandatorily Redeemable Stock Stakeholders recommended that the stock repurchase excise tax should not apply to redemptions of preferred stock. Although two stakeholders recommended an exception for redemptions of any type of preferred stock, other stakeholders gen- erally recommended an exception only for redemptions of so-called “straight pre- ferred stock” (that is, preferred stock that is limited and preferred as to dividends, does not participate in corporate growth to any significant extent, and is not convertible into another class of stock). See section 1504(a)(4)(B) and (D) of the Code. One stakeholder also argued against providing an exception for redemptions of preferred stock other than straight preferred stock. See part II.A.2 of this Explanation of Pro- visions. The stakeholders uniformly contended that, although straight preferred stock is treated as “stock” for Federal tax pur- poses, repayments of such stock are akin to repaying debt and do not implicate the policy concerns underlying the stock repurchase excise tax. The stakeholders further contended that, if redemptions of straight preferred stock were subject to the stock repurchase excise tax, publicly traded corporations might be incentivized to increase their leverage by issuing debt in lieu of straight preferred stock. One stakeholder also recommended a rule under which actual or deemed issu- ances of straight preferred stock would not be taken into account for purposes of the netting rule. The stakeholder further recommended that exchanges of straight preferred stock for other stock (that is, for stock to which the stock repurchase excise tax applies) should be treated as economi- cally similar transactions. Alternatively, stakeholders recom- mended an exception to the stock repur- chase excise tax for the redemption of stock pursuant to a mandatory redemption provision or a unilateral put option of the shareholder. In the stakeholders’ view, this exception would be appropriate because such a redemption would not be within the control of (and would not be susceptible to any timing manipulation by) the issuing corporation. As described in part II.A of this Expla- nation of Provisions, the plain language of section 4501 consistently refers to “stock” without providing any exceptions for particular types of stock. In addition, the Treasury Department and the IRS are of the view that Treasury regulations that utilize the broadly applicable term “stock” would facilitate the IRS’s ability to administer and enforce the stock repur- chase excise tax. Consequently, the Trea- sury Department and the IRS also are of the view that adoption of the stakeholders’ numerous suggested exceptions would significantly hamper the IRS’s ability to administer and enforce that tax, as well as reduce taxpayer certainty regarding its application. Therefore, except with regard to additional tier 1 preferred stock, the proposed regulations would not incorpo- rate the stakeholders’ suggested excep- tions. See proposed §§58.4501-1(b)(29), 58.4501-2(e)(2), and 58.4501-4(b)(1); see also proposed §58.4501-1(b)(29)(ii) and part II.A.3 of this Explanation of Provi- sions (discussion of additional tier 1 pre- ferred stock). 2. Convertible Preferred Stock and Participating Preferred Stock One stakeholder recommended that, even if straight preferred stock is excluded from the stock repurchase excise tax, pre- ferred stock that is convertible into the issuer’s common stock at the holder’s option (convertible preferred stock), and preferred stock with certain dividend or Bulletin No. 2024–20 1075 May 13, 2024 liquidation participation rights that enable the holder to participate in corporate growth to a significant extent (participat- ing preferred stock), should continue to be subject to the stock repurchase excise tax. In the stakeholder’s view, a redemp- tion of such stock generally is more akin to a redemption of common stock than to a repayment of debt or a redemption of straight preferred stock (for example, there are fewer outstanding shares of stock par- ticipating in future corporate growth after such a redemption). For the reasons stated in part II.A.1 of this Explanation of Provisions, the Treasury Department and the IRS agree with the stakeholder’s recommendation. Accordingly, under the proposed regula- tions, the repurchase of convertible or par- ticipating preferred stock would be sub- ject to the stock repurchase excise tax, and the issuance of such stock would be taken into account for purposes of the netting rule. See proposed §§58.4501-1(b)(29), 58.4501-2(e)(2), and 58.4501-4(b)(1). 3. Additional Tier 1 Preferred Stock Several stakeholders noted that the issuance and redemption of preferred stock is used routinely in certain indus- tries as a way to manage risk. One stake- holder recommended an exception to the stock repurchase excise tax and the net- ting rule for redemptions or issuances of preferred stock that qualifies as additional tier 1 capital for purposes of regulatory requirements for regulated financial insti- tutions (additional tier 1 preferred stock). According to the stakeholder, the issu- ing corporation may not redeem or repur- chase additional tier 1 preferred stock without prior approval from regulators. Moreover, if such an instrument is callable by its terms, (i) it may not be called for at least five years; (ii) the issuing corpora- tion must receive prior approval from reg- ulators to exercise the call option; and (iii) the issuing corporation must either replace the instrument with other tier 1 capital or demonstrate to regulators that it will con- tinue to hold capital commensurate with risk. Based on the feedback received, the Treasury Department and the IRS are of the view that the stock repurchase excise tax regulations should not apply to addi- tional tier 1 preferred stock. See proposed §58.4501-1(b)(29)(ii). Consequently, under the proposed regulations, additional tier 1 preferred stock would not be sub- ject to the stock repurchase excise tax, and the issuance of additional tier 1 preferred stock would not be taken into account for purposes of the netting rule. 4. Convertible Debt Stakeholders have requested confirma- tion that redemptions of convertible debt instruments are not subject to the stock repurchase excise tax. One stakeholder contended that such transactions should not be treated as “economically similar” to a section 317(b) redemption because the definition of “redemption” in section 317(b) encompasses only redemptions of stock, and because a redemption of a convertible debt instrument does not reduce the number of a corporation’s out- standing shares. Another stakeholder con- tended that the determination of whether an instrument constitutes debt or equity should be made at the time of issuance. Therefore, if the convertible debt instru- ment is characterized as “debt” at the time of issuance, the subsequent redemption or cash settlement of that instrument should not be treated as a repurchase. Likewise, the issuance of a convertible debt instru- ment by a covered corporation should not be treated as an issuance for purposes of the netting rule. The Treasury Department and the IRS agree with these stakeholders. Although Notice 2023-2 does not expressly address convertible debt instruments, the Treasury Department and the IRS continue to be of the view that, for purposes of the stock repurchase excise tax, whether an instru- ment is debt or equity should be deter- mined at the time of issuance under Fed- eral income tax principles, and that this characterization should not be retested while the debt instrument is outstanding. See proposed §58.4501-1(b)(29); see also part II.B of this Explanation of Provisions. Such an approach would better facilitate the IRS’s ability to administer and enforce the stock repurchase excise tax and enable taxpayers to apply the tax with greater cer- tainty. Moreover, the term “repurchase” includes only section 317(b) redemptions with regard to “stock” of a covered corpo- ration as well as transactions that are “eco- nomically similar” to such redemptions. See section 4501(c)(1). Accordingly, the Treasury Department and the IRS are of the view that no special rules are needed for convertible debt. However, for a dis- cussion of the application of the netting rule to an instrument not in the legal form of stock, see part XI.C.9 of this Explana- tion of Provisions. 5. Tracking Stock Tracking stock is an instrument that tracks the performance of a division of the parent corporation or a subsidiary (for example, by providing dividend rights that are determined by reference to the earnings of the tracked division or subsid- iary). Because tracking stock participates in corporate growth, a stakeholder recom- mended treating the redemption of less than all shares of a class of tracking stock in the same manner as the redemption of other common stock—that is, as subject to the stock repurchase excise tax. However, the stakeholder also sug- gested that an exemption may be war- ranted for the redemption of an entire class of tracking stock in connection with the disposition of the underlying tracked business, because such a redemption (i) does not accrete to the interests of the cor- poration’s remaining shareholders in the corporation’s remaining assets, and (ii) may be equivalent to a distribution in par- tial liquidation. (As discussed in part VI.B of this Explanation of Provisions, the stakeholder recommended treating partial liquidations as generally outside the scope of the stock repurchase excise tax.) The Treasury Department and the IRS are of the view that the treatment of track- ing stock for purposes of the stock repur- chase excise tax should follow the general Federal tax treatment of tracking stock. Accordingly, no special guidance regard- ing the proper treatment of tracking stock is included in these proposed regulations. B. Characterization of instruments as stock or debt One stakeholder requested confirma- tion that the determination of whether an instrument is stock or debt for purposes of the stock repurchase excise tax is made May 13, 2024 1076 Bulletin No. 2024–20 at the time of issuance under Federal tax principles, and that this characterization is not retested subsequently while the instrument is outstanding. The Treasury Department and the IRS agree with this recommendation, because, as previously stated, such an approach under which an instrument is tested only once would bet- ter facilitate the IRS’s ability to administer and enforce the stock repurchase excise tax and enable taxpayers to apply the tax with greater certainty. See proposed §58.4501-1(b)(29). C. Options and similar financial instruments 1. Overview As discussed previously, Notice 2023-2 would define “stock” to mean any instrument issued by a corporation that is stock or that is treated as stock for Federal tax purposes at the time of issuance. See section 3.02(25) of Notice 2023-2. This definition of “stock” generally excludes options other than options that are treated as stock for Federal tax purposes at the time of issuance. To the extent option contracts are not treated as stock at the time of issuance, the acquisition of such contracts is not a repurchase under Notice 2023-2 because such acquisition is neither a section 317(b) redemption nor included in the exclusive list of economically similar transactions in section 3.04(4)(a) of Notice 2023-2. Con- sequently, under Notice 2023-2, there is a repurchase or an issuance of stock only at the time of exercise of a physically set- tled option (when a covered corporation repurchases or issues the actual under- lying stock). In turn, the amount of such repurchase or issuance is equal to the mar- ket price of the stock on the date the stock is repurchased or issued. See sections 3.06(1)(a), 3.06(2), 3.08(2), and 3.08(5) of Notice 2023-2; see also part III of this Explanation of Provisions (discussion of valuation and timing). Several questions have arisen regard- ing the application of the stock repurchase excise tax to options and similar financial instruments. In section 6.02(4) of Notice 2023-2, the Treasury Department and the IRS requested comments on: (i) whether any additional rules with regard to finan- cial arrangements, such as options or other similar financial instruments, should be added to prevent avoidance of the stock repurchase excise tax; and (ii) how such additional rules should apply consistently for purposes of determining a covered corporation’s repurchases and issuances. 2. Physical Settlement of Option Contracts Stakeholders recommended that the fair market value of shares acquired or issued (as appropriate) by a covered corporation upon physical settlement of an option con- tract should be the fair market value of the shares on the date of exercise, rather than the strike price (that is, the price at which the option can be exercised). For example (Example 1), assume that corporation X issues a call option to individual A that entitles A to buy 100 shares of X stock for $100 ($1.00 per share) from X for a lim- ited time. The terms of the option require physical settlement. On the date the option is issued, X stock is trading at $1.00 per share. On the date the option is exercised, X stock is trading at $1.30 per share. Upon settlement of the option, A pays $100 to X, which issues 100 shares of X stock (worth $130) to A. Alternatively (Example 2), assume the same facts as in Example 1, except that X issues a put option to A that entitles A to sell 100 shares of X stock for $100 ($1.00 per share) to X, and that X stock is trading at $0.70 per share on the date the option is exercised. To settle the option, X pur- chases 100 shares of X stock (worth $70) for $100 from A. As another example (Example 3), assume that A issues a call option to unre- lated individual B that entitles B to buy 100 shares of X stock for $100 ($1.00 per share) from A for a limited time. The terms of the option require physical set- tlement. Subsequently, X purchases the option contract from B. On the date the option is exercised, X stock is trading at $1.30 per share. To settle the option, X pays $100 to A, who delivers 100 shares of X stock (worth $130) to X. The netting rule requires the stock repurchase excise tax base to be reduced by “the fair market value of any stock issued by the covered corporation during the tax- able year.” See section 4501(c)(3). Thus, according to stakeholders, the amount of the issuance in Example 1 should be $130 (the fair market value of the stock at the time of issuance) even though A pays only $100 to excise the option. Similarly, the stock repurchase excise tax applies to “the fair market value of any stock of the corporation which is repurchased by such corporation during the taxable year.” See section 4501(a). Consequently, stakeholders suggested that the amount of the repurchase in Example 2 should be $70, and that the $30 premium paid by X represents the amount paid for a property right separate from the stock being repurchased. Cf. Rev. Rul. 70-108, 1970-1 C.B. 78 (holding that the right to purchase additional shares constitutes sep- arate property from the underlying shares). Consistent with this approach, stakehold- ers also suggested that the amount of the repurchase in Example 3 should be $130 (the fair market value of the stock on the exercise date). The Treasury Department and the IRS agree with the stakeholders that the amount of the issuance in Example 1 should be $130 (the fair market value of the issued stock on the exercise date) rather than $100 (the strike price paid by A). Similarly, the Treasury Department and the IRS agree that the amount of the repurchase in Example 2 should be $70 rather than $100, and that the amount of the repurchase in Example 3 should be $130 rather than $100. The foregoing approach, which is con- sistent with Notice 2023-2, is embedded in the proposed rules regarding the fair market value of repurchased or issued stock. See proposed §§58.4501-2(h) (1) and 58.4501-4(e)(1), respectively. Thus, the Treasury Department and the IRS are of the view that special rules are not needed with respect to the fair mar- ket value of stock repurchased or issued upon the physical settlement of an option. However, the proposed regulations would include several examples to illustrate the proposed approach. See proposed §58.4501-5(b)(26) and (28). For special rules for valuing stock issued or provided to an employee or other service provider in connection with the performance of ser- vices, see proposed §58.4501-4(e)(5) and part XI.G.7 of this Explanation of Provi- sions. Bulletin No. 2024–20 1077 May 13, 2024 3. Cash Settlement of Option Contracts As previously discussed in part II.C.2 of this Explanation of Provisions, stake- holders recommended treating the physi- cal settlement of an option as a repurchase or an issuance (as appropriate) based on the fair market value of the stock repur- chased or issued on the date of exercise. In contrast, a stakeholder recommended that the cash settlement of a put option issued by a covered corporation should not be treated as a repurchase by the cov- ered corporation, because any excess of the strike price over the fair market value of the underlying stock should be viewed as payment for property that is separate from the underlying stock. Cf. Rev. Rul. 70-108. For example, assume that corporation X issues a put option to individual A that entitles A to sell 100 shares of X stock for $100 ($1.00 per share) to X, and that X stock is trading at $0.70 per share on the date the option is exercised. The terms of the option require net cash settlement; thus, X pays $30 to A to settle the option. The stakeholder recommended not treat- ing the net cash settlement as a repur- chase, even though the settlement could be construed as a purchase by X of the 100 X shares from A for $100, immedi- ately followed by an issuance by X of 100 shares to A for $70. For the cash settlement of a call option, the stakeholder generally recommended either (i) treating the net cash settlement as a deemed issuance of stock immedi- ately followed by a repurchase of the same stock (resulting in no net adjustment to the stock repurchase excise tax base), or (ii) simply disregarding the cash settlement altogether for purposes of the stock repur- chase excise tax. For example, assume that X issues a call option to A that entitles A to buy 100 shares of X stock for $100 ($1.00 per share) from X, and that X stock is trading at $1.30 per share on the date the option is exercised. The terms of the option require net cash settlement; thus, X pays $30 to A to settle the option. The net cash payment in the foregoing example is the economic equivalent of (i) A paying $100 to exercise the option, (ii) X issuing 100 shares (worth $130) to A, and then (iii) X immediately redeeming those shares for $130 in cash. Thus, X could be deemed to have issued and repur- chased $130 of its shares in a transaction that fully offsets for purposes of the stock repurchase excise tax. Alternatively, X’s net cash settlement could be disregarded altogether and simply treated as the sale or exchange of an option. See section 1234(c)(2); Rev. Rul. 88-31, 1988-1 C.B. 302 (providing that the net cash settlement of a price-protection contingent value right is treated as a cash settlement of a put option subject to section 1234(c)(2)). The Treasury Department and the IRS are of the view that, for purposes of the stock repurchase excise tax, the net cash settlement of an option should not be treated as involving a deemed issuance and repurchase of shares in the interest of simplicity and administrability. Accord- ingly, under the proposed regulations, the net cash settlement of an option contract would result in neither the repurchase nor the issuance of stock other than as dis- cussed in part II.C.4 of this Explanation of Provisions. This rule would apply to the net cash settlement of an embedded option (for example, if the issuer pays the investor solely in cash on exercise of the conversion right in a convertible bond). See proposed §§58.4501-2(e)(5)(v) and 58.4501-4(f)(12). 4. Deep-in-the-Money Options Several stakeholders recommended that options that are treated as construc- tively exercised at the time of their grant under Federal income tax principles (commonly referred to as “deep-in-the- money” options) should be treated simi- larly for purposes of the stock repurchase excise tax. For example, according to the stakeholders, if the grant of an option is treated as the issuance of the underlying stock as of the date of the grant for Fed- eral income tax purposes, the grant of the option should be treated as an issuance of stock for purposes of the netting rule, and the cash settlement of the option should be treated as a repurchase of stock in the year of the settlement. The stakeholders further recommended that the determination of whether an option is deep in the money should be made only at the time of grant and generally should not be revisited. Thus, if a corporation grants a call option that is exercisable or convertible into the corporation’s stock and that is not constructively exercised at the time of grant, the stock should not be treated as issued until the option is exer- cised or converted into stock. The Treasury Department and the IRS are of the view that, if a deep-in-the- money option is determined to be con- structively exercised at the time of grant under Federal income tax principles, the cash settlement of such an option would be a repurchase of the underlying stock on the date of settlement under the proposed regulations. See proposed §58.4501-2(e) (5)(v). However, for a discussion of the application of the netting rule to deep-in- the-money options or other instruments not in the legal form of stock, see part XI.C.9 of this Explanation of Provisions. 5. Section 305(a) Warrants A stakeholder recommended that, if an option to acquire a covered corporation’s stock is distributed in a distribution under section 305(a) of the Code (section 305(a) warrant), the adjustment to the stock repurchase excise tax base upon settle- ment of the section 305(a) warrant should be determined by reference to the strike price (and not the value of the underlying stock) because the section 305(a) distribu- tion should be disregarded. The Treasury Department and the IRS are of the view that the treatment of war- rants distributed in a section 305 distribu- tion should not deviate from the treatment of other types of financial instruments under the proposed regulations. The Trea- sury Department and the IRS view this approach as facilitating the IRS’s ability to administer and enforce the stock repurchase excise tax and enable taxpayers to apply the tax with greater certainty. Accordingly, the proposed regulations would not pro- vide special rules for warrants distributed in a section 305 distribution. See proposed §§58.4501-2(e)(5)(v) and 58.4501-4(f) (12); see also part II.C.3 of this Explana- tion of Provisions (discussion of cash set- tlement of option contracts). 6. Integration of Qualifying Debt Instruments under §1.1275-6 A stakeholder requested clarification on how section 4501 applies to a syn- May 13, 2024 1078 Bulletin No. 2024–20 thetic debt instrument resulting from an integrated transaction under §1.1275-6. In general, §1.1275-6 provides for the integration of a qualifying debt instru- ment (as defined in §1.1275-6(b)(1)) with a §1.1275-6 hedge or combination of §1.1275-6 hedges in certain circum- stances. The circumstances in which §1.1275-6 may apply involve a convert- ible debt instrument as well as one or more options or other financial instruments involving underlying stock, provided that the combined cash flows of the financial instrument and the debt instrument permit the calculation of a yield to maturity under section 1272 of the Code or the right to the combined cash flows would qualify as a specified type of variable rate debt instru- ment, and other conditions are satisfied. Under §1.1275-6(f), except as other- wise provided in published guidance, the synthetic debt instrument resulting from an integrated transaction is recognized as a single debt instrument for Federal income tax purposes for the period that the transaction qualifies as an integrated transaction and is not subject to the Fed- eral income tax rules that would apply on a separate basis to the instruments com- prising the integrated transaction if the transaction were not integrated. Because an integrated transaction does not change the amount of stock actually repurchased or issued, the Treasury Depart- ment and the IRS are of the view that the determination of whether and when stock is repurchased or issued for purposes of the stock repurchase excise tax should be determined without regard to the inte- gration of a qualifying debt instrument with a §1.1275-6 hedge or combination of §1.1275-6 hedges under §1.1275-6. See proposed §1.1275-6(f)(12)(iii). D. Forfeiture or clawback of restricted stock One stakeholder recommended that the forfeiture of restricted stock (that is, stock transferred to a service provider that is subject to a substantial risk of forfeiture at grant) that was transferred to a service provider in connection with the perfor- mance of services should not be treated as a repurchase for purposes of the stock repurchase excise tax to the extent no payment is made to the service provider in connection with the forfeiture. Instead, the stakeholder recommended treating the stock as repurchased only to the extent of any payment received in connection with the forfeiture, with any excess of the value of the stock over the amount paid treated as a forfeiture. In other words, the stakeholder recommended using the amount paid rather than market price to compute the amount of the repurchase in this situation. The stakeholder cited to §1.83-6(c) in support of its recommendation. Section 1.83-6(c) provides that, if (under sec- tion 83(h) of the Code and §1.83-6(a)) a deduction, an increase in basis, or a reduc- tion of gross income was allowable to an employer in respect of a transfer of prop- erty, and if such property subsequently is forfeited, then the amount of such deduc- tion, increase in basis, or reduction of gross income is included in the employ- er’s gross income for the taxable year in which the forfeiture occurs. According to the stakeholder, the fact that the employer does not recognize additional income or gain suggests that the property forfeited, to the extent it exceeds any amount paid by the employer to the forfeiting service provider, is treated as a capital contribu- tion to the employer under section 118(a) rather than as a redemption. Notice 2023-2 does not expressly address the forfeiture of restricted stock. Under section 3.06(2) of Notice 2023-2, if property is paid for the forfeited stock, the stock is treated as repurchased for an amount equal to the market price on the date of repurchase (regardless of the amount actually paid) because there is a section 317(b) redemption. If no property is paid in exchange for the forfeited shares, the forfeiture is not treated as a repurchase, because the forfeiture is neither a section 317(b) redemption nor treated as an eco- nomically similar transaction. However, under both Notice 2023-2 and these pro- posed regulations, there would be an issu- ance for purposes of the netting rule when the ownership of the restricted stock trans- fers to the recipient for Federal income tax purposes. See proposed §58.4501-4(d)(2). The Treasury Department and the IRS are of the view that, if a covered corpo- ration takes into account an issuance of restricted stock for purposes of the net- ting rule because a section 83(b) election has been made, a forfeiture of such stock likewise should be treated as a repurchase. Conversely, if a covered corporation does not take into account an issuance of restricted stock for purposes of the netting rule, a forfeiture of such stock should not be treated as a repurchase. This approach is necessary to preserve consistency in the treatment of issuances and repurchases. Moreover, the economic effect of a for- feiture is similar to that of a repurchase, insofar as the shares are retired (or held as treasury stock) in both cases. Accordingly, the proposed regulations would treat a forfeiture of restricted stock as a repurchase on the date of forfeiture (in an amount equal to the fair market value of such stock on the date of forfei- ture) if such forfeited stock was treated as issued or provided under the netting rule. See proposed §58.4501-2(e)(4)(vi); see also part XII.D of this Explanation of Provisions (discussion of a proposal to provide similar treatment with regard to forfeitures of stock issued as part of an earnout or to satisfy an indemnification obligation). It is the view of the Treasury Depart- ment and the IRS that stock received by a covered corporation or specified affiliate pursuant to a clawback agreement (that is, a contractual provision that requires an employee to return vested stock) is economically similar to restricted stock forfeited to the covered corporation after failure to vest. Accordingly, these pro- posed regulations also would provide that, if the stock were treated as issued or provided under the netting rule, then the clawed back stock would be treated as repurchased on the date of clawback (in an amount equal to the fair market value of such stock on such date). See proposed §58.4501-2(e)(4)(vi). III. Valuation and Timing A. Valuation 1. Overview Under sections 3.06(2) and 3.08(5) of Notice 2023-2, the fair market value of stock repurchased or issued (other than stock issued or provided to an employee) is the market price of the stock on the date the stock is repurchased or issued, respectively. Thus, if the price at which Bulletin No. 2024–20 1079 May 13, 2024 the repurchased stock is purchased differs from the market price of the stock on the date the stock is repurchased, the fair mar- ket value of the stock is the market price on the date the stock is repurchased. The Treasury Department and the IRS continue to be of the view that this approach is more consistent with the plain language of the statute, and simpler for the IRS to administer and for taxpayers to apply, than an approach that defines fair market value by reference to the amount paid to repurchase stock. For exam- ple, under Notice 2023-2, adjustments are not required for transaction costs or non-arm’s-length transactions, and spe- cial rules are not needed for situations in which stock is redeemed for consideration other than cash (such as a non-publicly traded note). Section 3.08(3)(c) of Notice 2023-2 describes a special rule for valuing stock issued or provided to employees. The fair market value of such stock is the fair market value of the stock, as determined under section 83, as of the date the stock is issued or provided to the employee, as determined under section 3.08(3)(b) of Notice 2023-2. See part XI.G.7 of this Explanation of Provisions (discussion of valuing stock issued or provided to an employee or other service provider). In section 6.01(2) of Notice 2023- 2, the Treasury Department and the IRS requested comments on whether the fair market value of stock repurchased or issued should be an amount other than the market price of such stock. In section 6.01(6) of Notice 2023-2, the Treasury Department and the IRS also requested comments on whether a method should be provided for determining the market price of stock that is traded on multiple established securities markets and, if so, what modifications to the rules described in sections 3.06(2)(a)(i) and 3.08(5)(a) (i) of Notice 2023-2 (concerning accept- able methods for determining the market price of repurchased or issued stock that is traded on an established securities market) would be required. 2. Valuation in Arm’s-Length Transactions Consistent with the approach described in Notice 2023-2, stakeholders generally recommended that the fair market value of stock repurchased or issued should be the market price of the stock on the day of the repurchase or issuance, respectively. How- ever, one stakeholder also recommended that covered corporations be required to determine fair market value based on the actual price the covered corporation pays or receives, if the repurchase or issuance is (i) from or to an unrelated party, (ii) for cash or cash-equivalents, (iii) negotiated at arm’s length, and (iv) not pursuant to a pre-existing option contract or other arrangement (for example, an accelerated share repurchase agreement) that involves the delivery of stock at a price other than the stock’s market price at delivery. Similarly, another stakeholder recom- mended an exception to the general fair market value rule for repurchases that result from a tender offer or other, sim- ilarly negotiated transaction that sets a transaction price prior to the closing date. According to the stakeholder, it is com- mon for the transaction price and the mar- ket price on the closing date to differ, and it is not clear why the value of a repur- chase should be determined based on the market price rather than the transaction price. The Treasury Department and the IRS continue to be of the view that an approach that references the market price of stock on the date the stock is repurchased or issued, respectively, is more consistent with the plain language of the statute, and would be simpler to administer, than an approach that references the amount paid to repur- chase the stock. Moreover, the Treasury Department and the IRS are of the view that the two approaches likely would result in approximately similar values for most repurchases of publicly traded stock. Consequently, the proposed regulations would provide that the fair market value of stock repurchased or issued is the mar- ket price of the stock on the date the stock is repurchased or issued, respectively. See proposed §§58.4501-2(h)(1) and 58.4501- 4(e)(1). 3. Valuation in Bankruptcy or Insolvency Workouts Another stakeholder recommended that, in the case of a bankruptcy or insol- vency workout, the fair market value of repurchased stock should equal the value of the recovery shareholders are entitled or permitted to receive under the bankruptcy or insolvency workout, rather than the market price of the stock. The stakeholder recommended this approach because the market price of the stock will take the debt restructuring into account and, thus, may be much higher than the recovery value. However, the Treasury Department and the IRS are of the view that the pro- posed regulations should not adopt special valuation rules for financially troubled companies. As discussed in part XIII of this Explanation of Provisions, the Trea- sury Department and the IRS are of the view that distributions of cash or other non-qualifying property (that is, property that is not permitted to be received under section 354 or 355 of the Code without the recognition of gain or loss) by trou- bled companies to their shareholders in exchange for their stock should be subject to the stock repurchase excise tax. More- over, section 4501 contains no indication that special valuation rules for financially troubled companies would be necessary or appropriate to carry out the purposes of the stock repurchase excise tax. The Treasury Department and the IRS are of this view because the exchange would be a section 317(b) redemption and provid- ing a special rule would not be necessary or appropriate to carry out the purposes of section 4501. 4. Valuation of Publicly Traded Stock a. In general One stakeholder recommended that taxpayers be permitted (but not required) to determine the market price of publicly traded stock based on one or more com- monly accepted valuation methods, such as daily volume-weighted average price (VWAP), daily average high-low price, or daily closing price. Under the stakehold- er’s recommendation, a taxpayer would be required to consistently apply the taxpay- er’s chosen method to all its repurchases and issuances throughout the taxpayer’s taxable year. According to the stakeholder, this approach would be consistent with established Federal tax valuation stan- dards for the fair market value of publicly traded securities. May 13, 2024 1080 Bulletin No. 2024–20 Sections 3.06(2)(a)(i) and 3.08(5)(a) (i) of Notice 2023-2 describe an approach that would require taxpayers to determine the market price of repurchased or issued stock, respectively, that is traded on an established securities market by apply- ing one of four methods: (i) the daily volume-weighted average price as deter- mined on the date the stock is repurchased or issued; (ii) the closing price on the date the stock is repurchased or issued; (iii) the average of the high and low prices on the date the stock is repurchased or issued; and (iv) the trading price at the time the stock is repurchased or issued. Sec- tions 3.06(2)(a)(iii) and 3.08(5)(a)(iii) of Notice 2023-2 describe an approach that would require the market price of such stock to be determined by consistently applying one of the foregoing methods to all repurchases and issuances throughout the covered corporation’s taxable year (other than stock issued to employees). Another stakeholder expressed apprecia- tion for the flexibility provided under the approach described in sections 3.06(2)(a) and 3.08(5)(a) of Notice 2023-2. The Treasury Department and the IRS agree that commonly accepted valuation methods are an appropriate means of determining the fair market value of pub- licly traded stock for purposes of repur- chases and issuances under section 4501. Accordingly, consistent with Notice 2023- 2, the proposed regulations would include four such methods: (i) daily VWAP; (ii) daily closing price; (iii) daily average high-low price; and (iv) trading price when stock is repurchased or issued. Con- sistent with Notice 2023-2, to facilitate the IRS’s ability to administer and enforce the stock repurchase excise tax, the Treasury Department and the IRS are of the view that taxpayers should be required (rather than merely permitted) to use one of these methods. See proposed §§58.4501-2(h)(2) (ii) and 58.4501-4(e)(2)(ii). As reflected in sections 3.06(2)(a)(iii) and 3.08(5)(a)(iii) of Notice 2023-2, the Treasury Department and the IRS also agree with the stakeholder that taxpayers should be required to consistently apply the chosen method to all repurchases and issuances throughout the taxable year. See proposed §§58.4501-2(h)(2)(iv) and 58.4501-4(e)(2)(iv). For special rules for valuing stock issued or provided to an employee or other service provider in con- nection with the performance of services, see proposed §58.4501-4(e)(5) and part XI.G.7 of this Explanation of Provisions. b. Stock traded on multiple established securities markets One stakeholder recommended that a covered corporation with a class of stock that trades on multiple established securities markets should be permitted to select both the valuation method and the exchange to be used in determining the fair market value of the covered corpora- tion’s stock. The stakeholder had consid- ered an alternative approach based on the market price of the shares on the exchange with the highest trading volume on the applicable date, but the stakeholder did not recommend such an approach due to the additional complexity it would create. The Treasury Department and the IRS are of the view that a covered cor- poration whose stock is traded on multi- ple exchanges should determine the fair market value of the covered corpora- tion’s stock by reference to trading on the exchange in the country in which the cov- ered corporation is organized, including a regional established securities market that trades in that country. If the covered corporation’s stock trades on multiple exchanges in the country in which the covered corporation is organized, fair market value is determined by reference to trading on the exchange in that coun- try with the highest trading volume in that stock in the prior taxable year. See pro- posed §§58.4501-2(h)(2)(v) and 58.4501- 4(e)(2)(v). It is the view of the Treasury Department and the IRS that this approach would better facilitate the IRS’s ability to administer and enforce the stock repur- chase excise tax and enable taxpayers to apply the tax with greater certainty. 5. Valuation of Privately Owned Stock One stakeholder recommended that the market price of privately owned stock should be determined under general val- uation principles for privately owned securities. Another stakeholder recom- mended that the market price of privately owned stock should equal the amount paid for such stock. According to this second stakeholder, valuation experts often dis- agree, and the transaction price typically is viewed as the best evidence of the value of privately owned stock. Further, allow- ing corporations to use the amount paid in valuing privately traded stock would relieve corporations from the need to eval- uate whether there is a difference between the amount paid and the market price of such shares on the date on which owner- ship transfers for Federal income tax pur- poses. Under the approach described in sec- tions 3.06(2)(b) and 3.08(5)(b) of Notice 2023-2, stock that is not traded on an established securities market would be valued on the date of repurchase or issu- ance under the principles of §1.409A-1(b) (5)(iv)(B)(1). Section 1.409A-1(b)(5)(iv) (B)(1) provides, in part, that the fair mar- ket value of stock as of a valuation date means a value determined by the reason- able application of a reasonable valuation method, and that the determination of whether a valuation method is reasonable (or whether an application of a valuation method is reasonable) is made based on the facts and circumstances as of the val- uation date. Section 1.409A-1(b)(5)(iv) (B)(1) further provides that the amount paid is one factor to be considered under a reasonable valuation method. The Trea- sury Department and the IRS are of the view that the proposed regulations should implement the approach described in Notice 2023-2 and should not provide a separate rule that would permit taxpayers to use the amount paid, in and of itself, in determining the value of privately traded stock. See proposed §§58.4501-2(h)(3) and 58.4501-4(e)(3). For special rules for valuing stock issued or provided to an employee or other service provider in con- nection with the performance of services, see proposed §58.4501-4(e)(5) and part XI.G.7 of this Explanation of Provisions. As with publicly traded stock, the Treasury Department and the IRS are of the view that repurchases and issuances of privately traded stock should be val- ued consistently. Specifically, the pro- posed regulations would provide that the same valuation method must be used for all repurchases and issuances of privately owned stock belonging to the same class throughout the covered corporation’s tax- able year, unless the application of that Bulletin No. 2024–20 1081 May 13, 2024 method to a particular repurchase or issu- ance would be unreasonable under the facts and circumstances as of the valuation date. See proposed §§58.4501-2(h)(3)(ii) and 58.4501-4(e)(3)(ii). For special rules for valuing stock issued or provided to an employee or other service provider in con- nection with the performance of services, see proposed §58.4501-4(e)(5) and part XI.G.7 of this Explanation of Provisions. 6. Annual Valuation Convention A stakeholder also questioned whether covered corporations should be permitted to use an annual valuation convention to determine a single, uniform value for all repurchases and issuances during a tax- able year. According to the stakeholder, an annual valuation convention would eliminate the distortive effects of stock price volatility. In addition, such approach would simplify netting because the use of the same price for all repurchases and issuances in the taxable year would allow netting to be computed based on the num- ber of shares repurchased versus issued. However, the stakeholder also acknowledged that converting the net- ting rule into such a “share count” rule would be in tension with the statutory requirement to value shares based on fair market value. The stakeholder also noted that volatility later in the year could cause a covered corporation’s stock repurchase excise tax liability to rise or fall dramati- cally after issuances or repurchases earlier in the year, and that other Code provisions typically do not allow values to be aver- aged over such a long period. The Treasury Department and the IRS agree with the stakeholder that adoption of an annual valuation convention in the proposed regulations would be inconsis- tent with the statutory requirement under section 4501(c)(3) to value shares based on fair market value. Accordingly, the proposed regulations would not adopt the stakeholder’s annual valuation conven- tion. B. Timing of issuances and repurchases 1. In General The approach described in sections 3.06(1)(a) and 3.08(2) of Notice 2023-2 generally provides that stock is treated as repurchased or as issued or provided, respectively, at the time at which own- ership of the stock transfers for Federal income tax purposes. In turn, the approach described in sections 3.06(2) and 3.08(5) of Notice 2023-2 provides that the fair market value of stock repurchased or issued is the market price of the stock on the date the stock is repurchased or issued, respectively. One stakeholder recommended that, consistent with the approach described in section 3.08(2) of Notice 2023-2, stock generally should be treated as issued for purposes of the netting rule when tax own- ership of the stock transfers to the recipi- ent of the stock, rather than when the stock is issued for corporate law or financial statement purposes. The Treasury Department and the IRS agree with the stakeholder’s general recommendation and continue to be of the view that stock generally should be treated as repurchased when tax owner- ship of the stock transfers to the covered corporation or to the specified affiliate (as appropriate). Therefore, the proposed regulations generally would retain this approach. See proposed §§58.4501-2(g) (1) and 58.4501-4(d)(1). For specific timing rules applicable in particular sit- uations, see proposed §58.4501-2(g) (2), (3), and (4), and for special timing rules for stock issued or provided to an employee or other service provider in connection with the performance of ser- vices, see proposed §58.4501-4(d)(2) and part XI.G.6 of this Explanation of Provi- sions. 2. Repurchase Pursuant to an Economically Similar Transaction Under the rule described in section 3.06(1)(b) of Notice 2023-2, stock repurchased in an economically simi- lar transaction is treated as repurchased when the shareholders of the covered corporation exchange their stock in the covered corporation. Consistent with part III.B.1 of this Explanation of Pro- visions and section 3.06(1)(b) of Notice 2023-2, the proposed regulations would provide that stock repurchased in an economically similar transaction described in proposed §58.4501-2(e) (4) is treated as repurchased on the date the shareholders of the covered corpo- ration exchange their stock in such cor- poration. See proposed §58.4501-2(g) (2). 3. Repurchase Pursuant to a Constructive Specified Affiliate Acquisition For a discussion of the timing rule for repurchases pursuant to a constructive specified affiliate acquisition, see part XIV.D of this Explanation of Provisions. 4. Accelerated Share Repurchase Agreements Although Notice 2023-2 does not describe special rules for accelerated share repurchase (ASR) agreements, section 3.09(15), Example 15, of Notice 2023-2 illustrates the application of the timing rules summarized in part III.B.1 of this Explanation of Provisions in the context of an ASR agreement. That example explicitly is limited to situ- ations in which, based on the terms of the agreement and the facts and circum- stances, the date on which shares are delivered by the bank to the covered corporation is the date on which tax ownership of the shares is transferred for Federal income tax purposes. As a result, the delivery date in the exam- ple is the repurchase date. The exam- ple illustrates the general principle that the date on which tax ownership of the shares is transferred for Federal income tax purposes, which is generally based on the particular ASR agreement and the facts and circumstances of a transaction, is the repurchase date. Several stakeholders requested guidance regarding the treatment of ASR agreements for purposes of the stock repurchase excise tax. In an ASR agreement, a corporation that wants to repurchase its outstanding shares from the market will make an initial cash payment to an investment bank in exchange for a certain number of shares. To deliver the shares to the cor- poration, (i) the investment bank first will borrow shares from stock lend- ers, and then (ii) over the term of the ASR agreement, the bank will purchase shares from the market and use such May 13, 2024 1082 Bulletin No. 2024–20 shares to gradually return the stock owed to the stock lenders. The price the corporation ultimately pays for its shares under the ASR agree- ment generally is based on an averaging of the VWAP of the shares on specified days over the term of the agreement. Upon final settlement of the agreement, the bank may be required to deliver addi- tional shares or cash to the corporation, or the corporation may owe additional purchase price to the bank, depending on the VWAP of the shares over the term of the agreement. Several stakeholders recommended treating the initial delivery of shares by the bank to a covered corporation under an ASR agreement as a repurchase at the time of delivery, rather than at the time the bank purchases the shares from the market. Based on the plain language of section 4501(a), one stakeholder also recommended determining the amount of the repurchase by reference to the fair market value of the shares delivered on the date of delivery, rather than by refer- ence to the initial payment amount under the ASR agreement. If the bank delivers additional shares to the covered corpo- ration (or the covered corporation issues shares to the bank) upon final settlement of the ASR agreement, the stakeholder recommended that such delivery (or issuance) also should be considered as a repurchase (or an issuance) of shares for purposes of the stock repurchase excise tax, with the fair market value of the repurchase (or issuance) determined on that date. The stakeholders’ recommendations are consistent with Notice 2023-2, includ- ing section 3.09(15), Example 15, to the extent that the ASR agreement involved is one in which the date the shares are delivered by the bank to the covered cor- poration is the date on which tax owner- ship of shares is transferred for Federal income tax purposes. In such a situation, the date the shares are delivered would be the repurchase date. However, because the determination of the date on which tax ownership of shares is transferred is an inherently factual question, the Treasury Department and the IRS are of the view that no special rule should be included in the proposed regulations to determine the repurchase date for ASR agreements, and the proposed regulations would retain the approach described in Notice 2023-2. See proposed §§58.4501-2(h)(1), 58.4501- 4(e)(1), and 58.4501-5(b)(15) (Example 15). 5. Other Forward Contracts A stakeholder also requested guid- ance on how the stock repurchase excise tax applies to other forward transactions (either variable or fixed price) in which a corporation agrees to acquire or issue its stock for delivery in a future trade. The stakeholder recommended that the stock repurchase excise tax and the netting rule generally should be applied based on the fair market value of the shares at the time of their actual acquisition or issu- ance by the corporation. However, if the stock underlying the transaction is treated as immediately acquired or issued under Federal income tax principles (for exam- ple, if the corporation effectively acquires the benefits and burdens of stock owner- ship upon entering into the forward con- tract), the timing rules for purposes of the stock repurchase excise tax (for example, the date used for determining fair market value) should follow those Federal income tax principles. The Treasury Department and the IRS agree with these recommendations as they relate to the determination of the date stock is treated as repurchased and the fair market value of that stock. As previ- ously discussed, the proposed regulations generally would use Federal income tax principles to determine the date on which stock is treated as repurchased or issued. Additionally, under the proposed regula- tions, the fair market value of stock repur- chased or issued generally would equal the market price of the stock on the date the stock is repurchased or issued. See proposed §§58.4501-2(h)(1) and 58.4501- 4(e)(1). For a discussion of the application of the netting rule to forward contracts or other instruments not in the legal form of stock, see part XI.C.9 of this Explanation of Provisions. 6. Stock Issued or Provided to an Employee or Other Service Provider For a discussion of the timing rules for stock issued or provided to an employee or other service provider, see part XI.G.6 of this Explanation of Provisions. IV. Definitions of “Covered Corporation,” “Established Securities Market,” and “Specified Affiliate” A. Becoming or ceasing to be a covered corporation 1. Overview In section 6.02(2) of Notice 2023- 2, the Treasury Department and the IRS requested comments on when a corpo- ration should be treated as becoming or ceasing to be a covered corporation, and how repurchases and issuances by a cor- poration 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 corpo- ration should be treated. For example, the Treasury Department and the IRS have considered the extent to which the term “covered corporation” should apply to a privately held corporation that goes pub- lic, or to a publicly traded corporation that goes private, during a taxable year. One stakeholder recommended that the stock repurchase excise tax base of a corporation that becomes a covered cor- poration during its taxable year (for exam- ple, because of an initial public offering (IPO)) should be increased only for sec- tion 317(b) redemptions and economically similar transactions occurring on or after the date the corporation becomes a cov- ered corporation. The stakeholder further recommended that only stock issued by a corporation on or after the date it becomes a covered corporation should be taken into account for purposes of the netting rule. Similarly, another stakeholder recom- mended that a corporation’s status as a covered corporation should be determined immediately prior to a repurchase transac- tion. Thus, for example, a public corpora- tion that becomes a private corporation in a repurchase would be a covered corpora- tion with respect to that transaction. In contrast, another stakeholder recom- mended that any redemption that occurs as part of a transaction should be exempt from the definition of “repurchase” if the corporation’s stock no longer is traded on an established securities market immedi- Bulletin No. 2024–20 1083 May 13, 2024 ately after the transaction. Alternatively, the stakeholder recommended that a cor- poration’s status as a covered corporation be determined at the end of the repurchase transaction. 2. General Rules The Treasury Department and the IRS are of the view that, as a general rule, a corporation should be treated as a cov- ered corporation starting at the beginning of the corporation’s “initiation date,” which is the date on which stock of the corporation begins to be traded on an established securities market. Based on the statutory language, the Treasury Department and the IRS are of the view that the traded instrument must be stock of the corporation (as opposed to, for example, “when-issued” trading of inter- ests in to-be-issued shares of stock of the corporation). See, for example, section 4501(b) (defining a covered corporation as a domestic corporation the stock of which is traded on an established secu- rities market). A covered corporation generally would cease being treated as a covered corporation at the end of the covered corporation’s “cessation date,” which is the date on which stock of the covered corporation ceases to be traded on an established securities market. The Treasury Department and the IRS are of the view that these general rules would be consistent with the statutory lan- guage in section 4501 and would facilitate the IRS’s ability to administer and enforce the stock repurchase excise tax. Accord- ingly, the proposed regulations would incorporate these general rules. See pro- posed §58.4501-2(d)(1) and (d)(2)(i). Under the proposed regulations, in the case of a privately held domestic corpora- tion that goes public, shares issued on or after the initiation date would be counted for purposes of the netting rule under the proposed regulations. In addition, the pro- posed regulations would provide that any repurchases, issuances, or contributions to an employer-sponsored retirement plan on or after that date would be taken into account in computing the corporation’s stock repurchase excise tax base for that taxable year. In contrast, shares issued before the initiation date would not be counted for purposes of the netting rule, and any repurchases, issuances, or contri- butions to an employer-sponsored retire- ment plan before that date would not be taken into account in computing the cor- poration’s stock repurchase excise tax base for that taxable year. See proposed §58.4501-4(b)(2). In the case of a publicly traded domes- tic corporation that goes private, repur- chases of stock on the cessation date would be subject to the stock repurchase excise tax under the proposed regula- tions, unless one of the statutory excep- tions applies. However, any repurchases, issuances, or contributions to an employ- er-sponsored retirement plan of the cor- poration’s stock after that date generally would not be taken into account under the proposed regulations in computing the corporation’s stock repurchase excise tax base for that year. 3. Exception Regarding Cessation Transactions That Include Repurchases Pursuant to the Transaction’s Plan The proposed regulations would con- tain an exception to the general rule that a corporation should be treated as a cov- ered corporation starting at the beginning of its “initiation date” and ending at the end of its “cessation date.” Under the pro- posed regulations, if a corporation ceases to be a covered corporation pursuant to a plan that includes a repurchase, and if the corporation’s cessation date precedes the date on which any repurchase undertaken pursuant to the plan occurs, then the cor- poration would continue to be a covered corporation until the end of the date on which the repurchase occurs. See pro- posed §58.4501-2(d)(2)(ii). For example, under the proposed regulations, all repur- chases of stock of a target covered cor- poration in an acquisitive reorganization would be subject to the stock repurchase excise tax (if no exception applied), even if the target covered corporation’s stock ceased to be traded on an established securities market prior to the repurchase of the target covered corporation’s stock in the acquisitive reorganization. Under this exception, a covered corporation’s final repurchase transaction pursuant to the plan of reorganization would be included in the stock repurchase excise tax base. 4. Inbound and Outbound F Reorganizations A stakeholder requested clarification that, consistent with the Federal income tax treatment of a foreign corporation that domesticates in an F reorganization, such a corporation is not a domestic corpora- tion for purposes of the stock repurchase excise tax until the day after that reorgani- zation occurs. See §1.367(b)-2(f)(4) (pro- viding that, in the case of an F reorgani- zation in which the transferor corporation is a foreign corporation, the taxable year of such corporation ends with the close of the date of the transfer). According to the stakeholder, this clarification is important for foreign special acquisition holding companies, which typically domesticate when combining with a domestic busi- ness. The Treasury Department and the IRS agree with the stakeholder. Accordingly, these proposed regulations would clarify that, for purposes of the stock repurchase excise tax, a foreign corporation that transfers its assets to a domestic corpora- tion in an F reorganization (as described in §1.367(b)-2(f)) is not treated as a domes- tic corporation until the day after the reor- ganization. Similarly, the proposed regu- lations would clarify that, for purposes of the stock repurchase excise tax, a domes- tic corporation that transfers its assets to a foreign corporation in an F reorganiza- tion (as described in §1.367(a)-1(e)) is not treated as a foreign corporation until the day after the reorganization. See proposed §58.4501-2(d)(3). 5. Determination of Timing of Events or Transactions The Treasury Department and the IRS have considered rules to address uncer- tainty that could arise from the application of the stock repurchase excise tax regula- tions to a series of transactions or events that occurs across multiple time zones. The Treasury Department and the IRS request comments on this issue, including specific proposals to address the appli- cation of the stock repurchase excise tax regulations to a series of transactions or events that occurs across multiple time zones. The Treasury Department and the IRS encourage comments regarding May 13, 2024 1084 Bulletin No. 2024–20 the extent to which a proposed approach would facilitate taxpayer certainty and the IRS’s ability to administer and enforce the stock repurchase excise tax regulations. B. Determining specified affiliate status If a specified affiliate of a covered cor- poration 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. See section 4501(c) (2)(A); see also section 3.05(1) of Notice 2023-2. Stakeholders have asked when speci- fied affiliate status should be determined. More specifically, stakeholders have asked when valuations should be undertaken for purposes of the 50-percent vote-or-value test in section 4501(c)(2)(B), and whether fluctuations in the value of the (potential) specified affiliate’s stock or partnership interests should be ignored. The Treasury Department and the IRS are of the view that the determination of whether a corporation or partnership is a specified affiliate should be made when- ever such determination is relevant for purposes of section 4501. For example, such a determination would be relevant when the potential specified affiliate acquires stock of a covered corporation or provides stock of the covered corporation to employees of the potential specified affiliate. See proposed §58.4501-2(f)(2) (i). C. Involvement safe harbor As defined in section 4501(b), the term “covered corporation” means any domes- tic corporation the stock of which is traded on an established securities market (within the meaning of section 7704(b)(1)). The rule described in section 3.02(13) of Notice 2023-2 further provides that the term “established securities” market has the meaning provided in §1.7704-1(b). Section 1.7704-1(b) provides, in part, that the term “established securities mar- ket” includes “[a]n interdealer quotation system that regularly disseminates firm buy or sell quotations by identified bro- kers or dealers by electronic means or oth- erwise” (interdealer system). See §1.7704- 1(b)(5). However, §1.7704-1(d) provides a safe harbor (involvement safe harbor) under which interests in a partnership are not treated as traded on an established securities market within the meaning of §1.7704-1(b)(5) (that is, a partnership will not be a publicly traded partnership solely due to an interdealer system), unless the partnership either (1) “participates in the establishment of the market or the inclu- sion of its interests thereon,” or (2) “rec- ognizes any transfers made on the market” by redeeming the transferor or admitting the transferee as a partner or otherwise recognizing any rights of the transferee. A stakeholder noted that shares of corporations may trade over the counter (OTC) or on similar markets, even without the corporation’s involvement, and that certain of those OTC or similar markets may qualify as an interdealer system. As a result, a corporation could be a covered corporation due to independent share- holder actions without the corporation engaging in an affirmative listing on an exchange. The stakeholder requested con- firmation that the involvement safe har- bor in §1.7704-1(d) applies for purposes of determining whether a corporation is a covered corporation due to an interdealer system, with adjustments as needed for application of this safe harbor to corpora- tions rather than partnerships. The Treasury Department and the IRS are of the view that the involvement safe harbor should not apply for purposes of the stock repurchase excise tax. The Trea- sury Department and the IRS view the relationship between a partnership and its partners (a contractual relationship that allows a partnership to set the terms under which interests in the partnership may be validly transferred) as different from the relationship between a corporation and its shareholders (which is determined by the corporate law governing the stock). Accordingly, the proposed regulations would not incorporate the involvement safe harbor. D. Indirect ownership of specified affiliates As noted in part I.B of the Background section of this preamble, section 4501(c) (2)(B) defines the term “specified affil- iate” to mean, with regard to any corpo- ration, “(i) any corporation more than 50 percent of the stock of which is owned (by vote or by value), directly or indirectly, by such corporation, and (ii) any partnership more than 50 percent of the capital inter- ests or profits interests of which is held, directly or indirectly, by such corpora- tion” (emphasis added). The proposed regulations would pro- vide that, for purposes of section 4501(c) (2)(B), “indirect” ownership means a corporation’s proportionate ownership in equity interests through other entities. See proposed §58.4501-2(f)(2)(ii). For exam- ple, if P owns 60 percent of the stock of Sub 1, which owns 60 percent of the stock of Sub 2, then P indirectly owns 36 per- cent (0.6 x 0.6 = 0.36) of the stock of Sub 2. E. Foreign securities markets In section 6.02(9) of Notice 2023- 2, the Treasury Department and the IRS requested comments on whether the defi- nition of “established securities market” should be revised to clarify the regula- tory requirements under the Securities Exchange Act of 1934 that are most rel- evant to the determination of whether a foreign securities market is treated as an established securities market and, if so, what type of U.S. securities exchange (including which tier of a securities exchange with multiple tiers) should be the baseline for comparison. One stakeholder recommended includ- ing an exclusive list of foreign securities markets that are treated as established securities markets, on the grounds that tax advisors should not be required to deter- mine whether foreign securities markets have regulatory requirements analogous to those under the Securities Exchange Act of 1934. See §1.7704-1(b). The Treasury Department and the IRS appreciate the stakeholder’s recommenda- tion. However, the Treasury Department and the IRS are of the view that the devel- opment and maintenance of an exclusive list of foreign securities markets that are treated as established securities markets would be outside the scope of the pro- posed regulations. As a result, the pro- posed regulations would not include such a list. Bulletin No. 2024–20 1085 May 13, 2024 F. Depository receipts In section 6.02(10) of Notice 2023- 2, the Treasury Department and the IRS requested comments on how the trading of stock through depository receipts should be treated for purposes of determining whether a corporation is a covered cor- poration or whether repurchased stock is traded on an established securities market. In response, one stakeholder noted that some applicable foreign corporations with domestic specified affiliates have Amer- ican depository receipts (ADRs) listed in the United States. The stakeholder requested guidance to clarify that the for- eign parent’s ADRs would not cause the domestic specified affiliate to be treated as if the domestic specified affiliate’s stock were traded on an established securities market in the United States. The Treasury Department and the IRS are of the view that no special rules are needed in response to this request. Section 4501(b) specifically defines the term “cov- ered corporation” to mean “any domestic corporation the stock of which is traded on an established securities market” (empha- sis added). Moreover, although Notice 2023-2 does not expressly address ADRs, the definition of “stock” is defined with respect to an instrument issued by the cor- poration. See section 3.02(25) of Notice 2023-2. The proposed regulations would maintain this definition of “stock.” See proposed §58.4501-1(b)(29). ADRs that provide full voting rights with respect to the underlying corporate stock, entitle ADR holders to receive any dividends paid on the stock, and permit an ADR holder to surrender an ADR at any time in exchange for the underlying stock, may be treated as direct ownership of the underlying stock. See Rev. Rul. 65-218, 1965-2 C.B. 566. If an ADR is not treated as direct ownership of the underlying stock, it would be characterized in accor- dance with its substance. In either case, because ADRs are not issued by a domes- tic specified affiliate, they would not be treated as stock of the domestic specified affiliate. Publicly available information indi- cates that many foreign issuers treat ADRs for Federal income tax purposes as direct ownership of their stock. On that basis, under the definition of “stock” in these proposed regulations, ADRs would be treated as stock of the issuer and would be relevant to determining whether the issuer has stock that is traded on an estab- lished securities market. Similarly, global depositary receipts (GDRs) for the stock of domestic corporations that are traded on foreign exchanges may be relevant in determining whether the issuer has stock that is traded on an established securities market. Because the ADRs and GDRs are not issued by a domestic specified affili- ate, they would not be treated as stock of the domestic specified affiliate. Additionally, Congress specifically wrote rules to address situations involv- ing a publicly traded foreign corporation with a domestic specified affiliate, and those rules do not include any provisions treating the domestic specified affiliate as publicly traded as a result of the foreign corporation’s stock trading on an estab- lished securities market in the United States. See section 4501(d); see also part XVI of this Explanation of Provisions (discussion of feedback relating to sec- tion 4501(d)). V. Section 301 Distributions Section 301(a) of the Code generally provides that a distribution of property (as defined in section 317(a)) made by a cor- poration to a shareholder with respect to its stock is treated in the manner provided in section 301(c). Section 301(c)(1) pro- vides that the portion of the distribution that is a dividend (as defined in section 316) is included in gross income. Sec- tion 301(c)(2) provides that the portion of the distribution that is not a dividend is applied against and reduces the adjusted basis of the stock. Section 301(c)(3) gen- erally provides that the portion of the dis- tribution that is not a dividend is treated as gain from the sale or exchange of property to the extent that it exceeds the adjusted basis of the stock. For purposes of this discussion, an actual distribution subject to section 301(c)(2) or (3) refers to a distribution of property to a shareholder with respect to the corporation’s stock that does not include an exchange of such stock. In con- trast, an “in-form” redemption treated as a distribution subject to section 301(c)(2) or (3) refers to a distribution of property to a shareholder in exchange for the corpora- tion’s stock. A. Actual distributions subject to section 301(c)(2) or (3) Stakeholders asked whether an actual distribution (that is, a distribution that does not involve a redemption in form) to which section 301(c)(2) or (3) applies is subject to the stock repurchase excise tax. Stakeholders contended that the stock repurchase excise tax should not apply to such a distribution, because (i) it is not a section 317(b) redemption, and (ii) it is not economically similar to a sec- tion 317(b) redemption (for example, it does not decrease the number of shares outstanding). Instead, such a distribution more closely resembles a dividend, which is excluded from the stock repurchase excise tax (see section 4501(e)(6)). The Treasury Department and the IRS agree that an actual distribution subject to section 301(c)(2) or (3) is not a repur- chase (and, therefore, is not subject to the stock repurchase excise tax) because such a distribution is neither a section 317(b) redemption nor economically similar to such a redemption. Accordingly, and con- sistent with section 3.04(4)(a) of Notice 2023-2 (which does not include such dis- tributions in the list of economically simi- lar transactions), the proposed regulations would provide that an actual distribution subject to section 301(c)(2) or (3) is not subject to the stock repurchase excise tax. See proposed §58.4501-2(e)(5)(iv). B. Redemptions treated as distributions subject to section 301(c)(2) or (3) Stakeholders also asked whether the stock repurchase excise tax applies to an in-form redemption that is treated as a distribution to which section 301(c)(2) or (3) applies. See section 302(d). One stakeholder recommended applying the stock repurchase excise tax to a non-pro rata, in-form redemption that is treated as a distribution to which section 301(c)(2) or (3) applies. However, the stakeholder contended that the stock repurchase excise tax should not apply to a pro rata, in-form redemption that is treated as a distribution to which section 301(c)(2) or (3) applies, because such a redemption is more akin to May 13, 2024 1086 Bulletin No. 2024–20 an actual section 301 distribution than a typical section 317(b) redemption. In con- trast, another stakeholder recommended that the stock repurchase excise tax should apply to such a transaction because it is a redemption within the meaning of sec- tion 317(b) (for example, such a redemp- tion decreases the number of outstanding shares even though the redemption is pro rata). The Treasury Department and the IRS agree that an in-form section 317(b) redemption treated as a distribution to which section 301(c)(2) or (3) applies is a repurchase based on the plain language of the statute, regardless of whether the redemption is pro rata. Accordingly, and consistent with section 3.04(3) of Notice 2023-2 (which does not include such transactions in the list of section 317(b) redemptions that are not repurchases), an in-form section 317(b) redemption treated as a distribution to which section 301(c)(2) or (3) applies would be subject to the stock repurchase excise tax under the proposed regulations. See proposed §58.4501-2(e)(3) (providing an exclusive list of section 317(b) redemptions that are not repurchases). C. Exclusion for pro rata distributions One stakeholder recommended a gen- eral exclusion from the stock repurchase excise tax for distributions made to all shareholders of a covered corporation on a wholly pro rata basis (100 percent pro rata distribution), regardless of whether such distributions involve a redemption in form. According to the stakeholder, such distributions do not implicate most of the policy considerations underlying the tax. However, the stakeholder noted that adopting this recommendation would require the Treasury Department and the IRS to consider (i) how to determine whether a distribution is 100 percent pro rata if the covered corporation has multi- ple classes of stock, and (ii) the impact of such distributions on options or convert- ible debt instruments (to the extent such instruments thereby accrete their propor- tionate interests in the covered corpora- tion). The Treasury Department and the IRS disagree with the stakeholder’s recom- mendation. A redemptive 100 percent pro rata distribution is a repurchase because the distribution (i) constitutes a section 317(b) redemption or (ii) is an economi- cally similar transaction. Accordingly, the proposed regulations would not provide an exclusion for 100 percent pro rata dis- tributions, except in the case of pro rata distributions in a complete liquidation to which section 331 or 332 (but not both) applies. VI. Complete and Partial Liquidations A. Complete liquidations Section 331(a) of the Code provides that amounts received by a shareholder in a distribution in complete liquidation of a corporation are treated as in full pay- ment in exchange for the stock. Section 332 of the Code provides an exception to the general rule in section 331(a). If the requirements of section 332 are met, no gain or loss is recognized upon the receipt by one corporation of property distributed in complete liquidation of another corpo- ration. Section 332 applies only if the corpo- ration receiving property in the liquida- tion satisfies the requirements of section 332(b), including the requirement that the corporation own stock in the liquidating corporation meeting the 80-percent voting and value requirements of section 1504(a) (2) of the Code (80-percent distributee). See section 332(b)(1). 1. Application of Stock Repurchase Excise Tax Several stakeholders recommended that a complete liquidation by a covered corporation should not be subject to the stock repurchase excise tax because the complete liquidation terminates the cov- ered corporation’s existence. For support, these stakeholders contended that a com- plete liquidation provides no opportunity for the liquidating corporation to reinvest cash in the corporation’s enterprise, which stakeholders stated Congress may have intended to encourage through the enact- ment of section 4501. In addition, these stakeholders emphasized that a complete liquidation provides no opportunity for a covered corporation to manipulate the corporation’s earnings per share (EPS) or other similar metrics, which these stakeholders stated Congress may have intended to discourage through the enact- ment of section 4501. As reflected in section 3.04(4)(b)(i)(A) of Notice 2023-2, the Treasury Depart- ment and the IRS are of the view that a distribution in complete liquidation of a covered corporation to which either sec- tion 331 or 332 (but not both) applies is not a repurchase. Accordingly, the Trea- sury Department and the IRS are of the view that such distributions should not be subject to the stock repurchase excise tax. See proposed §58.4501-2(e)(5). 2. Determination of Complete Liquidation or Dissolution Stakeholders also asked whether a dis- tribution is in “complete liquidation” of a corporation for purposes of section 331 if some classes of the liquidating corpo- ration’s stock do not receive a distribu- tion. Section 331 does not define the term “complete liquidation.” Instead, this term is defined in section 346(a) of the Code, which provides that, for purposes of sub- chapter C of chapter 1, “a distribution shall be treated as in complete liquidation of a corporation if the distribution is one of a series of distributions in redemption of all of the stock of the corporation pur- suant to a plan” (emphasis added). Stakeholders have questioned whether the definition of “complete liquidation” in section 346(a) requires a distribution on all classes of stock in order for a dissolution of a corporation to qualify as a distribution in complete liquidation to which section 331 applies. These stakeholders based their question on the language of section 332(b)(2), which provides that a distribu- tion is considered in “complete liquida- tion” within the meaning of section 332 only if “the distribution is by [the liquidat- ing corporation] in complete cancellation or redemption of all its stock.” In addi- tion, these stakeholders referenced Trea- sury regulations and judicial opinions. See §1.332-2(b) (“Section 332 applies only to those cases in which the recipient corpo- ration receives at least partial payment for the stock which it owns in the liquidating corporation.”); Spaulding Bakeries Inc. v. Comm’r, 252 F.2d 693, 697 (2d Cir. 1958) (emphasizing that “[s]ection 112(b)(6)(C) Bulletin No. 2024–20 1087 May 13, 2024 [of the Internal Revenue Code of 1939 (the predecessor statute to section 332)] requires for its application a distribution in complete cancellation or redemption of all stock of the dissolved corporation”), aff ’g 27 T.C. 684 (1957); H.K. Porter Co. v. Comm’r, 87 T.C. 689 (1986) (agreeing with the rationale of the Second Circuit’s decision in H.K. Porter and holding that section 332 did not apply to a dissolution because a distribution was made on the dissolving corporation’s preferred stock but not its common stock). As stated previously, the Treasury Department and the IRS are of the view that a distribution in complete liquidation of a covered corporation to which sec- tion 331 or 332(a) applies should not be treated as a repurchase. In addition, the Treasury Department and the IRS are of the view that a redemption by a covered corporation pursuant to a corporate disso- lution of the covered corporation should not be treated as a repurchase. To clarify the intent of Notice 2023-2, the proposed regulations would provide that a distribu- tion in complete liquidation of a covered corporation to which either section 331 or 332(a) (but not both) applies, a distri- bution pursuant to a plan of dissolution of a covered corporation that is reported on the original (but not a supplemented or an amended) IRS Form 966, Corporate Dissolution or Liquidation (or any suc- cessor form), or a distribution pursuant to a deemed dissolution of the covered corporation (for instance, pursuant to a deemed liquidation under §301.7701-3), is not a repurchase and, therefore, is not subject to the stock repurchase excise tax. See proposed §58.4501-2(e)(5)(i). For the treatment of liquidations to which both sections 331 and 332 apply, see proposed §58.4501-2(e)(4)(v)(A) and the discus- sion in part VI.A.3 of this Explanation of Provisions. 3. Liquidations to Which Both Sections 331 and 332 Apply The rules described in section 3.04(4) (a)(v) of Notice 2023-2 provide that, if sections 331 and 332 both apply to a com- plete liquidation, then (i) the distribution to the 80-percent distributee is not subject to the stock repurchase excise tax, but (ii) each distribution to which section 331 applies (that is, the surrender of covered corporation stock by each minority share- holder) is subject to the stock repurchase excise tax. The Treasury Department and the IRS have arrived at this view because the 80-percent distributee is the succes- sor to the transferor corporation (that is, the liquidating subsidiary) following the complete liquidation to which sec- tion 332 applies. See section 381(a)(2). In contrast to the 80-percent distributee, minority shareholders that receive liqui- dating distributions to which section 331 applies terminate their investment in the transferor corporation’s business (that is, are not successors to the transferor corpo- ration). Moreover, a complete liquidation to which sections 331 and 332 both apply is substantively similar to an upstream reor- ganization of the liquidating subsidiary into the 80-percent distributee in which the minority shareholders receive only non-qualifying property in exchange for their stock in the liquidating subsidiary. Because such an exchange in an upstream reorganization would constitute a “repur- chase” under the proposed regulations, the Treasury Department and the IRS are of the view that the same treatment should apply to liquidating distributions to minority shareholders subject to sec- tion 331. See proposed §58.4501-2(e)(4) (v)(A). 4. Distributions During Taxable Year of Complete Liquidation or Dissolution The rule described in section 3.04(4) (b)(i)(B) of Notice 2023-2 provides that, if a covered corporation or a covered sur- rogate foreign corporation (as appropri- ate) completely liquidates and dissolves (within the meaning of §1.331-1(d)(1)(ii)) during a taxable year, no distribution by that corporation during that taxable year is a repurchase. See also proposed §58.4501- 2(e)(5)(ii) (incorporating this provision into the proposed regulations). Stakehold- ers have requested clarification regard- ing how this provision interacts with the rule described in section 3.04(4)(a)(v) of Notice 2023-2, which (as previously dis- cussed in part VI.A.3 of this Explanation of Provisions) provides that, in a complete liquidation to which sections 331 and 332 both apply, each distribution to which section 331 applies is subject to the stock repurchase excise tax. The proposed regu- lations would clarify the intent of Notice 2023-2 by providing that the rule in pro- posed §58.4501-2(e)(5)(ii) does not apply if the complete liquidation or dissolution is a transaction to which sections 331 and 332 both apply. B. Partial liquidations Section 302(b)(4) of the Code pro- vides that a distribution in redemption of stock held by a shareholder who is not a corporation and in partial liquidation of the distributing corporation receives exchange treatment under section 302(a). For purposes of section 302(b)(4), a dis- tribution will be treated as in partial liq- uidation of a corporation if the distribu- tion (i) is not essentially equivalent to a dividend (determined at the corporate level rather than at the shareholder level), and (ii) is pursuant to a plan and occurs within the taxable year in which the plan was adopted or within the succeeding tax- able year. See section 302(e)(1). A partial liquidation may involve a redemption of stock under section 317(b) in which the shareholder actually, in-form surrenders stock of the corporation in exchange for property (redemptive partial liquidation). A partial liquidation also may involve a constructive redemption of stock in which the shareholder is deemed to surrender stock of the corporation in exchange for property, and that deemed surrender sat- isfies the redemption requirement of sec- tions 302 and 317(b) (constructive partial liquidation). See H.R. Conf. Rep. No. 760, 97th Cong., 2nd Sess. 530 (1982) (“Under present law, a distribution in partial liqui- dation may take place without an actual surrender of stock by the shareholders ... [and a] constructive redemption of stock is deemed to occur in such transactions.... The conferees intend that the treatment of partial liquidations under present law section 346(a)(2) and (b) is to continue for such transactions under new section 302(e).”). 1. Partial Liquidations Involving an Actual Redemption of Stock Several stakeholders requested guid- ance on whether a redemptive partial liq- May 13, 2024 1088 Bulletin No. 2024–20 uidation is treated as a repurchase. One stakeholder recommended that a redemp- tive partial liquidation by a covered cor- poration should be subject to the stock repurchase excise tax because a non-pro rata redemptive partial liquidation could achieve consequences similar to those that the stakeholder hypothesized section 4501 was intended to counteract. For example, the stakeholder observed that, if a corpo- ration distributes proceeds from the sale of one of its businesses to its shareholders, the corporation has chosen to make that distribution rather than reinvest the pro- ceeds in its business. Another stakeholder agreed that non-pro rata redemptive par- tial liquidations should be treated as repur- chases but contended that 100-percent pro rata redemptive partial liquidations should not be so treated. The Treasury Department and the IRS are of the view that redemptive partial liquidations should be treated as repur- chases because those transactions qualify as section 317(b) redemptions. More- over, as discussed in part V.C of this Explanation of Provisions, the Treasury Department and the IRS are of the view that no special exception should be pro- vided for 100-percent pro rata redemp- tions, particularly because section 4501 does not provide such an exception. In addition, such an exception would com- plicate the IRS’s ability to administer and enforce the stock repurchase excise tax. Accordingly, the proposed regulations would not incorporate these stakeholder recommendations. 2. Partial Liquidations Involving a Constructive Redemption of Stock Several stakeholders requested guid- ance on whether a constructive partial liquidation is treated as a repurchase. The stakeholders recommended that con- structive partial liquidations should not be treated as repurchases because such transactions neither have the form of an actual redemption nor affect sharehold- ers’ proportionate interests. In addition, those stakeholders asserted that the treat- ment of constructive partial liquidations as constructive redemptions is imputed in revenue rulings to provide beneficial tax treatment to individual shareholders. The stakeholders further contended that such redemptions are not motivated by, and do not produce, the economic effects that they contend the stock repurchase excise tax was designed to discourage. The Treasury Department and the IRS decline to adopt the stakeholders’ recommendation in the proposed regula- tions. Section 302(b)(4) applies to a dis- tribution “in redemption of stock,” and section 317(b) defines a “redemption” for purposes of section 302. Regardless of whether a redemption is construc- tive rather than actual, the redemption comprises a section 317(b) redemption to which section 302(b)(4) may apply. Therefore, the Treasury Department and the IRS are of the view that a constructive partial liquidation is a repurchase subject to the stock repurchase excise tax, and the proposed regulations would not provide any special exceptions for such transac- tions. 3. Dividend Exception and Partial Liquidation Look-Through Rule For a discussion of the dividend excep- tion and the partial liquidation look- through rule in section 302(e)(5), see part X.F.3 of this Explanation of Provisions. VII. Taxable Transactions A. LBOs and other taxable “take private” transactions Under the approach described in Notice 2023-2, unless a statutory excep- tion applies, the target-corporation-funded portion of the consideration in an LBO or other taxable acquisition of the stock of a target corporation would be treated as a repurchase for purposes of comput- ing the target corporation’s stock repur- chase excise tax base. See section 3.09(3) and (4) of Notice 2023-2. This approach tracks longstanding Federal income tax treatment by the IRS of such transactions, particularly that cash received by the minority shareholders in such transactions is subject to the provisions and limitations of section 302. See, for example, Rev. Rul. 78-250, 1978-1 C.B. 83 (elimina- tion of minority shareholders’ interest in target corporation through the merger of a transitory subsidiary into target corpo- ration treated as a redemption because tar- get corporation was the source of the cash consideration). Several stakeholders recommended that payments funded (or deemed funded) by the target corporation in a taxable acquisition of target corporation stock should not be treated as a repurchase. Another stakeholder recommended that any redemption that occurs as part of a transaction should be exempt from the definition of “repurchase” if, immediately after the transaction, the target corpora- tion’s stock no longer is traded on an estab- lished securities market. See part IV.A of this Explanation of Provisions (discussing the stakeholder’s recommendation). Alter- natively, the stakeholder recommended that a target corporation’s status as a cov- ered corporation be determined at the end of the repurchase transaction. Similarly, another stakeholder recommended that an exemption be created for redemptions undertaken in connection with fully tax- able stock dispositions in which target corporation shareholders completely ter- minate their interest under section 302(b) (3), and as described in Zenz v. Quinlivan, 213 F.2d 914 (6th Cir. 1954). According to the stakeholders, deemed redemptions by a target corporation that is a covered corporation in an LBO or other taxable “take private” transaction do not implicate their view of the congressional policies underlying the stock repurchase excise tax because the purpose of such a transaction is to cash out completely the target corporation’s existing sharehold- ers. For support, these stakeholders high- lighted that taxable “take private” trans- actions do not present an opportunity to manipulate EPS or other financial metrics, which (i) become irrelevant after the target corporation ceases to be a publicly traded entity, and (ii) the stakeholders viewed as a practice that Congress intended to dis- courage through enactment of the stock repurchase excise tax. Moreover, in the stakeholders’ view, imposing the stock repurchase excise tax on a fully taxable stock acquisition based solely on the source of the consideration received by the target corporation’s share- holders would create arbitrary distinctions driven by factors that may be commer- cially focused, such as the target corpo- ration’s desired capital structure and its ability to obtain third-party financing. Bulletin No. 2024–20 1089 May 13, 2024 The stakeholders further noted that, if the application of the stock repurchase excise tax to fully taxable stock acquisitions hinges solely on the actual or deemed source of consideration, then parties eas- ily may avoid the tax by borrowing at the acquiring-entity level, buying the target corporation’s shares, and then having the target corporation assume or satisfy the debt after the acquisition. The Treasury Department and the IRS disagree with the stakeholders’ rec- ommendations. The treatment of such target corporation-funded payments as a redemption within the meaning of sec- tion 317(b) follows longstanding Federal income tax principles and guidance. The Treasury Department and the IRS are of the view that there is no compelling reason to deviate from such long-stand- ing principles and guidance or from the express language of section 4501(c)(1), which defines a repurchase, in part, as “a redemption within the meaning of section 317(b) with regard to the stock of a cov- ered corporation.” The Treasury Depart- ment and the IRS are of the view that inte- grating long-standing Federal income tax principles and guidance into the proposed regulations would facilitate taxpayer compliance, as well as the ability of the IRS to administer and enforce the stock repurchase excise tax. Accordingly, the proposed regulations would not adopt the stakeholders’ recommendations regarding taxable stock acquisitions. Several stakeholders offered alterna- tive recommendations in the event the proposed regulations do not exclude tax- able stock acquisitions from the stock repurchase excise tax. One stakeholder agreed with the approach described in Notice 2023-2, under which a taxable stock acquisition is treated as a section 317(b) redemption only to the extent of the consideration sourced from the tar- get corporation. The stakeholder recom- mended that, for purposes of the stock repurchase excise tax, sourcing should be guided by the same principles that apply to determine the identity of the borrower for Federal income tax purposes. The proposed regulations would retain the approach described in Notice 2023-2. Another stakeholder recommended that issuances by the target corporation in the same taxable year as the “take pri- vate” transaction, including issuances that occur after the “take private” transaction, should be taken into account for purposes of the netting rule. The Treasury Depart- ment and the IRS disagree with this rec- ommendation. As previously discussed, the Treasury Department and the IRS are of the view that, to be consistent with the statutory language in section 4501, stock issued by a corporation after it ceases to be a covered corporation should not be taken into account under the netting rule. See part IV.A of this Explanation of Pro- visions. Accordingly, the proposed regula- tions would take into account stock issued by the target corporation in the same tax- able year as the “take private” transac- tion only if that stock was issued during the period in which the target corporation was a covered corporation, as determined under these proposed regulations. See proposed §§58.4501-2(d)(1) and 58.4501- 4(b)(2). B. Section 304 transactions 1. Section 304(a)(1) Transactions Section 304(a)(1) of the Code applies if one corporation purchases stock of another corporation from a shareholder or shareholders in control of both cor- porations in exchange for cash or other property (section 304(a)(1) transaction). If section 304(a)(1) applies, the cash or other property paid to the controlling shareholder or shareholders is treated as a distribution in redemption of the stock of the acquiring corporation. To the extent that the distribution is treated as a distri- bution to which section 301 applies, (i) the selling shareholder or shareholders are treated in the same manner as if they had transferred the acquired stock to the acquiring corporation in a transaction to which section 351(a) of the Code applies, and then (ii) the acquiring corporation is treated in the same manner as if it had redeemed the stock it was treated as issu- ing in the transaction. The approach described in sections 3.04(3)(a) and 3.08(4)(e) of Notice 2023- 2, respectively, provides that a deemed redemption resulting from the application of section 304(a)(1) is neither a repur- chase nor an issuance for purposes of the stock repurchase excise tax. Stakeholders generally agreed with this approach, for several reasons. First, stakeholders noted that section 304(a)(1) transactions involve no actual contraction in the number of shares of acquiring corporation stock. Second, stakeholders observed that, to the extent the deemed redemption is treated as a dis- tribution to which section 301 applies, the section 304(a)(1) transaction would con- sist of an offsetting issuance and repur- chase of acquiring corporation stock. However, those stakeholders correctly noted that the deemed redemption would be statutorily excluded from the compu- tation of the acquiring corporation’s stock repurchase excise tax base under section 4501(e)(6) to the extent that the deemed redemption is treated as a dividend under section 301(c)(1). As a result, the Federal income tax treatment mandated by section 304(a)(1), combined with the statutory exclusion for dividends under section 4501(e)(6), would manufacture an auto- matic net issuance. Finally, one stakeholder claimed that it could be difficult for taxpayers to deter- mine whether section 304(a)(1) applies to public company M&A transactions because publicly traded corporations do not know the identity of their sharehold- ers. For that reason, the stakeholder also contended that it could be difficult for the IRS to administer and enforce the stock repurchase excise tax with respect to sec- tion 304(a)(1) transactions. However, several stakeholders expressed concern that an exemption for all section 304(a)(1) transactions may exclude transactions that (i) satisfy the statutory requirements for section 304 qualification, and (ii) are economically similar to a conventional stock repur- chase. As an illustration, the stakehold- ers presented the following fact pattern. Individual A owns 50 percent of the stock of two public corporations. Individual A sells a portion of its stock in one corpora- tion (that is, the target corporation) to the other corporation (that is, the acquiring corporation). The stakeholders explained that section 304(a)(1) would apply to the sale, but individual A may qualify for sale or exchange treatment under section 302(a) depending on individual A’s actual and constructive ownership of the target corporation following the transaction. May 13, 2024 1090 Bulletin No. 2024–20 According to the stakeholder, applying the stock repurchase excise tax may be appropriate in this situation and in other situations in which control of the target and acquiring corporations is not widely dispersed and both corporations remain publicly traded after the transaction. The Treasury Department and the IRS are of the view that the complexity of reg- ulations applying the stock repurchase excise tax with regard to section 304(a)(1) transactions would outweigh significantly any benefit of applying this tax to those transactions. In addition, the Treasury Department and the IRS are of the view that applying the stock repurchase excise tax to section 304(a)(1) transactions would create significant difficulty for the IRS to administer and enforce the tax, as well as for taxpayers to calculate and report their tax with certainty. Accordingly, the Treasury Department and the IRS are of the view that the stock repurchase excise tax should not apply to a redemption that is deemed to occur by virtue of section 304(a)(1). See proposed §§58.4501-2(e) (3)(i) and 58.4501-4(f)(4). 2. Section 304(a)(2) Transactions Section 304(a)(2) applies if one cor- poration (that is, the acquiring corpora- tion) purchases stock of another corpora- tion (that is, the target corporation) from a shareholder of the target corporation in exchange for cash or other property and that target corporation controls the acquiring corporation (section 304(a)(2) transaction). If section 304(a)(2) applies, that property is treated as a distribution in redemption of the stock of the target corporation. The approach described in Notice 2023-2 does not exempt section 304(a)(2) transactions from the applica- tion of the stock repurchase excise tax. See generally section 3.04(3) of Notice 2023-2 (excepting solely section 304(a) (1) transactions). One stakeholder noted that the appli- cation of the stock repurchase excise tax to section 304(a)(2) transactions generally is clear and is analogous to the rule treat- ing an acquisition of stock of a covered corporation by a specified affiliate as a repurchase to which the stock repurchase excise tax applies. The Treasury Depart- ment and the IRS agree with the stake- holder. Accordingly, the proposed regula- tions would not exempt section 304(a)(2) transactions from the application of the stock repurchase excise tax. VIII. Reorganizations A. Acquisitive reorganizations 1. Overview The approach described in Notice 2023-2 treats an exchange of target cor- poration stock by the target corporation’s shareholders in an acquisitive reorganiza- tion as an economically similar transac- tion. See section 3.04(4)(a)(i) of Notice 2023-2. The notice defines an “acquisi- tive reorganization” as a transaction that qualifies as a reorganization under section 368(a)(1)(A) of the Code (including by reason of section 368(a)(2)(D) or (E)), section 368(a)(1)(C), or section 368(a) (1)(D) (D reorganization) (if the reorga- nization satisfies the requirements of sec- tion 354(b)(1) of the Code). See section 3.02(1) of Notice 2023-2. Under the approach described in Notice 2023-2, the effect of an acquisitive reor- ganization on a target corporation’s stock repurchase excise tax base is computed by first including in that tax base the fair mar- ket value of all target corporation stock exchanged in the transaction, regardless of the type of consideration for which the stock is exchanged. The stock repurchase excise tax base then is reduced under the statutory exception in section 4501(e) (1) (reorganization exception) by the fair market value of the target corporation stock exchanged for property permitted to be received by the target corporation shareholders without recognition of gain or loss under section 354 (that is, quali- fying property). Thus, under the approach described in Notice 2023-2, the target cor- poration generally is subject to the stock repurchase excise tax only to the extent of the fair market value of target corpora- tion stock exchanged for property that is non-qualifying property. For purposes of this preamble, the term “acquisitive reorganization” includes each transaction described as an acquisitive reorganization in Notice 2023-2 as well as a transaction that qualifies as a reorgani- zation under section 368(a)(1)(G) (if the reorganization satisfies the requirements of section 354(b)(1)). Under Federal income tax principles, acquisitive reorganizations involve the following two elements. First, the tar- get corporation transfers all or a portion of its assets to the acquiring corporation in exchange for consideration from the acquiring corporation. Second, the target corporation distributes the consideration received from the acquiring corporation to the target corporation’s shareholders in exchange for their target corporation stock in an actual or deemed liquidation of the target corporation (target redemp- tive distribution). See, for example, sec- tion 361(a) and (c) of the Code (provid- ing for nonrecognition of gain or loss for the target corporation’s transfer of assets in exchange for stock or securities of a party to the reorganization and the target corporation’s distribution of that stock or securities pursuant to a plan of reorganiza- tion); section 368(a)(1)(C) and (a)(2)(G) (to similar effect). 2. Feedback Received a. In general Several stakeholders recommended that acquisitive reorganizations should not be subject to the stock repurchase excise tax, to any extent. These stake- holders contended that, although a target redemptive distribution in an acquisitive reorganization resembles a section 317(b) redemption, such a transaction should not be subject to the stock repurchase excise tax even if non-qualifying property is pro- vided. See parts VIII.A.2.b and c of this Explanation of Provisions. b. Stakeholders contend acquisitive reorganizations are not economically similar transactions Some stakeholders asserted that acquis- itive reorganizations are economically distinguishable from a section 317(b) redemption and therefore should not be treated as economically similar transac- tions. According to these stakeholders, the basic economic nature of an acquisi- tive reorganization (at least in situations in which the parties to the transaction are unrelated) is a two-company acquisitive Bulletin No. 2024–20 1091 May 13, 2024 transaction in which the target corporation shareholders sell the target corporation to the acquiring corporation. In contrast, a section 317(b) redemption is a transaction in which a single corporation acquires its own stock from its shareholders. Several stakeholders stated that an acquisitive reorganization between unre- lated parties is motivated primarily by bona fide investment and strategic busi- ness purposes and does not give rise to any abuse that the stakeholders hypothe- sized Congress may have intended to dis- courage through enactment of the stock repurchase excise tax. These stakeholders acknowledged that the exchange of target corporation stock for non-qualifying prop- erty in a target redemptive distribution either constitutes or resembles a section 317(b) redemption. However, the stake- holders questioned whether this exchange under Federal income tax principles pro- vides an adequate basis for designating the transaction as “economically similar.” The stakeholders further questioned why a distribution in complete liquidation as part of a reorganization (that is, the target redemptive distribution) should give rise to an economically similar transaction under the approach described in Notice 2023-2 even though a distribution in com- plete liquidation subject to either section 331 or 332 (but not both) would not. With regard to the latter point, sev- eral stakeholders noted that the exchange between the target corporation and its shareholders in a forward merger that failed to qualify as a reorganization would not be subject to the stock repurchase excise tax. See Rev. Rul. 69-6, 1969-1 C.B. 104 (treating such an exchange as a distribution in complete liquidation to which section 331 applies). One stake- holder suggested that the application of this tax should be based upon the substan- tive Federal income tax characterization of the steps of the transaction, rather than upon the overall Federal income tax char- acterization of the transaction as a reorga- nization. For support, the stakeholder con- tended that their recommendation would mitigate the potential for a more onerous result under the stock repurchase excise tax if the components of such a transaction qualify for reorganization treatment. Several stakeholders also recom- mended that transactions that qualify as a reorganization described in either section 368(a)(1)(B) (B reorganization) or 368(a) (1)(A) by reason of section 368(a)(2)(E) (reverse triangular merger) should not be subject to the stock repurchase excise tax. The stakeholders contended that those types of reorganizations should not be subject to the stock repurchase excise tax based on their view that such transactions, both in substance and in form, involve an acquisition of stock by a third party rather than a repurchase or redemption of target corporation stock. c. Effect of the statutory exception in section 4501(e)(1) Stakeholders acknowledged that the inclusion of the statutory exception in sec- tion 4501(e)(1) (that is, the reorganization exception) is subject to several interpreta- tions. Several stakeholders acknowledged that the inclusion of this exception in sec- tion 4501 could be construed as reflect- ing congressional intent that all stock exchanged for non-qualifying property in a reorganization should be treated as economically similar to a section 317(b) redemption. However, the stakeholders recommended that the Treasury Depart- ment and the IRS not adopt that interpre- tation. In contrast, one stakeholder contended that the inclusion of the reorganization exception does not necessarily indicate that Congress intended all non-qualify- ing property received in any acquisitive reorganization to be subject to the stock repurchase excise tax. Rather, the stake- holder asserted that the application of this statutory exception requires (i) iden- tifying a transaction as a section 317(b) redemption or an economically similar transaction that occurs as part of a reor- ganization, (ii) applying this statutory exception to exempt the target corporation stock exchanged for qualifying property, and then (iii) subjecting the target corpo- ration stock exchanged for non-qualifying property to the stock repurchase excise tax to the extent gain or loss is recognized. Similarly, several stakeholders contended that the reorganization exception could be given effect by applying this exception only to reorganizations that most closely resemble section 317(b) redemptions, such as split-offs (as defined in part IX of this Explanation of Provisions) with non-qualifying property, or E reorganiza- tions involving an exchange of the recap- italizing corporation’s stock for newly issued stock and non-qualifying property. d. Response to stakeholder feedback The Treasury Department and the IRS are of the view that the recommendations of the stakeholders would be contrary to the statutory language of section 4501. The reorganization exception provides that section 4501(a) does not apply “to the extent that the repurchase is part of a reorganization (within the meaning of section 368(a)) and no gain or loss is rec- ognized on such repurchase by the share- holder under chapter 1 by reason of such reorganization.” Section 4501(e)(1). The Treasury Department and the IRS are of the view that the presence of the reorga- nization exception in section 4501(e)(1) indicates that exchanges of target corpora- tion stock occurring as part of an acquis- itive reorganization are subject to the stock repurchase excise tax. Indeed, this statutory exception would have no effect if the exchange of target corporation stock for non-qualifying property in reorganiza- tions were exempt from the stock repur- chase excise tax. Moreover, the Treasury Department and the IRS are of the view that the proposed regulations should not reduce the statutorily mandated scope of the reorganization exception, but rather should give full effect to its language mandating that the reorganization excep- tion applies to all reorganizations “within the meaning of section 368(a).” The Treasury Department and the IRS also are of the view that implemen- tation of the reorganization exception by reliance on sections 354 and 356 of the Code would provide bright-line rules that taxpayers could apply and the IRS could administer and enforce with certainty. Specifically, every acquisitive reorganiza- tion involves a target redemptive distribu- tion to a target corporation shareholder to which section 354 or 356 is applied. Accordingly, the proposed regulations would treat acquisitive reorganizations as economically similar transactions. See proposed §58.4501-2(e)(4)(i); see also proposed §58.4501-3(c) (reorganization exception); part X.A of this Explanation May 13, 2024 1092 Bulletin No. 2024–20 of Provisions (discussion of reorganiza- tion exception). However, the proposed regulations would not subject B reorga- nizations to the stock repurchase excise tax. See proposed §§58.4501-1(b)(1) and 58.4501-2(e)(4)(i). Lastly, the Treasury Department and the IRS view the distinction between tax- able forward mergers and forward merg- ers qualifying as reorganizations as appro- priate because there is a successor to the target corporation in an acquisitive asset reorganization (see section 381(a)). In contrast, the target corporation in a com- plete liquidation subject to section 331 ceases to exist for Federal income tax pur- poses. B. Sourcing approach to acquisitive reorganizations Several stakeholders recommended that, if the proposed regulations do not wholly exempt acquisitive reorganiza- tions from the stock repurchase excise tax, this tax should apply to acquisitive transactions solely to the extent that any non-qualifying property is sourced from the target corporation (sourcing approach). According to the stakehold- ers, to the extent that the consideration used to repurchase target corporation stock is attributable to the acquiring cor- poration or another third party, the trans- action does not represent the target cor- poration’s redemption of its own stock and therefore should not be subject to the stock repurchase excise tax. However, another stakeholder con- tended that the approach in Notice 2023-2 arguably facilitates the administration of the stock repurchase excise tax by treating all exchanges of target corporation stock in a reorganization as a repurchase, irre- spective of the type of reorganization, and regardless of the source of consideration. Nonetheless, for the reasons previously discussed in this part VIII.B, the stake- holder contended that a sourcing approach strikes a better balance with the statutory language and with the stakeholder’s opin- ion that Congress enacted the stock repur- chase excise tax to curtail single-entity corporate contractions. Another stakeholder acknowledged that a sourcing approach could raise issues of administrability, particularly due to the fungible nature of cash and the fact that the operations of the target corporation and the acquiring corporation often are integrated following an acquisition. The stakeholder noted that these difficulties arguably would be compounded in situa- tions in which a target operating corpora- tion is merged directly into an acquiring operating corporation, although other forms of post-merger integration could present similar challenges. Notwithstanding these administra- tive difficulties, these stakeholders con- tended that a sourcing approach could be administered effectively. One stake- holder stated that the challenges pre- sented by a sourcing approach are not meaningfully different from other issues that have been addressed by longstanding authorities concerning reorganizations. For instance, a sourcing approach is used to determine whether funds distributed to the target corporation’s shareholders prior to a B reorganization are properly treated as non-qualifying property. See, for example, Rev. Rul. 70-172, 1970-1 C.B. 77 (dividend distribution of prop- erty sourced from the target corporation treated as separate and distinct from an immediately subsequent B reorganiza- tion). With regard to reverse triangular mergers, these stakeholders noted that funds sourced from the target corporation are taken into account for purposes of the “substantially all” test in section 368(a) (2)(E)(i), but not for purposes of mea- suring the acquisition of “control” under section 368(a)(2)(E)(ii). See §1.368-2(j) (3)(i) and (iii). The stakeholders also questioned the different treatment under Notice 2023-2 of acquisitive reorganizations and tax- able stock acquisitions. These stakehold- ers observed that, under Notice 2023-2, the stock repurchase excise tax would apply to all consideration consisting of non-qualifying property in an acquisi- tive reorganization. In contrast, the rules described in Notice 2023-2 provides that the stock repurchase excise tax is imposed in a taxable stock acquisition only to the extent of the consideration sourced from the target corporation. In the stakeholders’ view, this inconsistent treatment is diffi- cult to justify as a policy matter because taxable and tax-free transactions may be economically similar. The Treasury Department and the IRS are of the view that the stakehold- ers’ recommendation is not supported by the statutory language of the reorganiza- tion exception. The plain language of the reorganization exception contains no ref- erence to the source of the consideration for which the target corporation share- holders exchange their stock in a target redemptive distribution. Instead, the application of the reorganization excep- tion to a target redemptive distribution in an acquisitive reorganization depends only on whether “gain or loss is recog- nized on such repurchase by the share- holder under chapter 1 by reason of such reorganization.” In other words, under the reorganization exception, the source of the consideration for which the target corporation shareholders exchange their stock in a target redemptive distribution is irrelevant in determining the applica- tion of the stock repurchase excise tax to acquisitive reorganizations. Lastly, the Treasury Department and the IRS are of the view that an extra-statutory sourcing rule recommended by the stakeholders would be neither necessary nor appropri- ate to carry out the purposes of the stock repurchase excise tax. For the foregoing reasons, the pro- posed regulations would not incorporate a sourcing approach to determine the application of the stock repurchase excise tax to acquisitive reorganizations. Rather, under the proposed regulations, the stock repurchase excise tax would apply to a repurchase that is part of a reorganization to the extent a shareholder exchanges their stock for non-qualifying property. C. Commissioner v. Clark One stakeholder recommended that the stock repurchase excise tax should not apply to any hypothetical deemed issuance and redemption under Clark v. Commissioner, 489 U.S. 726 (1989), because such a transaction either (i) is a fictional transaction that is not within the scope of the tax, or (ii) results in a net zero adjustment pursuant to the net- ting rule in the case of domestic covered corporations. Another stakeholder also noted that the deemed issuance under Clark would offset the deemed redemp- tion. Bulletin No. 2024–20 1093 May 13, 2024 The Treasury Department and the IRS are of the view that Clark should not apply in determining the applicabil- ity of the stock repurchase excise tax to non-qualifying property furnished in a reorganization, other than to determine the applicability of the dividend exception (see the discussion in part VIII.F of this Explanation of Provisions). This view was incorporated into Notice 2023-2, and the proposed regulations likewise would not provide any special rules based on an ana- logical application of Clark. D. E reorganizations 1. Treatment of E Reorganizations Under Notice 2023-2 Under the approach described in Notice 2023-2, E reorganizations are treated as economically similar transactions in the same manner as other reorganizations for purposes of the stock repurchase excise tax. Accordingly, a recapitalizing corpora- tion has a repurchase to the extent of the fair market value of the shares exchanged by its shareholders in the transaction. See section 3.04(4)(a)(ii) of Notice 2023- 2. However, the fair market value of the repurchased shares that are exchanged for qualifying property reduces the corpora- tion’s stock repurchase excise tax base. See section 3.07(2)(b) of Notice 2023-2 (applying the statutory exception in sec- tion 4501(e)(1) to E reorganizations). As a result, the recapitalizing corporation is subject to the stock repurchase excise tax only to the extent of the fair market value of its shares that are repurchased with non-qualifying property (if any). Additionally, the stock issued by the recapitalizing corporation in the trans- action is disregarded for purposes of the netting rule under the “no double benefit rule.” See section 3.08(4)(d) of Notice 2023-2; see also part XI.C.2 of this Expla- nation of Provisions for a discussion of the no double benefit rule. 2. Feedback Received Several stakeholders recommended that an exchange of stock for qualifying property in an E reorganization should not be subject to the stock repurchase excise tax. However, the stakeholders recommended that shares that are repur- chased with non-qualifying property in an E reorganization should be subject to the stock repurchase excise tax because the exchange is substantially similar to the redemption of stock for cash, unless the receipt of non-qualifying property is treated as a separate transaction under §1.301-1(j). 3. Exchange of Stock for Qualifying Property in an E Reorganization The Treasury Department and the IRS disagree with the stakeholders’ rec- ommendation that an exchange of stock for qualifying property in an E reorga- nization should not be included in the recapitalizing corporation’s stock repur- chase excise tax base. As discussed in part VIII.A.2.d of this Explanation of Provisions, the Treasury Department and the IRS are of the view that the reorga- nization exception would be most appro- priately implemented by (i) treating all exchanges of stock between a corporation and its shareholders occurring as part of a reorganization as an economically sim- ilar transaction, and then (ii) removing from the corporation’s stock repurchase excise tax base the amount of target cor- poration stock for which the target cor- poration shareholders receive qualifying property. The Treasury Department and the IRS also are of the view that adopting uniform treatment for reorganizations would implement the reorganization exception in a manner most consistent with its statutory language (as set forth in section 4501(e)(1)). Lastly, the Trea- sury Department and the IRS are of the view that this approach would facili- tate the IRS’s ability to administer and enforce the stock repurchase excise tax and enable taxpayers to apply the tax with greater certainty. Accordingly, the proposed regulations would include the stock-for-qualifying property portion of an exchange occur- ring as part of an E reorganization in the stock repurchase excise tax base, and then exclude that portion in a later step of the stock repurchase excise tax base compu- tation. See proposed §§58.4501-2(e)(4)(ii) and 58.4501-3(c). The Treasury Depart- ment and the IRS request comments on the proposed treatment of E reorganizations. E. F reorganizations 1. Treatment of F Reorganizations Under Notice 2023-2 Under the approach described in Notice 2023-2, F reorganizations are treated as economically similar transactions in the same manner as other reorganizations for purposes of the stock repurchase excise tax. Accordingly, the transferor corpora- tion has a repurchase to the extent of the fair market value of the shares exchanged by its shareholders in the transaction. See section 3.04(4)(a)(iii) of Notice 2023- 2. However, the fair market value of the repurchased shares that are exchanged for qualifying property reduces the corpora- tion’s stock repurchase excise tax base. See section 3.07(2)(c) of Notice 2023-2 (applying the statutory exception in sec- tion 4501(e)(1) to F reorganizations). As a result, the transferor corporation is subject to the stock repurchase excise tax only to the extent of the fair market value of its shares that are repurchased with non-qual- ifying property (if any). A distribution of non-qualifying prop- erty by the transferor corporation in an F reorganization is treated as a separate transaction (for example, under section 302). See §1.368-2(m)(1)(iii) (providing that any distribution of money or other property from either the transferor cor- poration or the resulting corporation, including any money or other property exchanged for shares, in an F reorgani- zation is treated as an unrelated, separate transaction from the reorganization). 2. Feedback Received Several stakeholders recommended that F reorganizations should not be subject to the stock repurchase excise tax because the stock issued in an F reorganization does not qualify as “property” within the meaning of section 317(a). These stake- holders contended that no “redemption” could occur within the meaning of section 317(b), and therefore the stock repurchase excise tax should not apply. For the same rationale as other reorga- nizations, the Treasury Department and the IRS continue to be of the view that F reorganizations should be treated as eco- nomically similar transactions for pur- May 13, 2024 1094 Bulletin No. 2024–20 poses of the stock repurchase excise tax. See parts VIII.A and D of this Explana- tion of Provisions (discussing acquisitive reorganizations and E reorganizations). Moreover, the Treasury Department and the IRS are of the view that adopting uni- form treatment for reorganizations would reduce complexity for taxpayers and facil- itate the IRS’s ability to administer and enforce the stock repurchase excise tax. The proposed regulations reflect this view. See proposed §§58.4501-2(e)(4)(iii) and 58.4501-3(c). The Treasury Department and the IRS request comments on the pro- posed treatment of F reorganizations. F. Downstream reorganizations and other related-party reorganizations Several stakeholders recommended that, if reorganizations generally are not subject to the stock repurchase excise tax under the proposed regulations, relat- ed-party reorganizations (such as an acquisition of a publicly traded parent corporation’s stock by a specified affili- ate, or a reorganization between two cov- ered corporations under common control) nonetheless should be subject to the stock repurchase excise tax to the extent of the non-qualifying property received by shareholders. One stakeholder suggested that the receipt of non-qualifying property in such transactions is economically iden- tical to a conventional stock repurchase. The Treasury Department and the IRS agree with stakeholders that such transac- tions should be subject to the stock repur- chase excise tax. However, because reor- ganizations generally would be subject to the stock repurchase excise tax under the proposed regulations, no special rules are needed to address related-party reorgani- zations. Accordingly, the proposed regu- lations would not adopt the stakeholders’ recommendation. G. Reverse acquisitions involving investment companies One stakeholder suggested that, if the proposed regulations generally do not apply the stock repurchase excise tax to acquisitive reorganizations, the proposed regulations should apply this tax to certain reverse acquisitions involving a publicly traded acquiring corporation. According to the stakeholder, if the historical business of a publicly traded acquiring corporation has declined in value to the point that the corporation’s stock is trading based on the net value of its cash and other investment assets, and if the target corporation share- holders as a group will obtain more than 50 percent of the fair market value of the acquiring corporation’s stock in an acquis- itive reorganization, then any non-qualify- ing property received by the target corpo- ration shareholders in the reorganization may resemble a repurchase. Although the stakeholder noted that such transactions are rare, the stakeholder recommended that the Treasury Department and the IRS consider designating such transactions as economically similar. The Treasury Department and the IRS are of the view that no special rules are required to address these types of trans- actions because the proposed regulations would not exclude acquisitive reorgani- zations from the stock repurchase excise tax. Accordingly, the proposed regulations do not incorporate the stakeholder’s sug- gested provision. IX. Section 355 Transactions Under the approach described in Notice 2023-2, a section 355 transaction in which a distributing corporation (within the meaning of section 355(a)(1)(A) of the Code) distributes stock of a controlled corporation (within the meaning of sec- tion 355(a)(1)(A)) and, if applicable, other property or money to the distributing cor- poration’s shareholders in exchange for a portion of the shareholders’ stock in the distributing corporation (split-off) is treated as an economically similar trans- action. Accordingly, the distributing cor- poration has made a repurchase to the extent of the fair market value of the dis- tributing corporation shares exchanged by its shareholders in the transaction. See section 3.04(4)(a)(iv) of Notice 2023-2. However, the fair market value of the repurchased shares that are exchanged for qualifying property reduces the dis- tributing corporation’s stock repurchase excise tax base, regardless of whether the distribution was carried out as part of a D reorganization. See section 3.07(2) of Notice 2023-2. As a result, the distrib- uting corporation is subject to the stock repurchase excise tax only to the extent of the fair market value of its shares that are repurchased with non-qualifying property (if any). A distribution by a distributing corporation of stock of a controlled cor- poration qualifying under section 355 that is not a split-off is not a repurchase sub- ject to the stock repurchase excise tax. See section 3.04(4)(b)(ii) of Notice 2023-2. A. In general Several stakeholders recommended that a spin-off (that is, a distribution of stock of a controlled corporation (Con- trolled) by the distributing corporation (Distributing) to Distributing’s sharehold- ers) to which section 355 applies should not be treated as a repurchase because spin-offs do not involve an exchange of Controlled stock for Distributing stock. The stakeholders also recommended that a split-up (that is, a liquidating distribution in which Distributing distributes the stock of more than one Controlled) or split-off to which section 355 applies, and in which only Controlled stock (and no non-quali- fying property) is distributed, should not be treated as a repurchase. For example, one stakeholder found it significant that a split-off without non-qualifying property generally would not reduce the number of shares outstanding or enhance the EPS of Distributing. In contrast, stakeholders recommended that any non-qualifying property distrib- uted in a split-off to which section 355 applies should be treated as a repurchase to the same extent as if that non-qualifying property were distributed in a redemption under section 302(a), because the source of the cash and the form of the transac- tion frequently are the same as in a con- ventional stock buyback. One stakeholder also recommended treating a split-up with non-qualifying property as a repurchase in the same manner. The Treasury Department and the IRS are of the view that spin-offs and split- ups should not be subject to the stock repurchase excise tax. See proposed §58.4501-2(e)(5)(iii)(A). With regard to a spin-off, the Treasury Department and the IRS are of this view because Distributing does not provide consideration to Distrib- uting’s shareholders in exchange for their Distributing stock (that is, no repurchase Bulletin No. 2024–20 1095 May 13, 2024 could be treated as having occurred). With regard to a split-up, the Treasury Depart- ment and the IRS are of this view because Distributing completely liquidates as a result of Distributing’s distribution of con- sideration to its shareholders in exchange for their Distributing stock. The proposed treatment of spin-offs and split-ups is consistent with the proposed treatment of non-redemptive distributions under sec- tion 301 and distributions in complete liq- uidation, which are analogous to spin-offs and split-ups, respectively. Cf. proposed §§58.4501-2(e)(5)(iv) (exempting certain non-redemptive distributions under sec- tion 301 from the stock repurchase excise tax); 58.4501-2(e)(5)(i) (exempting dis- tributions in complete liquidation that are exclusively under section 331 or 332 from the stock repurchase excise tax). However, the proposed regulations would clarify that a distribution by Dis- tributing of non-qualifying property in exchange for Distributing stock in pursu- ance of a spin-off or a split-up would be a repurchase. See proposed §58.4501-2(e) (5)(iii)(B). The Treasury Department and the IRS also continue to be of the view that split-offs should be subject to the stock repurchase excise tax. See proposed §58.4501-2(e) (4)(iv). Accordingly, Distributing would have a repurchase to the extent of the fair market value of the Distributing stock exchanged by Distributing’s shareholders in the transaction. However, the fair mar- ket value of the repurchased Distributing stock that is exchanged for qualifying property would be subject to the reorga- nization exception, regardless of whether the split-off occurred as part of a D reorga- nization. See proposed §58.4501-3(c). As a result, Distributing would be subject to the stock repurchase excise tax only to the extent of the fair market value of its stock that is repurchased with non-qualifying property (if any). B. Exchange of Controlled securities in a split-off to which section 355 applies Notice 2023-2 does not explicitly address whether a distribution by Distrib- uting of Controlled securities to Distrib- uting shareholders in exchange for their Distributing stock in a split-off is treated as a repurchase. However, Controlled securities that are exchanged for Distrib- uting stock would not constitute qualify- ing property under the rules described in Notice 2023-2. As a result, the exchange of Controlled securities for Distributing stock in a split-off would be subject to the stock repurchase excise tax under the rules described in Notice 2023-2. A stakeholder recommended that, to the extent the Treasury Department and the IRS view a distribution of Controlled securities as a substitute for cash, the distribution of Controlled securities in exchange for Distributing stock in a split- off to which section 355 applies should be treated as a repurchase. The Treasury Department and the IRS continue to be of the view that Con- trolled securities that are exchanged for Distributing stock should not constitute qualifying property for purposes of the stock repurchase excise tax. The Treasury Department and the IRS have reached this position based on the rationale that, unlike an exchange of Distributing stock for Con- trolled stock, an exchange of Distributing stock for Controlled securities generally would achieve an outcome more analo- gous to an exchange of Distributing stock for non-qualifying property. Accordingly, the Treasury Department and the IRS are of the view that no special rules are needed to address this issue. C. Clarification of Examples 13 and 14 in Notice 2023-2 Section 3.09 of Notice 2023-2 con- tains Examples 13 and 14. These exam- ples are based on Example 11 of Notice 2023-2, in which Distributing distributes Controlled stock and cash to Distribut- ing’s shareholders in exchange for their Distributing stock. The facts in Example 13 are the same as in Example 11, except that Example 13 provides that “Distribut- ing distributes the Controlled stock to its shareholders pro rata without the share- holders exchanging any Distributing stock (Spin-Off).” The facts in Example 14 are the same as in Example 13, except that the “Spin-Off is carried out as part of a trans- action qualifying as a D reorganization.” A stakeholder recommended that the proposed regulations incorporate revi- sions to Examples 13 and 14 to clarify whether the cash distribution described in those examples constitutes a distribution in exchange for Distributing stock. The stakeholder interpreted Examples 13 and 14 to provide clearly that no Distribut- ing stock is surrendered by Distributing’s shareholders in the “Spin-Off” in both examples, but nonetheless questioned whether any Distributing stock could have been surrendered for the cash distributed by Distributing with the Controlled stock. Therefore, the stakeholder recommended that Examples 13 and 14 explicitly state whether or not Distributing stock is sur- rendered in exchange for the cash distrib- uted as well as the stock distributed. The Treasury Department and the IRS have revised Example 13 to explicitly state that no stock of Distributing is exchanged in the “Spin-Off” for distributed cash or distributed Controlled stock. This clarifi- cation would confirm the interpretation of stakeholders and the intent of the Treasury Department and the IRS. See proposed §58.4501-5(b)(13). Additionally, the Treasury Depart- ment and the IRS have modified the facts of Example 14 to clarify the treatment of an exchange of Distributing stock for non-qualifying property in pursuance of a spin-off. See proposed §58.4501-5(b)(14). For the treatment of the exchange of Dis- tributing stock in pursuance of a spin-off, see proposed §58.4501-2(e)(5)(iii)(B) and the discussion in part IX.A of this Expla- nation of Provisions. X. Statutory Exceptions A. Repurchase as part of a reorganization 1. In General Section 4501(e)(1) provides an excep- tion (that is, the reorganization exception) to the application of the stock repurchase excise tax “to the extent that the repur- chase is part of a reorganization (within the meaning of section 368(a)) and no gain or loss is recognized on such repur- chase by the shareholder...by reason of such reorganization.” To facilitate the IRS’s ability to administer and enforce the stock repurchase excise tax, and to enable taxpayers to apply the tax with greater certainty, Notice 2023-2 adopts a consideration-based approach to the reorganization exception. As described in May 13, 2024 1096 Bulletin No. 2024–20 section 3.07(2) of Notice 2023-2, the fair market value of stock repurchased by a covered corporation in transactions listed in that section is a reduction for purposes of computing the covered corporation’s stock repurchase excise tax base, to the extent that the repurchase is in exchange for property permitted by section 354 or 355 to be received without the recog- nition of gain or loss (that is, qualifying property). These transactions consist of a repurchase by: (i) a target corporation as part of an acquisitive reorganization; (ii) a recapitalizing corporation as part of an E reorganization; (iii) a transferor corpo- ration as part of an F reorganization; and (iv) a distributing corporation as part of a split-off (whether or not part of a D reor- ganization). Stakeholders have suggested three general approaches to implement the reor- ganization exception. Under the stake- holders’ first approach, the reorganization exception would apply only if no gain or loss is recognized by a shareholder on a repurchase that occurs as part of a reorga- nization under section 368(a). As a result, if a shareholder receives both qualifying property and non-qualifying property in an actual or deemed redemption that occurs as part of a reorganization, the reorgani- zation exception would not apply to any of the consideration received if the share- holder recognized any built-in gain or loss in the target corporation stock exchanged for that consideration. Under the stakeholders’ second approach, the reorganization excep- tion would exclude an actual or deemed redemption that occurs as part of a reor- ganization under section 368(a) to the extent a shareholder does not recognize gain or loss. At least one stakeholder recommended this approach because the stakeholder found it significant that a tar- get corporation shareholder’s non-taxable receipt of acquiring corporation stock (that is, qualifying property) does not result in the termination or “cashing out” of the tar- get corporation shareholder’s proprietary interest in the target corporation. Another stakeholder provided a vari- ation to this second approach that would incorporate a rebuttable presumption. Under this variation, the reorganization exception would apply to a repurchase solely to the extent that stock of the target corporation is exchanged by target corpo- ration shareholders for qualifying prop- erty. In other words, all shareholders of the target corporation that receive non-qual- ifying property in exchange for target corporation stock would be presumed to recognize gain or loss to the full extent of the non-qualifying property received. The stakeholder recommended allowing a tar- get corporation to rebut this presumption to the extent the target corporation could demonstrate that its shareholders did not recognize gain or loss in the reorganiza- tion. However, the stakeholder found it questionable as a policy matter that, under this variation of the second approach, a target corporation that provides solely non-qualifying property to the target cor- poration shareholders in exchange for tar- get corporation stock would not be treated as repurchasing the target corporation shareholders’ stock if the target corpora- tion rebuts the presumption of gain or loss recognition. Under the stakeholders’ third approach, the reorganization exception would apply to a repurchase solely to the extent that stock of the target corporation is exchanged by target corporation share- holders for qualifying property, regard- less of whether the target corporation shareholder recognizes any gain or loss. One stakeholder recommended this third approach based on the stakeholder’s ratio- nale that shareholder-level gain should not be taken into account for determining whether a repurchase occurred for pur- poses of the stock repurchase excise tax. In addition, the stakeholder contended that any approach that requires computation of each shareholder’s gain or loss would be difficult for the IRS to administer, and for taxpayers to apply with certainty, because the shareholder-level data necessary to determine such gain or loss would be dif- ficult to obtain. The Treasury Department and the IRS continue to be of the view that the third approach recommended by stakeholders would strike the most appropriate balance between implementing the plain language of the reorganization exception and pro- viding a rule that facilitates the ability of the IRS to administer and enforce the stock repurchase excise tax. Under this approach, the touchstone consideration of whether a target corporation shareholder receives qualifying or non-qualifying property in exchange for target corpora- tion stock will enable target corporations to readily determine the extent to which the reorganization exception applies to the exchange. Moreover, the Treasury Depart- ment and the IRS are of the view that only in rare instances would such a shareholder not recognize gain or loss if the share- holder received non-qualifying property in exchange for target corporation stock. Accordingly, the proposed regulations would retain the approach described in Notice 2023-2. See proposed §58.4501- 3(c). 2. Section 355 Transactions That are Not Part of a D Reorganization Stakeholders recommended applying the reorganization exception to split-offs and split-ups without regard to whether the section 355 transaction occurs as part of a D reorganization. According to the stakeholders, Congress intended to con- vey through the reorganization exception that transactions that qualify for non-rec- ognition treatment should not be subject to the stock repurchase excise tax, and that the same treatment should extend to all section 355 transactions—regardless of whether carried out as part of a D reorga- nization. The Treasury Department and the IRS continue to be of the view that the exception in section 4501(e)(1) should apply to split-offs to which section 355 applies without regard to whether such transactions occur as part of a D reorga- nization. See proposed §58.4501-3(c). As previously discussed in part IX.A of this Explanation of Provisions, split-ups are not treated as repurchases. Consequently, the exception in section 4501(e)(1) is not relevant to split-ups. B. Contributions to employer-sponsored retirement plans In general, under section 3.07(3)(a) of Notice 2023-2, the fair market value of stock repurchased by a covered corpora- tion is a reduction for purposes of com- puting 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 Bulletin No. 2024–20 1097 May 13, 2024 repurchased, is contributed to an employ- er-sponsored retirement plan. 1. Timing of Contributions Under Section 4501(e)(2) Section 4501(e)(2) provides that the stock repurchase excise tax does not apply in any case in which the stock repur- chased, or an amount of stock equal to the value of the stock repurchased, is contrib- uted to an employer-sponsored retirement plan, ESOP, or similar plan (stock contri- bution exception). Under section 3.07(3)(d) of Notice 2023-2, a covered corporation may treat stock contributions to an employer-spon- sored retirement plan under the stock con- tribution exception as having been made in the prior taxable year if the stock is con- tributed 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 and on account of that taxable year within the meaning of section 404(a)(6) of the Code. The rule described in section 3.07(3)(d) of Notice 2023-2 also provides stock contributions that are treated as hav- ing been contributed in the taxable year to which the Form 720 applies may not be treated as having been contributed for any other taxable year. One stakeholder indicated that the ref- erence to the stock contribution being “on account of” the taxable year within the meaning of section 404(a)(6) raises ques- tions about the timing of the offset for the stock repurchase excise tax and the income tax deduction under section 404(a). Spe- cifically, the stakeholder requested clarifi- cation as to whether a covered corporation is required to deduct a stock contribution to a plan under section 404(a) in the same taxable year for which the contribution is taken into account for purposes of the stock contribution exception. The Treasury Department and the IRS are of the view that a stock contribu- tion is not required to be treated as “on account of” the preceding taxable year within the meaning of section 404(a)(6). Thus, for example, a covered corpora- tion may claim the income tax deduction in the taxable year in which the stock is contributed to the employer-sponsored retirement plan but claim an offset for the stock contribution to the plan for pur- poses of the stock repurchase excise tax in the preceding taxable year (provided that the rules in these proposed regula- tions are satisfied). Accordingly, these proposed regula- tions would provide that, for purposes of the reduction in the stock repurchase excise tax base, a covered corporation may treat stock contributions to an employer-spon- sored retirement plan made after the close of the covered corporation’s taxable year as having been contributed during that taxable year if two conditions are satisfied. First, the stock must be contributed to the employer-sponsored retirement plan by the filing deadline for the form on which the stock repurchase excise tax must be reported that is due for the first full quar- ter after the close of the taxpayer’s taxable year. Second, the stock must be treated by the employer-sponsored retirement plan in the same manner that the plan would treat a contribution received on the last day of the preceding taxable year. See proposed §58.4501-3(d)(4)(ii). 2. Definition of “Employer-Sponsored Retirement Plan” For purposes of Notice 2023-2, the term “employer-sponsored retirement plan” means a retirement plan maintained by a covered corporation that is qualified under section 401(a) of the Code, including an ESOP (as defined in section 4975(e)(7) of the Code). See section 3.02(12) of Notice 2023-2. In section 6.01(4) of Notice 2023- 2, the Treasury Department and the IRS requested comments regarding whether the definition of an “employer-spon- sored retirement plan” should include plans other than plans that are qualified under section 401(a). In response, one stakeholder recommended expanding this definition to include foreign-based plans and plans funded through a secular trust. The stakeholder reasoned that the statutory language of section 4501(e)(2), along with the underlying policy consider- ations, support expanding the definition to these types of plans. However, the stake- holder did not specify which types of for- eign-based plans or plans funded through a secular trust should be included in the definition of an “employer-sponsored retirement plan.” The Treasury Department and the IRS are of the view that certain broad-based foreign plans that are funded through a secular trust or another type of funded arrangement may be considered “similar plans,” and thus may be included in the definition of an “employer-sponsored retirement plan” for purposes of the stock contribution exception. However, the Treasury Department and the IRS have not yet determined which types of broad- based foreign plans should be included in this definition. Accordingly, the Treasury Department and the IRS request comments regarding the types of foreign-based plans that should be included in the definition of an “employer-sponsored retirement plan.” Another stakeholder expressed con- cern that the stock contribution exception could be used to encourage excessive executive compensation and requested that the definition of “similar plan” be defined to specifically exclude executive compensation arrangements. The Trea- sury Department and the IRS agree that the stock contribution exception should not be used to encourage executive com- pensation arrangements. The definition of an “employer-sponsored retirement plan” described in Notice 2023-2 is limited to plans that are qualified under section 401(a) (including ESOPs). The Treasury Department and IRS are of the view that this definition is sufficient to exclude executive compensation arrangements from the stock contribution exception. Thus, these proposed regulations similarly would limit the definition of “employ- er-sponsored retirement plan” to plans that are qualified under section 401(a). However, these proposed regulations would expand the definition of “employ- er-sponsored retirement plan” described in Notice 2023-2 to include qualified plans under section 401(a) that are maintained by specified affiliates of covered corpora- tions. Section 3.02(12) of Notice 2023-2 defined “employer-sponsored retirement plan” with regard to qualified plans main- tained by covered corporations. These proposed regulations would provide that the definition of “employer-sponsored retirement plan” includes not only quali- fied plans maintained by covered corpora- tions, but also qualified plans maintained by a specified affiliate of a covered corpo- ration. See proposed §58.4501-1(b)(11). May 13, 2024 1098 Bulletin No. 2024–20 3. Valuation of Stock Contributions As noted previously, the stock contri- bution exception in section 4501(e)(2) provides that the stock repurchase excise tax will not apply in any case in which (i) the stock repurchased (first clause), or (ii) an amount of stock equal to the value of the stock repurchased (second clause), is contributed to an employer-sponsored retirement plan, ESOP, or similar plan. Section 3.07(3)(c)(i) of Notice 2023-2 addressed the first clause by providing that, 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 the stock contribution exception is equal to the aggregate fair market value of the stock repurchased during the taxable year, divided by the number of shares repur- chased, and multiplied by the number of shares contributed. However, the amount of the reduction may not exceed the aggre- gate fair market value of stock of the same class repurchased during the taxable year. Section 3.07(3)(c)(ii) of Notice 2023-2 addressed the second clause by providing that, 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 the stock contribution exception is equal to the fair market value of the stock at the time the stock is contributed to the employer-spon- sored retirement plan. However, the amount of the reduction may not exceed the aggregate fair market value of stock of a different class repurchased during the taxable year. One stakeholder requested that the value of stock for purposes of the stock contribution exception be based on the greater of the value at the time of repur- chase or at the time of contribution to an employer-sponsored retirement plan. The stakeholder stated that the word “or” between the first clause and the sec- ond clause offers statutory support for allowing covered corporations to choose between using the first clause or the sec- ond clause for any given year. The Treasury Department and the IRS disagree with the stakeholder. With regard to the first clause, the focus of the language is on the stock repurchased. Because the stock repurchase excise tax does not apply to the repurchase of the stock that is con- tributed, the amount of the offset is the fair market value of the shares of stock at the time of the repurchase. Any change in value after the date of repurchase is irrelevant for purposes of determining the amount of the repurchase under section 4501(a) and, thus, the offset amount under the stock contribution exception. Moreover, if covered corporations contribute stock of a different class than the stock repurchased, the contribution will not reflect a contribution of the stock repurchased. For this reason, it is inconsis- tent with the statutory language of section 4501(e)(2) to allow covered corporations to apply the first clause if contributing a different class of stock to an employ- er-sponsored retirement plan. With regard to the second clause, because the statutory language focuses on an amount of stock equal to the value of the stock repurchased, and not on the shares of stock themselves, the value of the offset amount is determined by the value of the stock contributed to the retire- ment plan, instead of the value of the stock at the time of the repurchase. Accordingly, these proposed regu- lations would incorporate the valuation provisions described in section 3.07(3) (c) of Notice 2023-2, including the rule that the reduction cannot exceed the aggregate fair market value of the stock repurchased. Additionally, these proposed regulations would add language to coor- dinate the application of the stock contri- bution exception with the application of other statutory exceptions. See proposed §58.4501-3(d)(3). 4. Special Rule for Leveraged ESOPs As defined in section 4975(e)(7), an ESOP is a type of defined contribution plan that is qualified under section 401(a) and is designed to invest primarily in qualifying employer securities (within the meaning of section 409(l) of the Code). An ESOP also must meet other applicable requirements described in section 409. An ESOP may be leveraged or non-leveraged. Leveraged ESOPs use the proceeds of an exempt loan (as defined in section 4975(d)(3)) from the sponsor- ing employer or another party (typically with the employer’s guarantee) to pur- chase qualifying employer securities from the sponsoring employer or shareholders or on a securities market. The purchased securities are held in a suspense account (within the trust that forms a part of the plan) as collateral for the loan. The spon- soring employer makes cash contributions to the ESOP, which in turn uses the cash to make loan repayments. Dividends paid on shares held as collateral in the ESOP loan suspense account and on shares allocated to participants’ accounts also may be used to repay an exempt loan. As loan repay- ments are made, securities are released from the suspense account and allocated to ESOP participants’ accounts in accor- dance with the terms of the plan, which must comply with plan qualification and fiduciary requirements. Non-leveraged ESOPs do not have a loan and, thus, do not have a suspense account that releases securities to ESOP participants’ accounts as contributions of cash are used to repay a loan. Rather, employers contribute employer securities directly to the non-leveraged ESOP, and the contributed shares are allocated to ESOP participants’ accounts as of the plan year to which the contribution applies. Employer contributions to a non-lever- aged ESOP fit squarely within the stock contribution exception because employer contributions to a non-leveraged ESOP are made in shares of stock. Although employer contributions of cash to a lev- eraged ESOP are not described in section 4501(e)(2), such contributions result in the allocation of shares of stock from a suspense account to ESOP participants’ accounts. In other words, contributions of stock to a non-leveraged ESOP and contri- butions of cash to a leveraged ESOP that is used to repay an exempt loan produce a comparable result—namely, the allo- cation of employer stock to participants’ accounts. Accordingly, the Treasury Department and the IRS are of the view that leveraged ESOPs and non-leveraged ESOPs should be treated similarly for pur- poses of the stock contribution exception. Thus, these proposed regulations would provide that, if a covered cor- poration maintains a leveraged ESOP, stock that is released from a suspense account (as a result of cash contribu- tions by the employer maintaining the Bulletin No. 2024–20 1099 May 13, 2024 plan) and allocated to ESOP partici- pants’ accounts is treated as a stock contribution for purposes of the stock contribution exception as of the date stock attributable to repayment of the exempt loan is released from the sus- pense account and allocated to partici- pants’ accounts. Because dividends on employer stock held in the ESOP and used to repay an exempt loan are not employer contributions, stock released from the suspense account that is attrib- utable to repayment of the loan with dividends would not be treated as a stock contribution for purposes of the stock contribution exception. See pro- posed §58.4501-3(d)(1)(ii). C. De minimis exception Section 4501(e)(3) provides an excep- tion (that is, the de minimis exception) to the application of the stock repurchase excise tax with regard to a taxable year “in any case in which the total value of the stock repurchased during the tax- able year does not exceed $1,000,000.” See section 4501(e)(3); see also section 3.03(2)(a) of Notice 2023-2. Under sec- tion 3.03(2)(b) of Notice 2023-2, the determination of whether the de minimis exception applies with regard to a taxable year is made before applying any other statutory exception or any adjustments under the netting rule. As discussed in part XIV.A.3 of this Explanation of Pro- visions, the Treasury Department and the IRS are of the view that applying the de minimis exception before the other stat- utory exceptions is consistent with the statutory language and structure of sec- tion 4501. The proposed regulations would retain the approach described in Notice 2023-2. See proposed §58.4501-2(c)(3). Addition- ally, for the same rationale underlying the approach described in Notice 2023-2, the proposed regulations would clarify that repurchases prior to January 1, 2023, are not taken into account for purposes of the stock repurchase excise tax (including for purposes of applying the de minimis exception). See proposed §58.4501-2(c) (4); see also part I.A of this Explanation of Provisions (discussion of repurchases by a fiscal-year taxpayer prior to the effec- tive date). D. Repurchases by dealers in securities Section 4501(e)(4) provides an excep- tion to the application of the stock repur- chase excise tax “under regulations pre- scribed by the Secretary, in cases in which the repurchase is by a dealer in securities in the ordinary course of business.” Pur- suant to the authority granted in section 4501(e)(4), section 3.07(4) of Notice 2023-2 describes an exception to the application of the stock repurchase excise tax for certain repurchases by a dealer in securities in the ordinary course of the dealer’s business of dealing in securities. More specifically, section 3.07(4)(a) of Notice 2023-2 describes, in part, that the fair market value of stock repurchased by a covered corporation that is a dealer in securities (within the meaning of section 475(c)(1) of the Code) is a reduction for purposes of computing the covered corpo- ration’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. However, under section 3.07(4)(b) of Notice 2023-2, this reduction applies solely to the extent that: (i) the dealer accounts for the stock as securities held primarily for sale to cus- tomers in the dealer’s ordinary course of business; (ii) the dealer disposes of the stock within a period of time that is con- sistent 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 does not sell or otherwise transfer the stock to certain specified persons other than in a sale or transfer to a dealer that also satis- fies the requirements of section 3.07(4) of Notice 2023-2. No feedback was received on this exception in Notice 2023-2. The proposed regulations would retain the approach described in Notice 2023-2. See proposed §58.4501-3(e). E. Repurchases by RICs and REITs Section 4501(e)(5) provides an excep- tion to the application of the stock repur- chase excise tax for “repurchases by a regulated investment company (as defined in section 851) or a real estate investment trust.” Under section 3.07(5) of Notice 2023-2, a repurchase by a covered corpo- ration that is a RIC or a REIT is a reduc- tion for purposes of computing the cov- ered corporation’s stock repurchase excise tax base. The proposed regulations would retain the approach described in Notice 2023-2. A stakeholder recommended that the exception for RICs be extended to all funds registered under the Investment Company Act of 1940, even if those funds do not qualify as RICs for tax purposes. The stakeholder suggested that the organi- zational structure, operations, applicable securities laws, and accounting standards are the same for those funds as for funds that are RICs for tax purposes. The Treasury Department and the IRS disagree with the stakeholder’s recom- mendation. Section 4501(e)(5) provides a specific and limited exception for RICs as defined in section 851, and nothing in the statutory language of section 4501 suggests that entities that do not qualify as RICs are intended to be exempt from the stock repurchase excise tax. Accordingly, the proposed regulations would not adopt this recommendation. F. Dividend exception Section 4501(e)(6) provides an excep- tion (dividend exception) to the applica- tion of the stock repurchase excise tax “to the extent that the repurchase is treated as a dividend for purposes of [the Code].” To implement section 4501(e)(6), the rule described in section 3.07(6)(a) of Notice 2023-2 generally provides that the fair market value of stock repurchased by a covered corporation is a reduction for purposes of computing the covered corpo- ration’s stock repurchase excise tax base to the extent the repurchase is treated as a distribution of a dividend under sec- tion 301(c)(1) or 356(a)(2). Under the notice, there is a rebuttable presumption that a repurchase to which section 302 or 356(a) applies is subject to section 302(a) or 356(a)(1), respectively (and, therefore, is ineligible for the foregoing exception). See section 3.07(6)(b)(i) of Notice 2023- 2. A covered corporation may rebut this presumption with regard to a specific shareholder solely by establishing with May 13, 2024 1100 Bulletin No. 2024–20 sufficient evidence that the shareholder treats the repurchase as a dividend on the shareholder’s Federal income tax return. See section 3.07(6)(b)(ii) of Notice 2023- 2. 1. Substantiation for Dividend Exception Stakeholders provided several recom- mendations regarding substantiation for the dividend exception in section 4501(e) (6). a. Reliance on filings with the U.S. Securities and Exchange Commission One stakeholder requested guidance as to how corporations should apply the constructive ownership rules of section 318(a) of the Code in determining the extent to which redemptions are treated as in part or full payment in exchange for stock under section 302(a) or as distribu- tions to which section 301 applies. The stakeholder recommended that such guid- ance: (i) should permit corporations to rely on filings with the U.S. Securities and Exchange Commission (SEC) and similar filings to determine ownership (as in the case of determining whether an ownership change has occurred for purposes of sec- tion 382 of the Code (see §1.382-2T(k) (1)(i))); (ii) should clarify the requisite level of due diligence to determine the constructive ownership of any sharehold- ers not required to report their ownership in SEC filings; and (iii) should address whether any safe harbors or presumptions are available. The Treasury Department and the IRS are of the view that the rebuttable pre- sumption approach described in Notice 2023-2 would provide a more accurate determination of whether a covered corpo- ration qualifies for the dividend exception. In addition, the Treasury Department and the IRS are of the view that the rebuttable presumption approach would better facil- itate the IRS’s ability to administer and enforce the stock repurchase excise tax and enable taxpayers to apply the tax with greater certainty. Therefore, the proposed regulations would not permit covered cor- porations to rely on filings with the SEC and similar filings to determine the extent to which redemptions may be treated as qualifying for the dividend exception. b. Rebuttable presumption and substantiation requirements Another stakeholder contended that a covered corporation generally would not have access to information to deter- mine with certainty whether a section 317(b) redemption should be treated as a dividend with respect to a particular shareholder. For support, the stakeholder asserted that a covered corporation may not possess information specifying the identity of its shareholders, which com- plicates the ability of the covered corpo- ration to determine whether a repurchase is properly treated as a sale or exchange under section 302(a) or as a section 301 distribution under section 302(d) (which depends on shareholder-specific facts). As a result, the stakeholder recommended a safe harbor under which the dividend exception would apply if the covered cor- poration: (i) provides information report- ing to the redeemed shareholder providing that the repurchase constitutes a dividend; (ii) obtains certification from the share- holder that the repurchase constitutes a section 302(d) redemption; (iii) has no knowledge of facts that would indicate that the certification is incorrect; and (iv) demonstrates that the corporation has suf- ficient earnings and profits (E&P) to treat the deemed section 301 distribution as a dividend. As reflected in section 3.07(6) of Notice 2023-2, the Treasury Department and the IRS are of the view that repur- chases should be presumed not to be div- idend-equivalent (that is, the dividend exception is presumed to be inapplicable), but that taxpayers should be permitted to rebut this presumption by providing sufficient evidence. The substantiation requirements described in section 3.07(6) (b)(iii) of Notice 2023-2 are substantially similar to the stakeholder’s recommended safe harbor, with the additional require- ment that the shareholder must provide evidence that applicable withholding occurred, if required. Coupled with the shareholder certifi- cation requirement, the Treasury Depart- ment and the IRS provided the informa- tion reporting requirement to ensure that covered corporations and their share- holders treat repurchases consistently for purposes of the dividend exception. However, it is the understanding of the Treasury Department and the IRS that publicly traded stock typically is held by shareholders through a broker, and the broker (rather than the issuer of the stock) provides any information report- ing to the shareholder. Under current law, brokers are not required to inform the issuer of the stock what information reporting the brokers have provided to shareholders, and the Treasury Depart- ment and the IRS understand that bro- kers generally do not provide such information to issuers. Consequently, in such cases, there is no assurance that the information reporting provided to the shareholder would be consistent with the covered corporation’s treat- ment of a repurchase. Therefore, the proposed regulations would replace the information reporting requirement with a requirement that the covered corpora- tion treat the repurchase consistent with the shareholder certification. c. Coordination with withholding tax rules In section 6.01(7) of Notice 2023- 2, the Treasury Department and the IRS requested comments on whether there should be modifications to the method described in section 3.07(6) of Notice 2023-2, or whether additional methods to rebut the presumption should be permit- ted. In response, one stakeholder observed that, although Notice 2023-2 includes a rebuttable presumption that a share repur- chase by a covered corporation constitutes a sale or exchange, the withholding tax rules generally presume that such share repurchases from foreign persons are dividends subject to withholding tax. See §1.1441-3(c)(1). In the absence of coor- dination, the stakeholder contended that each of these presumptions might apply to the same transaction, and therefore would require (i) the repurchasing corpo- ration to pay the stock repurchase excise tax as if the payment gave rise to a sale or exchange, and (ii) a withholding agent to withhold as if the payment gave rise to a dividend. Accordingly, the stakeholder requested that the proposed regulations provide rules to coordinate these differing presumptions. Bulletin No. 2024–20 1101 May 13, 2024 The Treasury Department and the IRS are of the view that no special rules are needed to coordinate the foregoing pre- sumptions, particularly because these presumptions serve different purposes. In addition, if the proposed regulations were to provide rules to coordinate these presumptions, then the following would result: (i) covered corporations making repurchases would not have any stock repurchase excise tax liability (if the pre- sumption were that all repurchases are dividends); or (ii) corporations making section 302 distributions to foreign per- sons would not have any withholding tax liability (if the presumption were that all repurchases are sales or exchanges). However, the proposed regulations would include rules to coordinate the pro- posed shareholder certification require- ments under the dividend exception with the proposed section 302 payment cer- tification requirements under proposed §1.1441-3(c)(5)(iii)(D). See proposed §58.4501-3(g)(3). d. Certification from foreign shareholders Another stakeholder contended that the requirement that U.S. companies obtain certification from a foreign shareholder who does not file a U.S. tax return, and who does not otherwise have a U.S. tax con- nection, is excessively burdensome. The stakeholder recommended replacing the certification requirement with the require- ment that a U.S. company provide a Form 1042-S showing payment of a dividend. The Treasury Department and the IRS are of the view that reliance solely on the Form 1042-S is not an appropriate replacement for the shareholder certification require- ment, because the Form 1042-S is based on the presumption that share repurchases are dividends subject to withholding tax. Conse- quently, reliance solely on the Form 1042-S for purposes of substantiating the dividend exception could overstate the amount of repurchases that qualify for this excep- tion. Accordingly, the proposed regulations would not adopt this recommendation. 2. Substantiation of Dividend Exception for E Reorganizations As discussed in part VIII.D of this Explanation of Provisions, the proposed regulations would provide that a covered corporation’s acquisition of its stock as part of an E reorganization would con- stitute a repurchase, subject to the reor- ganization exception. Stakeholders have asked whether a covered corporation may establish its eligibility for the divi- dend exception by demonstrating that (i) §1.301-1(j) applies to the non-qualifying property in the transaction, and (ii) the corporation has sufficient E&P for divi- dend treatment. Section 1.301-1(j) provides, in relevant part, that a distribution to shareholders with respect to their stock is a section 301 distribution, even if the distribution occurs at the same time as another transaction, if the distribution is in substance a separate transaction (whether or not connected in a formal sense). Section 1.301-1(j) further provides that this situation is most likely to occur in the case of a recapitalization and certain other corporate reorganizations. For example, if a corporation with only common stock outstanding exchanges one share of newly issued common stock and one bond for each share of outstand- ing common stock, the distribution of the bond is a distribution of property (to the extent of its fair market value) to which section 301 applies even if the stock-for- stock exchange is pursuant to an E reor- ganization. Notice 2023-2 does not expressly address the interaction of §1.301-1(j) and the dividend exception. However, the presumption that a repurchase by a covered corporation constitutes a sale or exchange applies only to a repur- chase to which section 302 or 356(a) applies. See section 3.07(6)(b)(i) of Notice 2023-2. The Treasury Department and the IRS are of the view that no special rules are needed in response to the stakeholders’ query. In other words, because a distri- bution of non-qualifying property that is treated as a section 301 distribution pursu- ant to §1.301-1(j) is not subject to section 302 or 356(a), the Treasury Department and the IRS are of the view that such a distribution should qualify for the divi- dend exception (if the covered corpora- tion has sufficient E&P) without the need for the covered corporation to rebut the presumption that the repurchase is a sale or exchange. The proposed regulations would reflect this position. See proposed §58.4501-3(g)(2). 3. Dividend Exception and Partial Liquidation Look-Through Rule A stakeholder requested that the pro- posed regulations provide the manner in which covered corporations should apply the look-through rule of section 302(e)(5) in determining the extent to which redemptions in partial liquidation are made to corporate shareholders (and, therefore, are potentially eligible for the dividend exception). Under section 302(b) (4), a redemption in partial liquidation to noncorporate shareholders is treated as a sale or exchange rather than as a section 301 distribution. However, section 302(b) (4) does not apply to shareholders that are not corporations. As a result, such share- holders potentially are eligible for exclu- sion under the dividend exception. Section 302(e)(5) provides that, for purposes of determining under section 302(b)(4) whether any stock is held by a shareholder that is not a corporation, any stock held by a partnership, estate, or trust is treated as if it were held proportion- ately by its partners or beneficiaries. For purposes of applying this rule, the stake- holder recommended that the proposed regulations permit covered corporations to rely on SEC filings and similar filings. For support, the stakeholder contended that covered corporations generally cannot ascertain the identity of their sharehold- ers unless the shareholders are required to disclose their ownership under applicable securities law. For the reasons previously discussed in part X.F.1 of this Explanation of Pro- visions, the Treasury Department and the IRS are of the view that corporations should not be permitted to rely solely on SEC filings or similar filings for purposes of determining whether the dividend exception in section 4501(e)(6) applies. Accordingly, the proposed regulations would not adopt this recommendation. Instead, the proposed regulations would provide that covered corporations must obtain certifications from their sharehold- ers, which must take section 302(e)(5) into account for purposes of making the certification. See proposed §58.4501-3(g) (2)(ii). May 13, 2024 1102 Bulletin No. 2024–20 XI. Netting Rule A. Overview Section 4501(c)(3) allows an adjust- ment for stock issued by a covered corpo- ration, including stock issued or provided to employees of a covered corporation or its specified affiliate. Section 3.08 of Notice 2023-2 describes rules regarding the adjustment under section 4501(c)(3) (that is, the netting rule). In general, under section 3.08(1) of Notice 2023-2, 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 (i) issued or provided to employees of the covered corporation or employees of a specified affiliate during the covered corporation’s taxable year, and (ii) issued by the covered corporation to other persons during the covered corporation’s taxable year. For these purposes, 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(2) of Notice 2023-2. Section 3.08(3) of Notice 2023-2 describes additional rules regarding stock issued or provided to an employee of a covered corporation or specified affiliate as compensation for services performed as an employee. Such arrangements include transfers of stock in connection with the performance of services described in sec- tion 83, including pursuant to a nonqual- ified stock option, or pursuant to a stock option described in section 421 of the Code. B. Treasury stock A stakeholder requested confirma- tion that the transfer of treasury stock is treated as an issuance for purposes of the netting rule to the same extent as the transfer of newly issued stock. The stake- holder contended that treasury stock gen- erally is treated in the same manner as the issuance of new stock for Federal income tax purposes, and that there is no counter- vailing policy reason for treating treasury stock differently than newly issued stock for purposes of the netting rule. Notice 2023-2 does not expressly address the treatment of treasury stock because the Treasury Department and the IRS are of the view that treasury stock constitutes stock for Federal income tax purposes. The Treasury Department and the IRS continue to be of the view that treasury stock constitutes stock for Federal income tax purposes. For the avoidance of doubt, the proposed regulations would provide explicitly that transfers of treasury stock (within the meaning of section 317(b)) are taken into account for purposes of the netting rule to the same extent as trans- fers of newly issued stock. See proposed §58.4501-1(b)(29). C. Transactions not treated as issuances for purposes of the netting rule Under section 3.08(4) of Notice 2023- 2, the following stock is not treated as issued for purposes of the netting rule: (i) stock of a covered corporation dis- tributed by the covered corporation to its shareholders with respect to its stock; (ii) stock issued by a covered corporation to a specified affiliate of the covered cor- poration; (iii) stock treated as issued by the acquiring corporation by reason of the application of section 304(a)(1) to a transaction; (iv) certain fractional shares (see the discussion in part XIV.B of this Explanation of Provisions); (v) stock issued by a covered corporation that is a dealer in securities (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); and (vi) stock issued by the target corporation to the merged corporation in exchange for con- sideration that includes the stock of the controlling corporation in a reverse tri- angular merger. See sections 3.08(4)(b), (c), (e), (f), (g), and (h), respectively, of Notice 2023-2. Additionally, under section 3.08(4)(d) of Notice 2023-2, stock issued as part of a transaction qualifying as a reorganiza- tion under section 368(a) or a distribution under section 355 is not treated as issued by the issuing corporation if (i) the stock constitutes qualifying property, (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 Notice 2023-2 (see the discussion in parts VIII.A, D, and E and IX of this Explanation of Provisions), 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 (within the meaning of section 3.07(2) of Notice 2023-2). Under section 3.07(3)(e) of Notice 2023-2, stock contributions to an employ- er-sponsored retirement plan under the stock contribution exception are not treated as issued or provided to employees of the covered corporation or a specified affiliate under the netting rule. 1. Issuances to Specified Affiliates Stakeholders generally recommended that issuances of stock to a specified affil- iate should not be taken into account for purposes of the netting rule, for several reasons. First, respecting such issuances might lead to double counting if the stock is treated as “issued” to a specified affil- iate and subsequently “provided” to that specified affiliate’s employees. See sec- tion 4501(c)(3). Second, because section 4501(c)(2) treats the acquisition of stock of a covered corporation by a specified affiliate (from a person who is not the covered corporation or a specified affiliate of such covered corporation) as a repur- chase of stock of the covered corporation, allowing such a repurchase to be offset by acquisitions of the covered corpora- tion’s stock by the specified affiliate from the covered corporation itself would be incongruous. Third, issuances of stock to a specified affiliate do not promote what the stakeholder considered to be the con- gressional policies underlying section 4501 (for example, promoting investment in productive capital or labor). Under section 3.08(4)(c) of Notice 2023-2, stock issued by a covered corpo- ration to a specified affiliate is not treated as issued. Stakeholders found this excep- tion to the netting rule to be sensible inso- far as it prevents covered corporations from eroding their stock repurchase excise tax base by creating “hook stock” (that is, issuing corporation stock held by an entity that is owned, directly or indirectly, by the issuing corporation). Bulletin No. 2024–20 1103 May 13, 2024 However, stakeholders also suggested that the scope of this exception is over- broad. Under a strict reading, this excep- tion would permanently prevent the issued stock from being taken into account under the netting rule (for example, if provided to an employee of the specified affiliate), because any subsequent transfer by the specified affiliate would not technically constitute an “issuance.” Stakeholders recommended that issuances of stock by a covered corporation to its specified affil- iate be disregarded only to the extent the covered corporation stock is not subse- quently transferred to a party other than the covered corporation or another spec- ified affiliate. The Treasury Department and the IRS agree with the stakeholders. Accordingly, the proposed regulations would clarify that stock issued by a covered corporation to a specified affiliate is treated as issued for purposes of the netting rule if and when that stock is transferred by the specified affiliate during the same taxable year to a person who is not the covered corporation or a specified affiliate of that corporation, so long as (1) the covered corporation does not otherwise reduce its stock repur- chase excise tax base for the issuing year with respect to the stock, and (2) the sub- sequent transfer by the specified affiliate is not in connection with the performance of services provided to the specified affil- iate. See proposed §58.4501-4(f)(2). The first requirement is intended to ensure that the stock is not double counted if, for example, the stock is “issued” to the spec- ified affiliate and subsequently “provided” to the specified affiliate’s employees. The second requirement is intended to ensure that stock transferred to a non-employee service provider of a specified affiliate would not qualify under this rule. See part XI.G of this Explanation of Provisions (explaining the interpretation in the pro- posed regulations of section 4501(c)(3)’s “issued or provided” language). Unless specifically identified, the shares of stock of the covered corporation treated as sub- sequently transferred by the specified affiliate are the earliest shares issued by the covered corporation to the specified affiliate. See proposed §58.4501-4(f)(2) (iii). Under the proposed regulations, stock issued by a covered corporation in connec- tion with the performance of services for a specified affiliate would not be treated as “issued” for purposes of the netting rule. However, a transfer of stock of a covered corporation described in §1.83-6(d) by a specified affiliate to an employee (but not a non-employee service provider) of the specified affiliate would be treated as “provided” by the specified affiliate. See proposed §58.4501-4(f)(2)(iv). Thus, under the proposed regulations, stock issued by a covered corporation to its specified affiliate (or stock that is treated as so issued under §1.83-6(d)) would be counted for purposes of the netting rule under two different provisions depending on whether the subsequent transfer by the specified affiliate is in connection with the performance of services. First, if the subsequent transfer is not in connection with the performance of services, then the stock transferred would be counted as stock “issued” by the covered corpora- tion if and when the stock is transferred, during the same taxable year as the orig- inal issuance, to a person who is not the covered corporation or a specified affiliate of the corporation. Second, if the subse- quent transfer (or deemed transfer under §1.83-6(d)) is in connection with the per- formance of services, then the stock trans- ferred would be counted as stock “pro- vided” by the specified affiliate, but only if the stock is transferred to an employee of the specified affiliate. Stock transferred to a non-employee service provider of a specified affiliate would not be counted for purposes of the netting rule. See part XI.G.2 of this Explanation of Provisions. 2. Issuances in Acquisitive Reorganizations and Split-Offs (No Double Benefit Rule) The Treasury Department and the IRS are of the view that stock issued by the acquiring corporation to the target corpo- ration as part of an acquisitive reorganiza- tion should not be treated as an issuance for purposes of the netting rule. See sec- tion 3.08(4)(d) of Notice 2023-2. It is the position of the Treasury Department and the IRS that allowing such an issuance to be taken into account for purposes of the netting rule would create a “double ben- efit” (that is, two reductions to the stock repurchase excise tax base with respect to the same stock). In other words, (i) one reduction would be provided to the tar- get corporation under the reorganization exception (see section 3.07(2) of Notice 2023-2) for the use of acquiring corpora- tion stock to repurchase target corporation stock, and (ii) a second reduction would be provided to the acquiring corporation for the issuance of that acquiring corpora- tion stock under the netting rule. The Trea- sury Department and the IRS observe that the identical concern arises with regard to stock issued by Controlled to Distributing in a D reorganization occurring as part of a split-off under section 355. One stakeholder asserted that, if the proposed regulations adopt the stake- holders’ recommendation to exclude acquisitive reorganizations from the stock repurchase excise tax, no “double benefit” would occur because the issuance of qual- ifying property by the acquiring corpora- tion would not be offset against the target corporation’s stock repurchase excise tax base. However, the proposed regulations would not adopt the recommendation to exclude acquisitive reorganizations from the stock repurchase excise tax. See part VIII.A.2 of this Explanation of Provisions. Based on the foregoing, the proposed regulations would provide that stock issued as part of a transaction qualifying as a reorganization under section 368(a) or as a distribution under section 355 is disregarded for purposes of the netting rule if (i) the stock constitutes qualifying property, (ii) the stock is used by a cov- ered corporation to repurchase its stock in a transaction qualifying as a reorgani- zation under section 368(a) or a split-off under section 355 (whether or not the split-off is part of a D reorganization), and (iii) that repurchase is not included in that corporation’s stock repurchase excise tax base because the repurchase is a quali- fying property repurchase. See proposed §58.4501-4(f)(3). 3. Issuances in Spin-Offs and Split-Ups A stakeholder also recommended that issuances by Controlled to Distributing in a D reorganization occurring as part of a section 355 distribution should not be treated as issuances for purposes of the netting rule if the section 355 distribution is either a split-off or a spin-off. The stake- May 13, 2024 1104 Bulletin No. 2024–20 holder noted that, under Notice 2023-2, the no double benefit rule does not disregard the Controlled stock issued to Distributing in a D reorganization occurring as part of a spin-off because, unlike in a split-off, Dis- tributing does not use the Controlled stock to repurchase its own stock. However, the stakeholder found no policy justification for the disparate treatment of spin-offs and split-offs that qualify under section 355 with respect to the netting rule. The stakeholder also questioned the propriety of allowing a recently distributed Con- trolled to begin its life as a covered cor- poration with a positive “reserve” of issu- ances equal to its net value for purposes of the netting rule. The Treasury Department and the IRS agree with the stakeholder and are of the view that Controlled stock issued to Distributing in a section 355 transaction should be disregarded for purposes of the netting rule. Thus, the proposed regula- tions would provide that any stock issued by Controlled in a distribution qualifying under section 355 (or so much of section 356 as relates to section 355) is not treated as an issuance for purposes of the netting rule. See proposed §58.4501-4(f)(9). 4. Section 305 Distributions Under section 3.08(4)(b) of Notice 2023-2, stock of a covered corporation distributed by the covered corporation to its shareholders with respect to its stock is not treated as issued for purposes of the netting rule. Several stakeholders recom- mended that stock issued by a covered corporation in a distribution to which sec- tion 305(a) of the Code applies (for exam- ple, a pro rata stock distribution) should not be taken into account for purposes of the netting rule. These stakeholders rea- soned that, if their recommendation were not adopted, a covered corporation could avoid the stock repurchase excise tax by engaging in transactions that create share issuances for the netting rule but have no meaningful dilutive effect on the covered corporation’s equity capital. In support of this recommendation, one stakeholder analogized a section 305(a) distribution to a circular flow of cash (that is, the distribu- tion of cash by a corporation to its share- holders, followed by the reinvestment of all the distributed cash in the corporation) that is disregarded for Federal income tax purposes. The stakeholder contended that such a transaction should not be treated as creating a stock issuance for purposes of the netting rule. With regard to distributions by a cov- ered corporation that are described in sec- tion 305(b), stakeholders recommended that issuances of stock by the covered cor- poration should be taken into account for purposes of the netting rule if the receipt of that stock is taxable to the shareholder under section 305(b). As one example, stakeholders suggested that such distribu- tions should be treated as share issuances for purposes of the netting rule if any dis- tributee shareholder can elect to be paid either in stock or in property under sec- tion 305(b)(1). The stakeholders asserted that the ability of distributee shareholders to elect to receive stock or cash (or other property) in a section 305(b)(1) distribu- tion should be viewed as economically equivalent to (i) the distribution of cash or other property to the distributee share- holders, followed by (ii) the use of that cash or other property by some distributee shareholders to purchase stock from the covered corporation. According to the stakeholders, the use of cash or other property by some dis- tributee shareholders to purchase stock from the covered corporation in a section 305(b)(1) distribution presumably would be treated as an issuance for purposes of the netting rule. Therefore, the stakehold- ers concluded that stock issued in a sec- tion 305(b)(1) distribution should not be disregarded solely because the covered corporation does not receive money or services in exchange for that stock. As reflected in section 3.08(4)(b) of Notice 2023-2, the Treasury Department and the IRS are of the view that distribu- tions by a covered corporation of its own stock should not be taken into account for purposes of the netting rule, regardless of whether the distributions are taxable to the covered corporation’s shareholders under section 305(b). Although the recipients of stock distributions under section 305(a) and (b) are subject to different Federal income tax consequences, the Treasury Department and the IRS are of the view that this distinction should not affect the application of the stock repurchase excise tax because the statutory language of sec- tion 4501(c)(3) does not focus on treat- ment of shareholders. Therefore, the Trea- sury Department and IRS are of the view that disparate treatment should not be pro- vided under the netting rule for different types of section 305 distributions. For the foregoing reasons, and to facil- itate the ability for the IRS to administer and enforce the stock repurchase excise tax, the proposed regulations would not accept the stakeholders’ recommendation. Instead, distributions by a covered corpo- ration of its own stock would not be taken into account for purposes of the netting rule. See proposed §58.4501-4(f)(1). 5. Stock-for-Stock Exchanges A stakeholder recommended that stock issued in an E reorganization should not be treated as an issuance for purposes of the netting rule. For support, the stakeholder contended that the proposed regulations should preclude covered corporations from avoiding the stock repurchase excise tax by engaging in transactions with no meaningful dilutive effect on the corpora- tion’s equity capital. In other words, the stakeholder presented the same rationale as the stakeholder’s rationale for recom- mending that stock issued in a distribution to which section 305(a) applies should not be treated as an issuance for purposes of the netting rule. For similar reasons, the stakeholder also recommended that stock issued in an exchange under section 1036 of the Code should not be treated as an issuance for purposes of the netting rule. The Treasury Department and the IRS continue to be of the view that stock issued in an E reorganization should not be treated as an issuance for purposes of the netting rule because such stock already is taken into account under the reorganiza- tion exception. Under that exception (see section 3.07(2) of Notice 2023-2 and the discussion in part X.A of this Explanation of Provisions), the fair market value of stock repurchased by the covered corpo- ration in an E reorganization using quali- fying property is a reduction for purposes of computing the covered corporation’s stock repurchase excise tax base. There- fore, if the issuance of such qualifying property were treated as an issuance for purposes of the netting rule, the covered corporation’s stock repurchase excise tax Bulletin No. 2024–20 1105 May 13, 2024 base would be reduced twice as a result of a single stock issuance. The proposed regulations reflect this view. See proposed §58.4501-4(f)(3); see also part XI.C.2 of this Explanation of Provisions (discussion of no double benefit rule). Similarly, the Treasury Department and the IRS agree with the stakeholder that stock issued in a section 1036 exchange should not be treated as an issuance for purposes of the netting rule. Accordingly, the proposed regulations would pro- vide that stock issued in a section 1036 exchange is not treated as an issuance for purposes of the netting rule. See proposed §58.4501-4(f)(8). 6. Issuances in F Reorganizations A stakeholder recommended that stock issued in an F reorganization should not be treated as an issuance for purposes of the netting rule. The Treasury Depart- ment and the IRS continue to be of the view that stock issued in an F reorganiza- tion should not be treated as an issuance for purposes of the netting rule because that stock already is taken into account to reduce the covered corporation’s stock repurchase excise tax base under the reor- ganization exception. Therefore, if the issuance of such qualifying property were treated as an issuance for purposes of the netting rule, the covered corporation’s stock repurchase excise tax base would be reduced twice as a result of a single stock issuance. The proposed regulations reflect this view. See proposed §58.4501-4(f)(3); see also part XI.C.2 of this Explanation of Provisions (discussion of no double ben- efit rule). In addition, the proposed regulations would articulate explicitly the view of the Treasury Department and the IRS that F reorganizations should be treated for stock repurchase excise tax purposes in the same manner in which they are treated under the Code and Treasury regulations. In particular, the proposed regulations would reflect the view of the Treasury Department and the IRS that, for purposes of the netting rule, the transferor corpo- ration and the resulting corporation in an F reorganization should be treated as the same corporation. See §1.381(b)-1(a)(2) (providing that, in the case of a transac- tion qualifying as an F reorganization, the acquiring corporation is treated just as the transferor corporation would have been treated had there been no reorganization). As a result, the transferor corporation’s issuances in the portion of the taxable year preceding an F reorganization may offset the resulting corporation’s repurchases in the portion of the taxable year following the F reorganization. Likewise, the result- ing corporation’s issuances in the portion of the taxable year following an F reorga- nization may offset the transferor corpo- ration’s repurchases in the portion of the taxable year preceding the F reorganiza- tion. See proposed §58.4501-4(b)(4). 7. Issuances by a Dealer in Securities Under section 3.08(4)(g) of Notice 2023-2, 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 sat- isfy obligations to customers arising, in the ordinary course of the dealer’s busi- ness of dealing in securities. No feedback was received on the treatment described in Notice 2023-2 of issuances by a dealer in securities, and the proposed regulations would retain the approach described in Notice 2023-2. See proposed §58.4501- 4(f)(6). 8. Amounts Excluded Under the Stock Contribution Exception Covered corporation stock contributed to or purchased by an employer-sponsored retirement plan is not treated as issued or provided for purposes of the netting rule. See part XI.G.3 of this Explanation of Pro- visions for further discussion. 9. Instruments Not in the Legal Form of Stock Because taxpayers generally can choose the form of the instruments that they issue, the Treasury Department and the IRS are concerned that allowing tax- payers to immediately offset their current repurchases by issuing instruments not in the legal form of stock that are treated as stock for Federal income tax purposes at issuance (non-stock instruments) may cre- ate the potential for abuse. For example, a taxpayer seeking to avoid the application of the stock repurchase excise tax might issue deep-in-the-money call options, which the taxpayer takes the position are treated as stock for Federal income tax purposes, to accommodation parties with the mutual understanding that such options would never be exercised. While a taxpayer could in principle similarly issue stock to an accommodation party in order to reduce its stock repurchase excise tax base, the issuance of stock by a publicly traded corporation is subject to legal, reg- ulatory, and practical restrictions that do not or may not apply to an instrument that is not in the legal form of stock. In such a case, respecting the issuance of the option as an issuance of stock at the time of issu- ance for purposes of the netting rule could allow taxpayers to unduly reduce their stock repurchase excise tax liability. Accordingly, pursuant to section 4501(f), the proposed regulations provide an anti-avoidance rule to address this con- cern. Under proposed §58.4501-4(f)(13), the issuance of a non-stock instrument, including certain deep-in-the money options, would not be treated as an issu- ance of stock for purposes of the netting rule until the instrument is repurchased, and that the amount of the issuance under the netting rule would be limited to the lesser of the fair market value of the non- stock instrument at the time of its issuance or repurchase. The taxpayer would be enti- tled to regard the issuance for purposes of the netting rule for the repurchased non- stock instrument only if it timely reports the repurchase as a repurchase of a non- stock instrument. In order to prevent tax- payers from taking inconsistent positions with respect to comparable non-stock instruments, a taxpayer that fails to timely report a repurchase of a non-stock instru- ment as such will not be entitled to regard any issuances for purposes of the netting rule for comparable non-stock instruments repurchased within the five taxable years ending on the last day of the repurchase year, unless the failure to timely report the earlier repurchase was due to reasonable cause. See proposed §58.4501-4(f)(13) (ii)(D). Under the proposed regulations, a comparable non-stock instrument is a non-stock instrument that has substan- tially similar economic terms as the repur- chased non-stock instrument, regardless of whether the comparable non-stock May 13, 2024 1106 Bulletin No. 2024–20 instrument and the repurchased non-stock instrument have the same legal form. See id. Notwithstanding the rules described above for issuances, the Treasury Depart- ment and IRS are of the view that the repurchase of an instrument that meets the definition of stock at issuance should be treated as a repurchase, regardless of the legal form of such instrument. Given the potential for abuses of the netting rule involving non-stock instruments, the Trea- sury Department and the IRS are of the view that the different treatment for non- stock instruments under the netting rule as compared to the rule for repurchases is justified because a taxpayer generally can control whether to issue a particular instrument in the form of stock. D. Carryovers and carrybacks of issuances of preferred stock Several stakeholders raised concerns regarding regulated financial institutions that issue additional tier 1 preferred stock to comply with regulatory requirements. In particular, stakeholders noted that, although regulated financial institutions often must replace redeemed additional tier 1 preferred stock with new additional tier 1 preferred stock, timing consider- ations and the regulatory approval pro- cess often prevents such issuances from occurring during the same taxable year as the repurchases. As a result, regulated financial institutions may not be able to match their redemptions of additional tier 1 preferred stock with their issuances of replacement additional tier 1 preferred stock under the netting rule. The stakeholders recommended that the proposed regulations permit covered corporations to carry forward or carry back for one taxable year the aggregate amount of issuances by the covered cor- poration of additional tier 1 preferred stock that exceed the aggregate amount of repurchases of additional tier 1 preferred stock by that covered corporation for a taxable year. One stakeholder suggested that the proposed regulations incorporate such a carryforward and carryback rule for all types of preferred stock. The Treasury Department and the IRS are of the view that the stakeholder’s rec- ommended carryforward and carryback provision is inconsistent with the plain language of the statute. Section 4501 pro- vides clearly that the stock repurchase excise tax must be determined for a cov- ered corporation on a taxable-year-by-tax- able-year basis, and the amount of repur- chases for a taxable year may be adjusted solely to take into account issuances by the covered corporation during that same taxable year. See section 4501(a) (impos- ing the stock repurchase excise tax on “stock of the corporation which is repur- chased by such corporation during the tax- able year”); section 4501(c)(3) (reducing the amount of repurchases for a taxable year “by the fair market value of any stock issued by the covered corporation during the taxable year”). In this regard, under section 3.03(3)(c) of Notice 2023-2, any reductions in the stock repurchase excise tax base under the statutory exceptions or the netting rule in excess of the aggregate fair market value of all repurchases during the taxable year are not carried forward or backward to preceding or succeeding taxable years of the covered corporation. Accordingly, the proposed regulations would not adopt this recommendation. E. Fair market value of shares issued pursuant to the conversion of a convertible debt instrument A stakeholder recommended that, for purposes of the netting rule, the fair market value of shares issued pursuant to the conversion of a convertible debt instrument should be the market price of the shares on the date of issuance, rather than the consideration actually paid by the holder to acquire the instrument. The stakeholder recommended this approach based in part on the plain language of sec- tion 4501(c)(3), which refers to “the fair market value of any stock issued by the covered corporation during the taxable year” (emphasis added). The Treasury Department and the IRS agree with the stakeholder. Consistent with section 3.08(5) of Notice 2023-2, the Treasury Department and the IRS are of the view that, for purposes of the netting rule, the fair market value of stock issued generally should be the market price of the stock on the date the stock is issued. See proposed §58.4501-4(e)(1). Although the proposed regulations do not expressly address stock issued upon the conversion of a convertible debt instrument, such stock would fall within the scope of this general rule. For special rules for valuing stock issued or provided to an employee or other service provider in connection with the performance of services, see pro- posed §58.4501-4(e)(5) and part XI.G.7 of this Explanation of Provisions. F. Net share settlement A stakeholder noted that, if stock is transferred in connection with the perfor- mance of services, an employer may with- hold some of the stock to cover the exer- cise price, tax withholding obligations, or other withholding obligations. The stake- holder noted that the stock withheld could be viewed either as transferred to the ser- vice provider and then repurchased by the covered corporation, or as never having been issued. Under section 3.08(3)(a)(ii) of Notice 2023-2, stock withheld by a covered cor- poration or a specified affiliate to satisfy an employer’s income tax withholding obligation described in section 3402 of the Code, or an employer’s employment tax withholding obligation described in section 3102 of the Code, is not treated as stock issued or provided to an employee by the covered corporation or specified affiliate. Under section 3.08(3)(a)(iii) of Notice 2023-2, stock withheld by a cov- ered corporation or a specified affiliate to satisfy the exercise price of a stock option also is not treated as stock issued or pro- vided by the covered corporation or speci- fied affiliate to an employee. As reflected in section 3.08(3)(a)(ii) and (iii) of Notice 2023-2, the Treasury Department and IRS are of the view that stock withheld to satisfy an employer’s withholding obligation under section 3102 or 3402, or to satisfy the exercise price of a stock option, is not issued or provided by the covered corporation or a specified affiliate. This position is consistent with the section 83 rules. Stakeholders noted that stock is with- held in other situations (such as State or foreign tax withholding) and requested clarification on whether those situations also would not result in the issuance or provision of stock. To provide greater clarity regarding the treatment of net share Bulletin No. 2024–20 1107 May 13, 2024 settlements, these proposed regulations would expand Notice 2023-2 to cover all situations involving net share settle- ments. Accordingly, the proposed regula- tions would provide that stock withheld by the covered corporation or specified affiliate to satisfy the exercise price of a stock option or to cover any withholding obligation is not treated as issued or pro- vided under the netting rule. See proposed §58.4501-4(f)(11). A similar result would apply to the delivery of stock under an option not issued in connection with the perfor- mance of services, including pursuant to an option embedded in a convertible bond. See part XIV.B of this Explanation of Provisions (discussion of the treatment of cash paid in lieu of a fractional share). G. Special rules for stock issued or provided to service providers 1. Issuances to Service Providers Other than Employees Stakeholders requested clarification that the netting rule applies to a covered corporation’s issuances of its stock to service providers other than employees. The Treasury Department and the IRS agree that the same rules for determin- ing whether covered corporation stock is issued, the amount of stock issued, and the timing of an issuance should apply to both employee and non-employee service providers of a covered corpo- ration for purposes of the netting rule. The Treasury Department and the IRS are of the view that applying the same rules to all compensatory stock transfers by a covered corporation would improve administrability of the stock repurchase excise tax because the timing and value of stock issued or provided in connec- tion with the performance of services is determined under section 83 for both employee and non-employee service providers. Accordingly, these proposed regula- tions would clarify that the netting rule applies to issuances by a covered corpora- tion to both employee and non-employee service providers of the covered corpora- tion. See proposed §58.4501-4(b)(1)(i). However, as discussed in part XI.G.2 of this Explanation of Provisions, covered corporation stock provided by a specified affiliate in connection with the perfor- mance of services by a non-employee of the specified affiliate would not qualify for the netting rule. 2. Meaning of Stock “Issued or Provided” in Section 4501(c)(3) A stakeholder noted that section 4501 neither defines the term “provided” nor explains the distinction between the terms “issued” and “provided” in section 4501(c)(3). The stakeholder suggested that one way the distinction between these terms could be explained is by constru- ing stock “issued” to mean a transfer of newly issued stock, and stock “provided” to mean a transfer of treasury shares. However, the stakeholder recommended against this interpretation because there is no policy reason for treating newly issued shares and treasury shares differently. As discussed in part XI.B of this Explana- tion of Provisions, the Treasury Depart- ment and IRS are of the view that newly issued shares and treasury shares should be treated the same way for purposes of the netting rule. See proposed §58.4501- 1(b)(29). Instead, the stakeholder recommended that stock “issued” should be interpreted to mean covered corporation stock issued directly by the covered corporation to its employees or other service providers. In contrast, stock “provided” should be inter- preted to mean covered corporation stock transferred by a specified affiliate (which cannot issue covered corporation stock) to its employees. The Treasury Department and IRS agree with the foregoing interpretation. A specified affiliate may provide stock in the covered corporation, rather than the spec- ified affiliate’s own stock, as compensa- tion for services provided by the specified affiliate’s employees. Thus, this interpre- tation would not interfere with existing stock-based compensation arrangements. Moreover, because section 4501(c)(3) applies to transfers by a specified affiliate to its employees, stock provided by the specified affiliate in connection with the performance of services by its employees (but not by its non-employee service pro- viders) would qualify for the netting rule under these proposed regulations. Under §1.83-6(d), if a covered cor- poration transfers its stock in connection with the performance of services for a specified affiliate, then (i) the covered cor- poration is treated as having contributed the stock to the capital of the specified affiliate, and (ii) the specified affiliate is treated as immediately transferring the covered corporation stock to the service provider. Thus, under the proposed regu- lations, if the transfer is to an employee of the specified affiliate in connection with the performance of services for the spec- ified affiliate, the specified affiliate would be treated as transferring the stock to an employee in connection with the perfor- mance of services for the specified affili- ate and the transfer would be regarded for purposes of the netting rule. See proposed §58.4501-4(f)(2)(iv). 3. Amounts Excluded Under the Stock Contribution Exception A stakeholder noted that section 4501 does not explicitly preclude a covered corporation from reducing the amount of its stock repurchase excise tax under the netting rule using repurchased stock that was excluded from the stock repurchase excise tax under the statutory exception for contributions to employer-sponsored retirement plans. See section 4501(e) (2) and the discussion in part X.B of this Explanation of Provisions. The stake- holder requested clarification that stock that is excluded from the stock repurchase excise tax under the stock contribution exception may not then be used to reduce the stock repurchase excise tax base under the netting rule. The Treasury Department and the IRS agree that permitting an offset against the stock repurchase excise tax base under both the stock contribution exception and the netting rule would be inconsistent with the statute. Further, stock contributed to or purchased by an employer-sponsored retirement plan is issued or provided to the plan, not a service provider. Thus, consistent with section 3.07(3)(e) of Notice 2023-2, these proposed regulations would provide that stock contributed to or purchased by an employer-sponsored retirement plan does not reduce the stock repurchase excise tax base under the net- ting rule. See proposed §58.4501-4(f)(10). May 13, 2024 1108 Bulletin No. 2024–20 4. Net Share Settlement of Options Issued in Connection with the Performance of Services A stakeholder requested guidance explaining how to determine the amount of the offset under the netting rule for options settled in stock. The stakeholder recommended that, if an option is “in the money” (that is, if the exercise price is less than the fair market value of the stock on the date of exercise), then the stock repur- chase excise tax base should be reduced by the full fair market value of the stock, and not merely the exercise price. The Treasury Department and the IRS agree with the stakeholder. The Treasury Department and the IRS are of the view that, for purposes of the stock repur- chase excise tax, the net share settlement of options issued in connection with the performance of services should be treated in the same manner as the settlement of other options issued in connection with the performance of services. See proposed §58.4501-4(e)(5) and (f)(11). 5. “Sell to Cover” Arrangements A stakeholder described a “sell to cover” arrangement for stock-based com- pensation as a transaction in which a third party (usually a broker) facilitates the issu- ance of stock-based compensation by pro- viding amounts necessary to cover a with- holding obligation (for example, to cover Federal income taxes that must be withheld on the transferred shares). The stakeholder suggested that this transaction should be treated as an issuance or provision of stock for purposes of the netting rule. The Treasury Department and the IRS agree with the stakeholder. In these arrangements, stock is issued or provided to the service provider, or to a third party on behalf of the service provider, and then immediately sold to cover a withholding obligation, and the fair market value of the amounts necessary to cover the withhold- ing obligation is included in the service provider’s gross income under section 83. Therefore, as reflected in section 3.08(3) (a)(iv) of Notice 2023-2, these proposed regulations would provide that stock trans- ferred in these arrangements is treated as issued or provided for purposes of the net- ting rule. See proposed §58.4501-4(c)(2). 6. Time when Stock is Considered Issued or Provided to an Employee or Other Service Provider a. In general Consistent with section 3.08(3)(b)(i) of Notice 2023-2, these proposed regula- tions would provide that stock is treated as issued or provided to an employee or other service provider when beneficial ownership transfers for tax purposes. See proposed §58.4501-4(d)(2). Beneficial ownership ordinarily transfers when the service recipient initiates the transfer or when the stock is vested. However, if the service provider makes a valid election under section 83(b), beneficial ownership transfers on the date the property was transferred. See section 83. Stock trans- ferred to a grantor trust (for example, a Rabbi trust) is not treated as issued or pro- vided until beneficial ownership transfers to the service provider for tax purposes. b. Restricted stock Several stakeholders requested clarifi- cation as to when restricted stock is treated as issued for purposes of the netting rule. The stakeholders recommended treating restricted stock as issued when the stock is treated as beneficially owned under the section 83 rules. Thus, such stock would be treated as issued only if and when the shares become substantially vested, unless the recipient makes a section 83(b) elec- tion with respect to the shares. The Treasury Department and the IRS agree that restricted stock should be treated as issued for purposes of the net- ting rule when the service provider recipi- ent of the stock is treated as the beneficial owner for Federal income tax purposes under the section 83 rules. Under section 3.08(3)(b)(i) of Notice 2023-2, stock is issued or provided by a covered corpora- tion or a specified affiliate to an employee as of the date the employee is treated as the beneficial owner of the stock for Fed- eral income tax purposes, and that an employee generally is treated as the bene- ficial 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 trans- ferred 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. See section 3.08(3)(b)(i) of Notice 2023-2. Stock that is not substantially vested within the meaning of §1.83-3(b) gen- erally is not issued or provided to the employee until the employee vests in the stock, unless the employee makes a valid election under section 83(b), in which case the stock is treated as issued or provided to the employee as of the transfer date. See sections 3.08(3)(b)(i) and (iii) of Notice 2023-2. Stock transferred to an employee pursuant to an option described in §1.83-7 or section 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. See section 3.08(3)(b)(ii) of Notice 2023-2. Consistent with section 3.08(3)(b)(i) of Notice 2023-2, the proposed regula- tions would provide that stock that is not substantially vested within the meaning of §1.83-3(b) generally is not treated as issued or provided to the employee until the stock vests. See proposed §58.4501- 4(d)(2)(i). However, if the employee makes a valid election under section 83(b), the stock would be treated as issued or provided to the employee as of the transfer date. See proposed §58.4501-4(d) (2)(iii). Alternatively, one stakeholder recom- mended treating restricted stock as issued at the time the award is granted (that is, when the stock is treated as outstanding for securities law purposes). However, the Treasury Department and the IRS are of the view that applying the section 83 rules to determine when restricted stock is treated as issued is appropriate, and that applying the section 83 rules consistently would decrease the compliance burden on taxpayers and the administrative burdens on the IRS. Accordingly, the proposed regulations would not adopt this alterna- tive recommendation. 7. Valuing Stock Issued or Provided to an Employee or Other Service Provider A stakeholder requested guidance on how to determine the fair market value of stock issued or provided to an employee for purposes of the netting rule. The stake- Bulletin No. 2024–20 1109 May 13, 2024 holder recommended using the market price on the date of the issuance or provi- sion, with specific rules to determine fair market value for certain kinds of stock. The Treasury Department and IRS generally agree with the stakeholder. Con- sistent with section 3.08(3)(c) of Notice 2023-2, these proposed regulations would cross-reference the section 83 rules to determine the fair market value of stock issued or provided to an employee or other service provider under the netting rule. See proposed §58.4501-4(e)(5). Under the section 83 rules, the fair market value of the stock is determined as of the date that beneficial ownership transfers to the ser- vice provider. The Treasury Department and the IRS are of the view that applying the section 83 valuation rules should reduce the compli- ance burden on taxpayers and the admin- istrative burden on the IRS, as taxpayers also apply the section 83 rules for other tax purposes. Under the proposed regula- tions, the section 83 valuation rules also would apply if the covered corporation or specified affiliate issues or provides stock pursuant to the service provider exercising an option (including an option described in section 421) or making a valid section 83(b) election on restricted stock. See pro- posed §58.4501-4(e)(5). A stakeholder also requested clarifica- tion on valuing stock that is not included in United States income, such as stock issued to a non-resident employee who provides services outside the United States. The proposed regulations would provide that, under the netting rule, the fair market value of stock is determined under the section 83 rules, regardless of whether the income inclusion is governed by section 83. Thus, for example, the fair market value of stock issued pursuant to a stock option described in section 421 and stock issued to a non-resident alien for services performed outside the United States is determined using the section 83 rules. See proposed §58.4501-4(e)(5). XII. Mergers and Acquisitions with Post- Closing Price Adjustments A. Overview A stakeholder provided recommen- dations regarding post-closing price adjustments in M&A transactions. This stakeholder explained that adjustments may include additional payments to the target corporation’s shareholders based on achievement by the target corporation’s business of certain milestones or fluctu- ations in value of the acquiring corpora- tion’s stock (earnout), or the forfeiture of consideration by the target corporation’s shareholders to compensate the acquiring corporation for breaches of representa- tions and warranties or for other indem- nification obligations (indemnification payment). This stakeholder also noted that con- sideration provided at closing in a tax-free reorganization may include shares that are issued as part of an earnout (earnout shares) or that are subject to forfeiture to satisfy indemnification obligations. Alter- natively, the acquiring corporation may have a right to repurchase certain shares for a price that is below the stock’s fair market value (below-market repurchase). Despite being subject to forfeiture or a below-market repurchase, the stakeholder explained that such shares potentially could be treated as owned by the former target corporation shareholders for Fed- eral income tax purposes at the time of issuance. B. When shares issued as part of an earnout or potentially subject to an indemnification payment are treated as issued The stakeholder recommended that shares issued by an acquiring corporation should be treated as issued for purposes of the netting rule regardless of whether those shares are subject to forfeiture or a below-market repurchase. Essentially, the stakeholder recommended that the proposed regulations should permit an acquiring corporation to offset the fair market value of that corporation’s repur- chases during the taxable year by the fair market value of all shares issued by that corporation in an M&A transaction during that taxable year if those shares are treated as issued for Federal income tax purposes. The Treasury Department continue to be of the view that stock should be treated as issued when ownership of the stock transfers to the recipient for Fed- eral income tax purposes. See section 3.08(2) of Notice 2023-2. This treatment is consistent with the stakeholder’s rec- ommendation, and therefore the Treasury Department and the IRS have provided no special rule in the proposed regulations. See proposed §58.4501-4(d)(1); see also part III.B.1 of this Explanation of Provi- sions (discussion of timing of issuances and repurchases). C. Fair market value of shares issued as part of an earnout or potentially subject to an indemnification payment A stakeholder recommended that, for purposes of the netting rule, the fair mar- ket value of shares that potentially are subject to forfeiture or a below-market repurchase should be the trading price of such shares on the date of issuance (rather than on the date of forfeiture or repur- chase). For support, the stakeholder con- tended that (i) the parties generally do not expect the acquiring corporation to make significant claims for indemnification pay- ments, and (ii) discounting the fair market value to reflect the likelihood of forfeiture or a below-market repurchase would be administratively cumbersome for the IRS and taxpayers. Although Notice 2023-2 does not expressly address this issue, it does reflect the stakeholder’s recommendation. Under Notice 2023-2, if the shares were not dis- regarded under the no double benefit rule, the fair market value of the shares would be determined using their market price on the date of issuance, consistent with the stakeholder’s recommendation regarding the treatment of shares potentially sub- ject to an indemnification payment. The proposed regulations would maintain this treatment and would not include special rules to determine the fair market value of such shares. In contrast, the stakeholder also rec- ommended that the fair market value of earnout shares should be discounted to reflect the present value and likelihood of payment. The Treasury Department and the IRS are of the view that incorporation of the stakeholder’s recommendation into the proposed regulations would introduce uncertainty and complexity into stock valuation for purposes of the netting rule. Furthermore, the stakeholder’s recom- mendation would be inconsistent with the May 13, 2024 1110 Bulletin No. 2024–20 statutory language of section 4501(c)(3), which simply references the “fair market value” of stock issued or provided. As a result, the proposed regulations would not include special rules to determine the fair market value of earnout shares. D. Forfeiture of shares received as part of an earnout or potentially subject to an indemnification payment One stakeholder generally recom- mended that the forfeiture of earnout shares should not be treated as a repur- chase. The stakeholder asserted that such a forfeiture would not constitute a section 317(b) redemption because the corpo- ration would have exchanged no prop- erty for the earnout shares. Similarly, the stakeholder also contended that the forfei- ture should not be treated as an economi- cally similar transaction because no capi- tal would have left the corporation. In contrast, the stakeholder recom- mended that the forfeiture of earnout shares as part of an indemnification pay- ment should be treated as a repurchase of those shares, because the target corpora- tion’s former shareholders would have economically benefited from the forfeiture by not needing to use cash or other prop- erty to make the indemnification payment. Therefore, in the stakeholder’s view, the acquiring corporation should be treated as repurchasing the shares in an amount equal to the value of the indemnification claim, as determined based on the docu- ments governing the transaction. Under Notice 2023-2, a forfeiture of shares would not be treated as a repur- chase, because the forfeiture is neither a section 317(b) redemption nor treated as an economically similar transaction. However, there would be an issuance for purposes of the netting rule when owner- ship of those shares transfers to the recipi- ent for Federal income tax purposes, even though those shares potentially are still subject to forfeiture. For the same reasons discussed in part II.D of this Explanation of Provisions, the Treasury Department and the IRS are of the view that a forfeiture of shares should count as a repurchase if an issuance of such shares would be counted under the netting rule (in other words, those shares should be treated consistently for pur- poses of repurchases and issuances). Con- sequently, because the issuance of earnout shares or shares subject to an indemnifica- tion payment would be taken into account for purposes of the netting rule when those shares transfer to the recipient for Fed- eral income tax purposes, the proposed regulations would treat the forfeiture of those shares as a repurchase at the time of forfeiture. See proposed §58.4501-2(e) (4)(vi). To facilitate the ability for the IRS to administer and enforce the stock repurchase excise tax, the amount of the repurchase would equal the market price of the forfeited stock on the date of for- feiture under the general rule in proposed §58.4501-2(h)(1) and would not be deter- mined by the underlying transaction doc- uments. E. Below-market repurchase of shares received as part of an earnout or potentially subject to an indemnification payment A stakeholder recommended that, if the acquiring corporation repurchases earnout shares in a below-market repurchase, only the amount paid should be reflected in the acquiring corporation’s stock repurchase excise tax base. According to the stake- holder, proposed regulations adopting that approach would be appropriate because the negotiated price of the earnout shares would reflect the restrictions applicable to those shares and the circumstances in which that stock is repurchased. In con- trast, the market price of those earnout shares would reflect an inaccurate price – that is, the market price would fail to reflect the same restrictions to which the earnout shares would be subject. The Treasury Department and the IRS continue to be of the view that the fair market value of stock issued by a covered corporation should be the market price on the date of issuance. See section 3.08(5) of Notice 2023-2. The Treasury Department and the IRS incorporated this position in Notice 2023-2 to reduce unnecessary complexity for taxpayers and facilitate the ability for the IRS to administer and enforce the stock repurchase excise tax. In addition, the Treasury Department and the IRS observe that the approach described in Notice 2023-2 ensures that repurchases and issuances would be valued based on identical methodologies, thereby ensur- ing symmetrical treatment. Accordingly, the proposed regulations would adopt the approach described in Notice 2023-2, including with regard to stock that is sub- ject to a below-market repurchase. XIII. Troubled Companies In section 6.02(3) of Notice 2023- 2, the Treasury Department and the IRS requested comments on whether special rules should be provided for bankrupt or troubled companies. For example, the Treasury Department and the IRS asked whether a section 317(b) redemption occurring as part of a restructuring of a bankrupt or troubled company should be excluded from the definition of “repur- chase.” One stakeholder recommended that troubled companies generally should not be subject to the stock repurchase excise tax. According to the stakeholder, appli- cation of the stock repurchase excise tax would further burden troubled companies and would provide troubled companies with an incremental incentive to reject otherwise equitable restructuring plans to the extent those plans would implicate the stock repurchase excise tax. The stake- holder recommended that an exemption apply to exchanges of equity for other property by a corporation that either is in a title 11 case or is insolvent (within the meaning of section 108(d)(3) of the Code) immediately prior to the exchange. The stakeholder further recommended that the proposed regulations confirm that the stock repurchase excise tax does not apply to acquisitive reorganizations under sec- tion 368(a)(1)(G) (acquisitive G reorgani- zations) and exchanges of distressed debt. In contrast, another stakeholder recom- mended that no special rules be provided for troubled companies, other than a mod- ification of the valuation rule for repur- chases occurring as part of a restructuring. The stakeholder also recommended that the definition of “acquisitive reorgani- zation” include acquisitive G reorgani- zations. According to the stakeholder, if a troubled company distributes value to existing shareholders, there is no reason to exempt such a distribution from the stock repurchase excise tax if the distri- bution otherwise is a repurchase within Bulletin No. 2024–20 1111 May 13, 2024 the scope of the stock repurchase excise tax. The stakeholder also stated that, in most situations, the value of stock issued to creditors in exchange for their claims will significantly exceed the value of any recovery received by existing sharehold- ers, such that the netting rule would pre- vent any stock repurchase excise tax from being owed. With respect to the valuation rule for repurchases, the stakeholder stated that the general rule for valuing repurchased stock (by reference to the “market price” of repurchased stock) could lead to inappro- priate outcomes for troubled companies undergoing a restructuring. According to the stakeholder, the recovery amount received by a shareholder in exchange for its stock may be significantly less than the market price of the stock determined immediately after such repurchase. For support, the stakeholder asserted that the recovery amount will be determined when the stock is worth very little, but the mar- ket price (if determined immediately after the restructuring) may be much higher. The Treasury Department and the IRS are of the view that special rules for trou- bled companies are neither necessary nor appropriate to carry out the purposes of the stock repurchase excise tax. In reaching this view, the Treasury Department and the IRS observe that a troubled company gen- erally would not be treated as repurchasing its stock in either a title 11 restructuring or an out-of-court debt restructuring. In each type of transaction, it is the understanding of the Treasury Department and the IRS that the troubled company’s stock typi- cally would be cancelled solely as a result of the title 11 restructuring or the out-of- court debt restructuring, rather than as any redemption or repurchase. Accordingly, such cancellation would not constitute a redemption within the meaning of sec- tion 317(b). See section 317(b) (defining a redemption as a corporation’s acquisition of its stock from a shareholder in exchange for “property” (within the meaning of section 317(a))). For the same reason, the Treasury Department and the IRS are of the view that such a transaction should not constitute an economically similar trans- action under the proposed regulations. See proposed §58.4501-2(e)(4). The Treasury Department and the IRS agree that the definition of an “acquisitive reorganization” should include acquisitive G reorganizations. See part VIII.A of this Explanation of Provisions (discussion of acquisitive reorganizations). The Treasury Department and the IRS are of the view that an exchange between a target corporation and its shareholders pursuant to an acquis- itive G reorganization should be subject to the stock repurchase excise tax to the same extent as in other acquisitive reorganiza- tions. That is, a stock repurchase excise tax liability should arise from an exchange in an acquisitive G reorganization to the extent the target corporation shareholders exchange their target corporation stock for non-qualifying property. Accordingly, the proposed regulations would include acquisitive G reorganizations in the defi- nition of “acquisitive reorganization.” See proposed §58.4501-1(b)(1). XIV. Additional Miscellaneous Issues A. Ordering rule for statutory exceptions and netting rule 1. Overview Stakeholders requested a rule to clarify the order in which taxpayers should apply the de minimis exception, the other statu- tory exceptions, the netting rule, and any other exceptions set forth in regulations. Under Notice 2023-2, a covered corpora- tion computes its stock repurchase excise tax base for a taxable year by (i) deter- mining the aggregate fair market value of all repurchases, (ii) reducing that amount to the extent any statutory exceptions apply, and then (iii) reducing that amount under the netting rule. The determination whether the de minimis exception applies is made before applying any statutory exceptions or adjustments under the net- ting rule (that is, after step (i)). One stakeholder recommended an approach involving the following steps. First, a taxpayer should compute its gross repurchases for the taxable year, taking into account any exclusions from the definitions of “stock” and “repurchase.” Second, the taxpayer should determine whether the de minimis exception applies. (If so, no further computations would be necessary.) Third, the taxpayer should apply the other statutory exceptions to reduce the amount computed in the first step. Finally, the taxpayer should apply the netting rule to the amount computed in the third step, thereby arriving at the net repurchase amount subject to the stock repurchase excise tax. The stakeholder’s recommendation generally is consistent with section 3.03(3) (a) of Notice 2023-2. The proposed regu- lations would maintain the ordering rules described in Notice 2023-2. See proposed §58.4501-2(c)(1). 2. Section 4501(e) One stakeholder contended that the plain meaning of the lead-in language in section 4501(e)—which states that “Sub- section (a) shall not apply” in the situ- ations described in section 4501(e)(1) through (6)—is that an amount excluded under one of these statutory exceptions should not first be treated as part of a share repurchase. In other words, the stakeholder interpreted that lead-in lan- guage to provide that taxpayers should not be required to include all repurchases in the stock repurchase excise tax base and then reduce the amount of that base by the amount of those repurchases that qualify for a statutory exception. The Treasury Department and the IRS are of the view that the lead-in language in section 4501(e) does not affect the definition of “repurchase” under section 4501(c) (in other words, that lead-in lan- guage applies solely to section 4501(a)). The lead-in language in section 4501(e) states that section 4501(a), which imposes a one percent excise tax on repurchases, does not apply in certain specified situ- ations. The lead-in language in section 4501(e) does not state that those specified situations are not “repurchases” within the meaning of section 4501(c). Indeed, each of the statutory exceptions in section 4501(e) expressly involves a repurchase. See, for example, section 4501(e)(1) (“to the extent that the repurchase is part of a reorganization...”) and (6) (“to the extent that the repurchase is treated as a divi- dend...”) (emphasis added). Therefore, the Treasury Department and the IRS are of the view that Notice 2023-2 properly implements the lead-in language in sec- tion 4501(e), and the proposed regulations would not incorporate the stakeholder’s recommendation. May 13, 2024 1112 Bulletin No. 2024–20 3. De Minimis Rule Several stakeholders objected to the approach described in Notice 2023-2 that the determination of whether the de mini- mis exception applies be made before the application of any other statutory excep- tions or adjustments under the netting rule. One stakeholder contended that this approach imposes a compliance burden by requiring taxpayers to consider the appli- cation of the stock repurchase excise tax whenever taxpayers engage in a transac- tion that may involve a deemed exchange of stock. Stakeholders also contended that this approach would have the effect of eliminating the de minimis exception or rendering its application arbitrary in cer- tain circumstances. For example, one stakeholder noted that, if a covered corporation repurchases $2 million of its stock and contributes $1.5 million of that stock to an ESOP, the incidence of the stock repurchase excise tax would depend on the order in which the statutory exceptions are applied. If the de minimis exception were to be applied before the stock contribution exception, the stock repurchase excise tax would be imposed on $0.5 million. Conversely, if the de minimis exception were to be applied after the stock contribution excep- tion, then the stock repurchase excise tax would not apply at all because the corpo- ration’s $0.5 million of repurchases would not exceed the $1 million de minimis threshold. As another example, the stakeholder assumed that a covered corporation changes the par value of its stock with a fair market value of $1 billion. For Fed- eral income tax purposes, the change in par value would be treated as an E reor- ganization in which the corporation’s shareholders are deemed to exchange their old stock for newly issued stock. The stakeholder noted that, under the approach described in Notice 2023-2, (i) this exchange would be included in the stock repurchase excise tax base com- putation as a $1 billion repurchase, and (ii) although this amount wholly would be offset under the reorganization excep- tion, the inclusion of the transaction in the stock repurchase excise tax base would completely exhaust the allowance under the de minimis exception. The Treasury Department and the IRS are of the view that applying the de minimis exception before the other statutory excep- tions is consistent with the statutory lan- guage and structure of section 4501. By its terms, the de minimis exception applies “in any case in which the total value of the stock repurchased during the taxable year does not exceed $1,000,000...” (emphasis added). The determination of whether a transac- tion is a repurchase under section 4501(c) is independent of the statutory exceptions in section 4501(e). Therefore, the Treasury Department and the IRS are of the view that the de minimis exception should be mea- sured against a covered corporation’s gross repurchases (that is, a covered corporation’s repurchases before reduction under another statutory exception or the netting rule). The proposed regulations would pro- vide that a covered corporation would compute its stock repurchase excise tax base for a taxable year by (i) determin- ing the aggregate fair market value of all repurchases, (ii) reducing that amount to the extent any statutory exceptions apply, and then (iii) reducing that amount under the netting rule. See proposed §58.4501- 2(c)(1). The determination of whether the de minimis exception applies would be made before applying any other statutory exceptions or adjustments under the net- ting rule (that is, after step (i)). See pro- posed §58.4501-2(b)(2). 4. Reporting Requirements The Treasury Department and the IRS also are of the view that any covered cor- poration that makes a repurchase must comply with the applicable reporting requirements for the stock repurchase excise tax, even if all the covered corpo- ration’s repurchases are eligible for a stat- utory exception or are offset by issuances. See proposed §58.6011-1 as proposed elsewhere in this issue of the Federal Register; see also part XVII of this Expla- nation of Provisions. B. Fractional shares If cash is paid to shareholders in lieu of fractional shares in connection with a reorganization under section 368(a), the payment of cash could be treated as an issuance of stock immediately followed by an offsetting repurchase of a fractional share. See, for example, Rev. Rul. 66-35, 1966-2 C.B. 116 (applying this “deemed issuance and repurchase” treatment to cash paid in lieu of a fractional share to conclude that the receipt of such cash does not violate the “solely for voting stock” requirement of section 368(a)(1)(B) and (C)); Rev. Rul. 69-34, 1969-1 C.B. 105 (applying such treatment to cash paid in lieu of a fractional share in an E reorgani- zation); Rev. Rul. 74-46, 1974-1 C.B. 85 (same, for an F reorganization). Under section 3.04(3)(b) of Notice 2023-2, a payment by a covered corpora- tion 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 section 368(a) or as a distribution to which section 355 applies, or pursuant to the settlement of an option or similar financial instrument (for example, a convertible debt instru- ment or convertible preferred share), (ii) the cash is not separately bargained-for consideration, (iii) the payment is carried out solely for administrative convenience, and (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. Several stakeholders recommended that the stock repurchase excise tax should not apply to any such payments, so long as the cash paid represents solely a mechan- ical rounding-off of fractional shares that otherwise would be issued and is not sepa- rately bargained-for consideration. The Treasury Department and the IRS continue to be of the view that the deemed issuance and repurchase of fractional shares pursuant to a section 368(a) reor- ganization, section 355 distribution, or settlement of an option or similar financial instrument should be disregarded for pur- poses of section 4501, so long as the gen- eral criteria described in Notice 2023-2 are satisfied. Accordingly, the proposed regulations would retain this rule with the clarification that the value of one share of stock is determined on a class-by-class basis. See proposed §58.4501-2(e)(3)(ii). C. Cash paid to dissenting shareholders If a target corporation shareholder exercises dissenters’ rights with respect Bulletin No. 2024–20 1113 May 13, 2024 to a reorganization, the shareholder’s shares typically are cancelled as a matter of corporate law. Upon the ultimate res- olution of the shareholder’s claim, those shares typically are deemed to have been acquired for cash in connection with the reorganization. The Federal income tax treatment of payments to dissenting shareholders gen- erally depends upon the source of the cash. If the cash is sourced from the target corporation, the acquisition generally is treated as occurring as part of a redemption separate from the reorganization. See, for example, Rev. Rul. 68-285 (holding that the acquisition of target corporation stock for acquiring corporation voting stock is a B reorganization notwithstanding the creation of an escrow account to pay dis- senting shareholders for their stock). In contrast, if the cash is sourced from the acquiring corporation, the acquisition of the dissenting shareholders’ stock may be treated as acquired by the acquiring corporation in connection with the reor- ganization. See, for example, Rev. Rul. 73-102, 1973-1 C.B. 186 (holding that the “solely for voting stock” requirement of section 368(a)(1)(C) is satisfied even though the acquiring corporation makes cash payments to dissenting shareholders for their target corporation stock). A stakeholder recommended that cash paid to dissenting shareholders should not be treated as a repurchase, regardless of the source of the cash, and regardless of whether the dissenting shareholders’ rights are exercised in the context of a tax- able or tax-free transaction. According to the stakeholder, a shareholder’s decision to exercise dissenters’ rights is outside the control of the target corporation, which has no influence over how much cash ulti- mately may be paid to dissenters. Notice 2023-2 does not expressly address the treatment of payments to dis- senting shareholders. Thus, under Notice 2023-2, whether cash paid to dissenting shareholders is treated as a repurchase depends on whether the transaction is treated as a section 317(b) redemption under Federal income tax principles (namely, whether the target corporation is treated as the source of the cash). The Treasury Department and the IRS continue to be of the view that the determination of whether cash paid to dissenting share- holders is treated as a repurchase should be made based upon Federal income tax principles. Accordingly, the proposed reg- ulations would not adopt the stakeholder’s recommendation. D. Constructive specified affiliate acquisition The Treasury Department and the IRS have considered whether the acquisition by a covered corporation of a corpora- tion or partnership that owns stock in the covered corporation should be treated as a repurchase. For example, assume that an acquiring corporation (which is a covered corporation) enters into an agreement to purchase all the stock of a privately held target corporation. Prior to the acquisition, the target corporation uses cash on hand to purchase stock of the acquiring corpo- ration on an established securities market. After the acquisition, the target corpora- tion becomes a specified affiliate of the acquiring corporation. The foregoing transaction is not a section 317(b) redemption by the acquir- ing corporation, which does not directly acquire its stock for “property” within the meaning of section 317(a). The transaction also is not an acquisition of the acquiring corporation’s stock by an entity that is a specified affiliate at the time of the acqui- sition. See part IV.B of this Explanation of Provisions (discussion of the determina- tion of specified affiliate status). However, if the target corporation had purchased the acquiring corporation’s stock after becom- ing a specified affiliate of the acquiring corporation, that purchase would have been treated as a repurchase by the acquir- ing corporation under section 4501(c)(2) (regarding the treatment of purchases by specified affiliates). Therefore, by pur- chasing the stock of the target corpora- tion, the acquiring corporation has gained the economic benefits of repurchasing its stock without incurring a stock repurchase excise tax liability. The Treasury Department and the IRS are of the view that the foregoing trans- action should be treated as a repurchase. Accordingly, the proposed regulations would provide that a constructive speci- fied affiliate acquisition of stock by a cov- ered corporation is treated as a repurchase to the extent that: (i) the target corpora- tion or partnership becomes a specified affiliate of the covered corporation; (ii) at the time the target corporation or partner- ship becomes a specified affiliate, it owns stock of the covered corporation that rep- resents more than one percent of the fair market value of the target corporation or partnership as determined at such time; and (iii) the target corporation or partner- ship acquired such stock after December 31, 2022 (constructive specified affiliate acquisition rule). See proposed §58.4501- 2(f)(3)(i). Stock that is treated as repur- chased in a constructive specified affiliate acquisition is treated as being repurchased at the time the corporation or partnership becomes a specified affiliate of the cov- ered corporation. See proposed §58.4501- 2(g)(4). However, the constructive specified affiliate acquisition rule would not apply to shares of covered corporation stock identified as previously having been treated as repurchased by the covered cor- poration under the constructive specified affiliate acquisition rule. See proposed §58.4501-2(f)(3)(ii). If the corporation or partnership is unable to specifically identify which shares of stock of the covered corporation the corporation or partnership is treated as holding at the time it becomes a specified affiliate, the covered corporation must treat the corporation or partnership as holding the most recently acquired shares of the stock of the covered corporation. See proposed §58.4501-2(f)(3)(iii). The constructive specified affiliate acquisition rule would apply regardless of whether the acquisition is a taxable trans- action or a tax-free acquisition. Addition- ally, a transaction in which a target cor- poration’s redemption of its shares causes the target corporation to become a spec- ified affiliate of the covered corporation would be treated as an acquisition of the target corporation by the covered corpora- tion for purposes of the constructive spec- ified affiliate acquisition rule. E. Carryover of stock repurchase excise tax base A stakeholder requested clarification as to whether a positive or negative balance in a target corporation’s stock repurchase excise tax base (that is, an excess of issu- May 13, 2024 1114 Bulletin No. 2024–20 ances over repurchases, or vice-versa) may carry over to the acquiring corpo- ration following an acquisitive reorga- nization for purposes of determining the acquiring corporation’s stock repurchase excise tax base for the taxable year that includes the acquisition. The stakeholder recommended against applying a carry- over approach if the Treasury Department and the IRS exempt acquisitive reorgani- zations from the stock repurchase excise tax or limit its application to non-qual- ifying property sourced from the tar- get corporation. See parts VIII.A.2 and VIII.B of this Explanation of Provisions (discussion of acquisitive reorganizations and the sourcing approach to such reor- ganizations). The stakeholder also con- tended that a non-carryover approach may be more consistent with the taxable year determination described in section 3.03(c) of Notice 2023-2. However, the stakeholder expressed a view that if, under the proposed regula- tions, the stock repurchase excise tax con- tinues to apply to non-qualifying property sourced from the acquiring corporation, then permitting the balance in a target cor- poration’s stock repurchase excise tax base to carry over to the acquiring corporation may be reasonable, at least to the extent of any positive balance created in connection with the transaction. The stakeholder also contended that a carryover approach may be appropriate for complete liquidations to which both sections 331 and 332 apply, if the subsidiary and parent corporations are both publicly traded at the time of the liquidation. For the reasons discussed in part XI.D of this Explanation of Provisions (dis- cussion of carryovers and carrybacks of issuances of preferred stock), the Treasury Department and the IRS are of the view that a carryover approach is not appropri- ate for purposes of the stock repurchase excise tax. Accordingly, the proposed regulations would not adopt a carryover approach. F. Exclusive list of economically similar transactions One stakeholder recommended that the Treasury Department and the IRS incorporate into the proposed regula- tions the approach described in Notice 2023-2, which provided an exclusive list of economically similar transactions. The stakeholder further recommended that any transactions added to this list in future guidance should be subject to the stock repurchase excise tax only on a pro- spective basis. Another stakeholder also recommended that guidance classifying instruments or transactions as economi- cally similar should apply prospectively, except for any transactions deemed abu- sive that may warrant retroactive applica- tion. The Treasury Department and the IRS continue to be of the view that eco- nomically similar transactions should be clearly identified in an exclusive list on which taxpayers may rely. Accordingly, the proposed regulations would retain the exclusive list described in Notice 2023-2, as modified to account for other changes in these proposed regulations. See pro- posed §58.4501-2(e)(4). The Treasury Department and the IRS also are of the view that additional transactions added to the list of econom- ically similar transactions should not be required to be apply solely on a prospec- tive basis. Although the Treasury Depart- ment and the IRS anticipate that most transactions treated as economically similar transactions would be treated as such only on a prospective basis, there may be transactions that warrant retro- active application, as noted by the other stakeholder. Accordingly, the proposed regulations would not adopt this recom- mendation. G. SPACs 1. Overview SPACs are companies that raise equity in an IPO in order to seek out and acquire an operating business in a business com- bination (de-SPAC transaction). A SPAC typically will issue stock to the public in the IPO and deposit the cash received in a trust. The stock is redeemable at the option of the holder, including in con- nection with a de-SPAC transaction. If a business combination is not completed within a specified period of time (typ- ically, two years), the SPAC liquidates and the cash is returned to the public shareholders. 2. SPAC Redemptions and Economically Similar Transactions Several stakeholders requested clar- ification regarding the application of the stock repurchase excise tax to SPAC-re- lated section 317(b) redemptions and economically similar transactions. For example, stakeholders recommended that non-liquidating redemptions of stock by a SPAC should be wholly excepted from the stock repurchase excise tax. According to one stakeholder, a redemption of stock by a SPAC pursuant to the terms of the stock differs from a conventional stock buy- back, in that the SPAC redemption effec- tively amounts to a return of a sharehold- er’s capital and does not result in either stock price manipulation or accretion to other shareholders (considerations that the stakeholder hypothesized to be relevant to Congress in enacting the stock repurchase excise tax). According to another stake- holder, an exemption for non-liquidating redemptions by SPACs could be imple- mented by either (i) an exception to the stock repurchase excise tax for redemp- tions pursuant to a mandatory redemption right or a unilateral holder put option, or (ii) a broad-based exception for SPAC-re- lated redemptions. The Treasury Department and the IRS are of the view that adopting special rules for SPACs in the proposed regulations would not be necessary or appropriate to carry out the stock repurchase excise tax. As discussed in part II.A.1 of this Explanation of Provisions, the proposed regulations would not exempt redemp- tions of stock pursuant to a mandatory redemption right or a unilateral holder put option. These proposed rules would apply to SPACs as well as other taxpay- ers. Several stakeholders also recom- mended that distributions in complete liq- uidation of a SPAC should not be subject to the stock repurchase excise tax, even if there is not a distribution in cancellation or redemption of all classes of stock. The stakeholders stated that this issue arises because a SPAC sponsor typically waives with respect to their shares any redemp- tion rights in connection with a de-SPAC transaction and any rights to liquidating distributions. Consequently, when a SPAC winds up and liquidates, the shares owned Bulletin No. 2024–20 1115 May 13, 2024 by the SPAC sponsor typically will not receive a liquidating distribution. As discussed in part VI.A.2 of this Explanation of Provisions, the proposed regulations would clarify that a distri- bution pursuant to a plan of complete liquidation or dissolution of a covered corporation (or an applicable foreign cor- poration or a covered surrogate foreign corporation) generally is not a repurchase and, thus, generally is not subject to the stock repurchase excise tax. See proposed §58.4501-2(e)(5)(i). 3. Netting Rule In certain de-SPAC transactions, the SPAC is not the acquiring corporation. Therefore, the SPAC does not issue any stock in the transaction. Stakeholders recommended that, in such transactions, the SPAC should be allowed to offset its repurchases against (i) issuances by the post-combination entity (which could be viewed as a successor to the SPAC), or (ii) issuances of exchange rights to acquire covered corporation stock issued to the owners of target partnership interests (if the de-SPAC transaction is executed through a transaction commonly referred to as an “Up-SPAC” transaction). According to stakeholders, such issu- ances are functionally equivalent to issu- ances by the SPAC. Stakeholders also recommended similar expansions of the netting rule for acquisitions other than de-SPAC transactions. Alternatively, a stakeholder recommended that SPACs be permitted a one-year carryback or carry- forward of excess issuances. Notice 2023-2 addresses the foregoing issues but does not provide SPAC-spe- cific rules. For example, if a de-SPAC transaction were to qualify as a reorga- nization under section 368(a), the no double benefit rule would disallow any netting rule offset for stock issued by the acquiring corporation. See section 3.08(4) (d) of Notice 2023-2. However, the Trea- sury Department and the IRS are of the view that the netting rule should not be expanded in the manner recommended by stakeholders. By its terms, the netting rule adjusts the amount of a covered corpora- tion’s stock repurchases solely by the fair market value of covered corporation stock issued or provided during the taxable year. Accordingly, the proposed regulations would not adopt these recommendations. See also parts XI.D (regarding a request for a one-year carryback and carryforward period for issuances of preferred stock) and XIV.F (discussion of a recommenda- tion for a carryover approach in the con- text of acquisitive reorganizations and complete liquidations) of this Explanation of Provisions. H. Treatment of disregarded entities Section 301.7701-2(c)(2)(i) provides that, for Federal tax purposes, a business entity that has a single owner and that is not a corporation under §301.7701- 2(b) is disregarded as an entity separate from its owner (disregarded entity). Sec- tion 301.7701-2(c)(2)(v) provides that §301.7701-2(c)(2)(i) does not apply for purposes of certain excise taxes set forth in §301.7701-2(c)(2)(v)(A). Section 4501 is not included among the excise taxes set forth in §301.7701-2(c)(2)(v)(A). Thus, the treatment of an entity as a disre- garded entity under §301.7701-2(c)(2)(i) is respected for purposes of section 4501. See proposed §58.4501-5(b)(18). I. Form 7208 In connection with the publication of Notice 2023-2, the IRS released a pro- posed draft of Form 7208, which it is intended that a covered corporation would use to calculate the amount of its stock repurchase excise tax. In connection with the publication of these proposed regula- tions, the IRS will release an updated draft Form 7208 along with draft instructions to the Form 7208. XV. Applicability dates for proposed §§58.4501-1 through 58.4501-5 Proposed §58.4501-6(a) generally would provide that proposed §§58.4501-1 through 58.4501-5 apply to repurchases of stock of a covered corporation occur- ring after December 31, 2022, and during taxable years ending after December 31, 2022, and to issuances and provisions of stock of a covered corporation occurring during taxable years ending after Decem- ber 31, 2022. See section 7805(b)(1) (C). However, certain rules in proposed §§58.4501-1 through 58.4501-5 that were not described in Notice 2023-2 would apply to repurchases, issuances, or pro- visions of stock of a covered corporation occurring after April 12, 2024, and during taxable years ending after April 12, 2024. See proposed §58.4501-6(b)(1). Except as described in the following paragraph, so long as a covered corpora- tion consistently follows the provisions of proposed §§58.4501-1 through 58.4501-5, the covered corporation may rely on these proposed regulations with respect to (1) repurchases of stock of the covered corpo- ration occurring after December 31, 2022, and on or before the date of publication of final regulations in the Federal Reg- ister, and (2) issuances and provisions of stock of the covered corporation occurring during taxable years ending after Decem- ber 31, 2022, and on or before the date of publication of final regulations in the Fed- eral Register. In addition, so long as a covered cor- poration consistently follows the provi- sions of Notice 2023-2 corresponding to the rules in proposed §§58.4501-1 through 58.4501-5, the covered corpora- tion may choose to rely on Notice 2023-2 with respect to (1) repurchases of stock of a covered corporation occurring after December 31, 2022, and on or before April 12, 2024, and (2) issuances and pro- visions of stock of a covered corporation occurring during taxable years ending after December 31, 2022, and on or before April 12, 2024. A covered corporation that relies on the provisions of Notice 2023-2 correspond- ing to the rules in proposed §§58.4501-1 through 58.4501-5 with respect to (1) repurchases occurring after December 31, 2022, and on or before April 12, 2024, and (2) issuances and provisions of stock of a covered corporation occurring during taxable years ending after December 31, 2022, and on or before April 12, 2024, may also choose to rely on the provisions of proposed §§58.4501-1 through 58.4501-5 with respect to (1) repurchases occurring after April 12, 2024, and on or before the date of publication of final regulations in the Federal Register, and (2) issuances and provisions of stock of a covered corpora- tion occurring after April 12, 2024, and on or before the date of publication of final regulations in the Federal Register. May 13, 2024 1116 Bulletin No. 2024–20 XVI. Section 4501(d) A. In general As noted in part I.D of the Background section of this preamble, section 4501(d) provides rules for the application of the stock repurchase excise tax to acquisitions of stock of applicable foreign corporations and repurchases and acquisitions of stock of covered surrogate foreign corpora- tions (section 4501(d) excise tax). Section 4501(f) authorizes the Secretary to pre- scribe regulations and other guidance as are necessary or appropriate to carry out, and to prevent the avoidance of, the pur- poses of section 4501, including rules for the application of section 4501(d). Proposed §58.4501-7 would provide rules specifically relating to the application of section 4501(d) (section 4501(d) pro- posed regulations). The section 4501(d) proposed regulations generally follow related rules in proposed §§58.4501-2 through 58.4501-4, with modifications as appropriate solely to reflect differences in the operation of section 4501(d). See part I.D of the Background section of this pre- amble. Among other differences, the sec- tion 4501(d) excise tax is imposed on an applicable specified affiliate treated as a covered corporation under section 4501(d) (1)(A) or an expatriated entity treated as a covered corporation under section 4501(d) (2)(A) (each, a section 4501(d) covered corporation). In addition, the netting rule applies only to stock issued or provided by the applicable specified affiliate or expa- triated entity, as applicable, to its employ- ees under section 4501(d)(1)(C) and (d) (2)(C), respectively. Terms used in the section 4501(d) pro- posed regulations but not defined therein have the meaning provided in proposed §58.4501-1, except that: (i) references to a “covered corporation” are treated as references to a “section 4501(d) covered corporation,” an “applicable foreign cor- poration,” or a “covered surrogate foreign corporation,” as the context may require; and (ii) references to a “covered corpo- ration” or “specified affiliate” in respect of the definitions of “employee” and “employer-sponsored retirement plan” are treated solely as references to a “section 4501(d) covered corporation.” See pro- posed §58.4501-7(b)(1). Terms specifically defined in the section 4501(d) proposed regulations are solely applicable for purposes of those regula- tions. See proposed §58.4501-7(b)(2). In particular, the section 4501(d) proposed regulations would provide definitions relevant to the section 4501(d) excise tax computation, the funding rule of proposed §58.4501-7(e), and the application of the statutory exceptions in section 4501(e) to section 4501(d) covered corporations. See part XVI.D of this Explanation of Pro- visions (discussion of proposed funding rule). B. Computation of section 4501(d) excise tax liability of a section 4501(d) covered corporation 1. Basic Computational Rules The section 4501(d) excise tax liabil- ity of a section 4501(d) covered corpo- ration would be computed under rules based on the computational rules for computing the stock repurchase excise tax liability of a covered corporation, as set forth in proposed §58.4501-2(c) (1), with certain modifications to reflect the differences relating to, among other items: (i) the application of the section 4501(d) excise tax at the level of the section 4501(d) covered corporation; (ii) the application of certain statutory exceptions in section 4501(e); and (iii) the application of the netting rule solely to stock of the applicable foreign cor- poration or covered surrogate foreign corporation, as applicable, issued or provided by the section 4501(d) covered corporation to its employees. The section 4501(d) proposed regula- tions would provide that the amount of section 4501(d) excise tax imposed on a section 4501(d) covered corporation equals the product obtained by multi- plying the applicable percentage by the section 4501(d) excise tax base. See proposed §58.4501-7(c)(1). The “sec- tion 4501(d) excise tax base” would be equal to the aggregate fair market value of all section 4501(d)(1) repurchases (as defined in proposed §58.4501-7(b)(2) (xxii)) or section 4501(d)(2) repurchases (as defined in proposed §58.4501-7(b)(2) (xxiii)), as applicable, during the section 4501(d) covered corporation’s taxable year, reduced by (i) the fair market value of stock repurchased or acquired during the taxable year to the extent any statu- tory exceptions in section 4501(e) apply, and (ii) the aggregate fair market value of stock of the applicable foreign corpo- ration or stock of the covered surrogate foreign corporation, as applicable, to the extent the netting rule applies under sec- tion 4501(d)(1)(C) or (d)(2)(C), respec- tively. See proposed §58.4501-7(c)(3) (section 4501(d) excise tax base), (m) (section 4501(d) statutory exceptions), and (n) (section 4501(d) netting rule). For purposes of the section 4501(d) excise tax base, the fair market value of a section 4501(d)(1) repurchase or sec- tion 4501(d)(2) repurchase, as applicable, during the section 4501(d) covered cor- poration’s taxable year generally would be determined in the same manner as in proposed §58.4501-2(h). However, the section 4501(d) covered corporation, rather than the covered corporation, would be required to determine the value of the stock of the applicable foreign corpora- tion or covered surrogate foreign corpora- tion, as applicable, by applying one of the acceptable methods of valuation set forth in proposed §58.4501-7(l)(2)(ii), for stock traded on an established securities market, or under the principles of §1.409A-1(b)(5) (iv)(B)(1), for stock not so traded. In either case, the section 4501(d) cov- ered corporation must be consistent in its application of the valuation methodology. For example, the market price of stock of an applicable foreign corporation or a covered surrogate foreign corporation, as applicable, that is traded on an established securities market must be determined by consistently applying one, but not more than one, of the acceptable methods to all section 4501(d)(1) repurchases with respect to an applicable foreign corpora- tion or all section 4501(d)(2) repurchases with respect to a covered surrogate for- eign corporation, in the same taxable year of the applicable foreign corporation or covered surrogate foreign corporation, as applicable. See proposed §58.4501-7(l)(2) (iv). If an applicable foreign corporation or a covered surrogate foreign corpora- tion, as applicable, does not have a taxable year for Federal income tax purposes, the calendar year would be treated as the tax- able year for this purpose. Bulletin No. 2024–20 1117 May 13, 2024 2. Section 4501(d) De Minimis Exception The section 4501(d) proposed regula- tions would provide that a section 4501(d) covered corporation is not subject to the section 4501(d) excise tax with regard to a taxable year of the section 4501(d) covered corporation if, during that taxable year, the aggregate fair market value of all section 4501(d)(1) repurchases with respect to all applicable specified affiliates or all sec- tion 4501(d)(2) repurchases with respect to an expatriated entity, as applicable, does not exceed $1,000,000 (section 4501(d) de minimis exception). See proposed §58.4501-7(c)(2)(i). The determination of whether the section 4501(d) de minimis exception applies is made before applying any section 4501(d) statutory exception or the section 4501(d) netting rule, which are discussed in parts XVI.I and J of this Explanation of Provisions, respectively. In applying the section 4501(d) de minimis exception to applicable specified affiliates of an applicable foreign corpo- ration in cases in which the applicable specified affiliates have different taxable years, each applicable specified affili- ate (tested affiliate) would be required to aggregate section 4501(d)(1) repurchases that occur during its taxable year (tested taxable year), including section 4501(d) (1) repurchases by other applicable spec- ified affiliates of the same applicable for- eign corporation that occur during the tested affiliate’s taxable year, regardless of the taxable year ends of the other appli- cable specified affiliates. In other words, the section 4501(d) de minimis exception would be applied to the overlapping por- tion of the taxable years of all applicable specified affiliates of an applicable foreign corporation. The Treasury Department and the IRS are of the view that applying the section 4501(d) de minimis exception to the over- lapping portion of the taxable years of all applicable specified affiliates is consis- tent with the statute, which applies the de minimis exception to the total value of the stock repurchased during the taxable year without regard to the identity of the person effecting the repurchase, and also precludes the use or formation of multi- ple applicable specified affiliates for the purpose of improperly manipulating the application of the de minimis exception. For example, assume that an applica- ble foreign corporation, FX, has a taxable year end of June 30 and owns the stock of two domestic corporations, US1 and US2, that are applicable specified affiliates. US1 has a taxable year end of June 30, and US2 has a taxable year end of Decem- ber 31. In applying the section 4501(d) de minimis exception to US1 in its taxable year ending June 30, 2026, the aggregate fair market value of all section 4501(d) (1) repurchases with respect to all appli- cable specified affiliates during its taxable year ending June 30, 2026, is taken into account. Consequently, any acquisition of stock of FX that occurs from July 1, 2025, through June 30, 2026, whether by US1 or US2, would be included in applying the section 4501(d) de minimis exception to US1’s taxable year ending June 30, 2026. C. Certain rules for section 4501(d)(2) repurchases 1. Coordination Rules for Section 4501(d)(2) Repurchases The section 4501(d) proposed regula- tions would provide certain coordination rules relating to section 4501(d)(2) repur- chases. In particular, the section 4501(d) proposed regulations would provide a priority rule for a transaction that is other- wise both a section 4501(d)(1) repurchase and a section 4501(d)(2) repurchase, and a coordination rule for multiple expatriated entities with respect to a covered surro- gate foreign corporation. With respect to the priority rule, one stakeholder recommended that, if both section 4501(d)(1) and (2) could apply to a transaction, only section 4501(d)(1) should be applied. The Treasury Depart- ment and the IRS recognize that, in certain limited situations, acquisitions of stock of a covered surrogate foreign corporation could be subject to the section 4501(d) excise tax under both section 4501(d)(1) and (2). The Treasury Department and the IRS agree that a coordination rule is appropriate but are of the view that sec- tion 4501(d)(2) should take priority over section 4501(d)(1). Section 4501(d)(2) is specifically targeted to the repurchase of stock of a covered surrogate foreign cor- poration by the covered surrogate foreign corporation or the acquisition of the stock of a covered surrogate foreign corporation by a specified affiliate of such corporation. Accordingly, it is appropriate to give pri- macy to section 4501(d)(2) in that context. Further, the proposed approach accords with the statutory regime that bifurcates between the operation of section 4501(d) (1) and (2) because this approach would apply section 4501(d)(2) consistently to such repurchases or acquisitions instead of applying a mix of section 4501(d)(1) or (d)(2) depending on the circumstances of a particular acquisition. This mixed appli- cation of section 4501(d)(1) and (d)(2) could also present difficulties from a com- putational perspective. Accordingly, to the extent any repurchase or acquisition of stock of a covered surrogate foreign cor- poration would be both a section 4501(d) (1) repurchase and a section 4501(d)(2) repurchase, the repurchase or acquisition would be only a section 4501(d)(2) repur- chase. See proposed §58.4501-7(d)(1). With respect to the coordination rule, section 6.02(5) of Notice 2023-2 requested comments on how the section 4501(d) excise tax liability should be allocated in circumstances in which there are mul- tiple expatriated entities, each of which is treated as a covered corporation with respect to a covered surrogate foreign cor- poration. A stakeholder recommended that the parties be permitted to contractually allocate liability for the section 4501(d) excise tax in this circumstance. The stake- holder stated that permitting the parties to determine their own allocation of section 4501(d) excise tax liability, rather than mandating an allocation scheme, would allow taxpayers to consider a number of ancillary factors relevant to the allocation, such as the cash flow needs of particular entities. The stakeholder suggested that the government’s interest in the payment and collection of the section 4501(d) excise tax could be protected through imposing joint and several liability for the tax liability with respect to each relevant expatriated entity, notwithstanding the privately contracted liability allocation, and through coordination of the reporting of the stock repurchase excise tax on Form 720. The Treasury Department and the IRS are of the view that, under the plain lan- guage of section 4501(d)(2), if there are multiple expatriated entities with respect May 13, 2024 1118 Bulletin No. 2024–20 to a covered surrogate foreign corpora- tion, each expatriated entity is separately liable for the section 4501(d) excise tax with respect to all section 4501(d)(2) repurchases with respect to the covered surrogate foreign corporation’s stock. In particular, under the language of the stat- ute, each expatriated entity is liable for the section 4501(d) excise tax on the full amount of stock repurchases by a covered surrogate foreign corporation and its spec- ified affiliates, and the statute does not provide any method of allocation among multiple expatriated entities. For exam- ple, if there are two expatriated entities with respect to the same covered surro- gate foreign corporation, and the covered surrogate foreign corporation repurchases $100x of stock during the year, then under the statute’s plain language, both expatri- ated entities would be liable for any sec- tion 4501(d) excise tax with respect to the $100x repurchase. Accordingly, the section 4501(d) pro- posed regulations would follow the statute by providing the default rule that multiple expatriated entities are each liable for the full amount of section 4501(d) excise tax with respect to the covered surrogate for- eign corporation. However, the section 4501(d) proposed regulations would pro- vide procedures to allow one of those mul- tiple expatriated entities to report and pay its full excise tax obligation and thereby relieve the remaining expatriated entities of their obligations to report and pay the same amount of section 4501(d) excise tax with respect to the section 4501(d) (2) repurchases during the paying expa- triated entity’s taxable year. See proposed §58.4501-7(d)(2)(ii); see also proposed §58.4501-7(q)(3) (Example 3) for an illus- tration of this rule. The Treasury Department and the IRS are of the view that allowing multiple expatriated entities to pay different por- tions of the section 4501(d) excise tax liability would be too complex and that the most straightforward and adminis- trable approach would be to require one expatriated entity to pay its full section 4501(d) excise tax liability for the tax- able year and thereby relieve each other expatriated entity’s liability for the section 4501(d) excise tax. Further, as relevant to the stakeholders’ recommendations, mul- tiple expatriated entities still could choose the expatriated entity that fully reports and pays its section 4501(d) excise tax liabil- ity, and they could provide for payments or reimbursements among themselves by private contract. 2. Example for Entity Subject to Section 7874(b) One stakeholder requested that the proposed regulations clarify that an entity described in section 7874(b) is treated as a domestic corporation for purposes of applying section 4501, and so is subject to section 4501(a) as a covered corpora- tion (and is not a covered surrogate for- eign corporation under section 4501(d) (2)). The Treasury Department and the IRS agree with this request because this result follows from the plain language of sections 4501(d) and 7874. See proposed §58.4501-5(b)(40) (Example 40) for an illustration of this result. 3. Transfers Among the Covered Surrogate Foreign Corporation and its Specified Affiliates One stakeholder requested clarification of whether section 4501(d)(2) applies to transfers of stock of a covered surrogate foreign corporation among related enti- ties (in particular, among a covered surro- gate foreign corporation and its specified affiliates). Those transactions are section 4501(d)(2) repurchases because, unlike section 4501(d)(1), section 4501(d)(2) is not limited to repurchases or acquisi- tions of stock from persons who are not the covered surrogate foreign corporation or a specified affiliate of the covered sur- rogate foreign corporation. See proposed §58.4501-7(q)(2) (Example 2) for an illus- tration of this result. D. The proposed funding rule 1. The Notice Funding Rule Section 3.05(2)(a)(ii) of Notice 2023-2 provides that an applicable specified affiliate is treated as acquiring stock of an applicable foreign corporation if (i) the applicable specified affiliate funds by any means (including through distri- butions, debt, or capital contributions) the repurchase or acquisition of stock of the applicable foreign corporation by the applicable foreign corporation or a speci- fied affiliate that is not also an applicable specified affiliate, and (ii) such funding is undertaken with a principal purpose of avoiding the stock repurchase excise tax (Notice funding rule). The Notice funding rule also provides that such a principal purpose is deemed to exist if the funding (other than through distributions) occurs within two years of the funded entity’s repurchase or acquisition of stock of the applicable foreign corporation (per se rule). Numerous stakeholders provided feed- back on the Notice funding rule. Stake- holders generally asserted that the Notice funding rule and, in particular, the per se rule were overbroad for various reasons. This feedback was considered in draft- ing and revising the version of the fund- ing rule in the section 4501(d) proposed regulations (proposed funding rule) and is discussed in part XVI.D.2 of this Explana- tion of Provisions. 2. The Proposed Funding Rule a. General structure and the rebuttable presumption The proposed funding rule would retain the general structure of the Notice funding rule, but with substantial modifications that include replacing the per se rule with a rebuttable presumption that applies in limited circumstances. Under the proposed funding rule, an applicable specified affil- iate of an applicable foreign corporation would be treated as acquiring stock of the applicable foreign corporation to the extent the applicable specified affiliate (i) funds by any means (including through distri- butions, debt, or capital contributions), directly or indirectly, an AFC repurchase or an acquisition of stock of an applicable foreign corporation by a specified affiliate of an applicable foreign corporation that is not an applicable specified affiliate of the applicable foreign corporation (such entity, a relevant entity, and such repurchase or acquisition, a covered purchase) (ii) with a principal purpose of avoiding the section 4501(d) excise tax (a funding with such a principal purpose, a covered funding). If a principal purpose of a funding is to fund, directly or indirectly, a covered purchase, Bulletin No. 2024–20 1119 May 13, 2024 then with respect to that funding, there is a principal purpose of avoiding the section 4501(d) excise tax. See proposed §58.4501- 7(e)(1); see also proposed §58.4501-7(j) (definition of “AFC repurchase”). Pro- posed §58.4501-7(p)(3) (Example 3), (p) (4) (Example 4), and (p)(7) (Example 7) would illustrate the application of the pro- posed funding rule. The section 4501(d) proposed regula- tions would not include the per se rule. Instead, a principal purpose described in proposed §58.4501-7(e)(1) would be pre- sumed to exist if the applicable specified affiliate funds by any means, directly or indirectly, a downstream relevant entity, and the funding occurs within two years of a covered purchase by or on behalf of the downstream relevant entity (rebutta- ble presumption). A covered purchase “on behalf of” a downstream relevant entity would include an acquisition by an agent or nominee of the downstream relevant entity for the downstream relevant entity’s account. The term “downstream relevant entity” would be defined as a relevant entity (i) 25 percent or more of the stock of which is owned (by vote or by value), directly or indirectly, by, individually or in aggregate, one or more applicable spec- ified affiliates of an applicable foreign corporation, or (ii) 25 percent or more of the capital or profits interests in which are held, directly or indirectly, by, individu- ally or in aggregate, one or more appli- cable specified affiliates of an applicable foreign corporation. The rebuttable pre- sumption may be rebutted only if facts and circumstances clearly establish that there was not a principal purpose described in proposed §58.4501-7(e)(1). Thus, the rebuttable presumption would apply only to “downstream” fund- ings (that is, fundings of, and covered pur- chases by or on behalf of, relevant entities in which one or more applicable specified affiliates have a material direct or indirect ownership interest). The rebuttable pre- sumption would not otherwise apply. Pro- posed §58.4501-7(p)(5) (Example 5) and (p)(6) (Example 6) would illustrate the application of the rebuttable presumption. b. Timing and allocation rules The proposed funding rule would pro- vide rules for determining the date that an applicable specified affiliate is treated, by reason of a covered funding, as acquiring stock of an applicable foreign corporation. More specifically, the proposed funding rule would provide that stock of an appli- cable foreign corporation that is treated as acquired by an applicable specified affiliate by reason of a covered funding is treated as acquired on the later of the date of the covered funding or the covered purchase to which the covered funding is allocated. The proposed funding rule also would provide specific rules allocating covered fundings to covered purchases to deter- mine the amount of a deemed acquisition pursuant to the proposed funding rule. The proposed funding rule would provide that the amount of stock of an applicable foreign corporation acquired in a covered purchase that is treated as acquired by an applicable specified affiliate is equal to the amount of the applicable specified affili- ate’s covered fundings that are allocated to a covered purchase. To the extent cov- ered fundings are allocated to a covered purchase, those fundings would not be allocated to any other covered purchases. The proposed funding rule would pro- vide that a covered purchase is treated as made first from covered fundings such that, to the extent there is both a covered funding and a covered purchase subject to the proposed funding rule, such cov- ered purchase is treated as funded by the covered funding before fundings received from other sources. The proposed funding rule would fur- ther provide that, if there is a single cov- ered funding, the covered funding is allo- cated to a covered purchase to the extent of the lesser of the amount of the covered funding or the amount of the covered purchase. If there are multiple covered fundings, and if the aggregate amount of those fundings exceeds the amount of the covered purchase, then covered fundings would be allocated to the covered purchase in the order in which the covered fundings occur (a “first in, first out” approach). If multiple covered fundings occur simulta- neously, those covered fundings would be allocated to the covered purchase on a pro rata basis. If there are multiple covered purchases, then covered fundings would be allocated to the covered purchases in the order in which the covered purchases occur. If multiple covered purchases occur simulta- neously, then covered fundings would be allocated to those simultaneous covered purchases on a pro rata basis. 3. Response to Feedback on the Notice Funding Rule a. Authority for the Notice funding rule Stakeholders requested that the Notice funding rule be withdrawn for various reasons, including that, in the stakehold- ers’ view, the Notice funding rule is not supported by the statutory language and is contrary to congressional intent. Stakeholders asserted that the Notice funding rule is contrary to the statutory lan- guage in section 4501(d)(1) because that language requires the applicable specified affiliate to acquire the stock of the appli- cable foreign corporation, as opposed to merely funding a separate entity’s acqui- sition of such stock. Several stakeholders also alleged that section 4501(f) does not provide sufficient authority for the Notice funding rule because the Notice fund- ing rule does not appropriately target the avoidance of section 4501(d)(1) and does not carry out, or prevent the avoidance of, the purposes of section 4501. Stakeholders also asserted that the Notice funding rule and the per se rule are otherwise overbroad, particularly given that section 4501(d)(1) only applies to a set of transactions—certain acquisitions by applicable specified affiliates of stock of an applicable foreign corporation—that stakeholders alleged occur rarely, if ever (for example, because foreign law prohib- its a subsidiary from owning stock of its ultimate parent entity). As a threshold matter, the Treasury Department and the IRS continue to be of the view that, for several reasons, a version of the funding rule is necessary to carry out the purposes of, and to prevent avoid- ance of, the section 4501(d) excise tax. As acknowledged by stakeholders, an appli- cable specified affiliate potentially could avoid the section 4501(d) excise tax with relative ease absent a funding rule. Accord- ingly, the Treasury Department and the IRS are of the view that a version of the funding rule is necessary to prevent such avoidance of the section 4501(d) excise tax. May 13, 2024 1120 Bulletin No. 2024–20 The Treasury Department and the IRS are also of the view that the proposed funding rule is an appropriate and permis- sible exercise of the broad grant of author- ity in section 4501(f) to prescribe regula- tions and other guidance as necessary or appropriate to carry out, and to prevent the avoidance of, the purposes of the stock repurchase excise tax, including guidance for the application of the rules of section 4501(d). As one stakeholder noted, stat- utory grants of regulatory authority like section 4501(f) generally are understood to be broad. For example, see H.R. Rep. No. 100-795, at 54 (1988) (stating that the Treasury Department has, under section 382(m) of the Code, “broad regulatory authority to prescribe any regulations nec- essary or appropriate to carry out the pur- poses of the loss limitation provisions”). Further, longstanding rules in other Trea- sury regulations provide that, if a taxpayer funds an acquisition of property by a rele- vant related party rather than acquiring the property itself, the taxpayer can be treated in appropriate circumstances as acquiring the property for certain Federal income tax purposes if the funding satisfies a prin- cipal purpose requirement. See §§1.304- 4(b)(1); 1.956-1(b)(1)(iii). The Treasury Department and the IRS therefore are of the view that the statutory language of section 4501, including section 4501(f), authorizes the proposed funding rule. The Treasury Department and the IRS also are of the view that the alleged rar- ity of relevant acquisitions by applicable specified affiliates does not address the concern that an applicable specified affil- iate potentially could, with relative ease, fund another entity’s repurchase or acqui- sition of the stock of an applicable foreign corporation. One stakeholder noted survey results indicating that some respondents do have acquisitions of parent stock by subsidiaries in their multinational groups. The enactment of section 4501(d)(1) indicates congressional intent to address acquisitions of stock of an applicable for- eign corporation by applicable specified affiliates. In addition, other provisions in the Code and Treasury regulations recog- nize and address the Federal income tax consequences of a subsidiary’s acquisition of a parent entity’s stock. For example, Treasury regulations specifically address certain transactions undertaken by taxpay- ers involving a subsidiary’s acquisition of parent stock. See §1.367(b)-10 (providing treatment of certain transactions in which a foreign subsidiary acquires stock of a parent corporation). In addition, as discussed in part XVI.D.2.a of this Explanation of Provi- sions, the proposed funding rule would not include the per se rule. Instead, the proposed funding rule would provide a more targeted rebuttable presumption that applies only with respect to downstream relevant entities. The rebuttable presump- tion would apply over the same timeframe as the per se rule; however, unlike the per se rule, the rebuttable presumption would apply only to a limited category of fund- ings and could be rebutted. This replace- ment of the per se rule with the rebutta- ble presumption would materially narrow the scope of the proposed funding rule relative to the Notice funding rule. The Treasury Department and the IRS are of the view that this narrower scope of the proposed funding rule further addresses concerns raised by stakeholders related to the Notice funding rule and the per se rule. b. Principal purpose standard Certain stakeholders questioned how to determine whether a taxpayer has a prin- cipal purpose of avoiding the stock repur- chase excise tax under the Notice funding rule. The proposed funding rule would clarify that, if a principal purpose of the covered funding is to fund, directly or indirectly, a covered purchase, then there is a principal purpose of avoiding the sec- tion 4501(d) excise tax. In addition, one stakeholder recom- mended that the Notice funding rule provide specific factors to be considered in determining whether a taxpayer has a principal purpose of avoiding the stock repurchase excise tax. The proposed funding rule would not add such specific factors because the relevant factors may vary depending on the particular facts and circumstances in each case. The Trea- sury Department and the IRS are of the view that this approach is in accordance with other statutory and regulatory rules involving or requiring a principal purpose, as those rules typically do not provide specific factors for determining whether a principal purpose is present. However, the proposed funding rule would clarify that whether a covered funding is described in proposed §58.4501-7(e)(1) is determined based on all the facts and circumstances. Further, another stakeholder recom- mended that the principal purpose stan- dard be changed from requiring “a” prin- cipal purpose of avoidance to requiring “the” principal purpose of avoidance (akin to the standard in section 269 of the Code). The proposed funding rule would not change its principal purpose standard in this manner. The Treasury Department and the IRS are of the view that requiring “a” principal purpose is common in exist- ing rules analogous to the proposed fund- ing rule. The Treasury Department and the IRS are of the view that, if the other requirements to apply the proposed fund- ing rule are met, then it would be appropri- ate for the proposed funding rule to apply if “a” principal purpose of the funding is described in proposed §58.4501-7(e)(1). c. Limitation to certain relevant entities Several stakeholders recommended that the per se rule be limited to acqui- sitions by certain persons other than the applicable foreign corporation, such as subsidiaries of an applicable specified affiliate. Another stakeholder similarly recommended limiting the application of the Notice funding rule to subsidiar- ies of the applicable specified affiliate by interpreting the term “acquisition” to include indirect acquisitions by applica- ble specified affiliates through domestic subsidiaries, domestic and foreign part- nerships, and controlled foreign corpora- tions (CFCs) owned (within the meaning of section 958(a) of the Code) by appli- cable specified affiliates. (Note that such intermediate domestic entities also would be applicable specified affiliates, so their acquisitions would separately be subject to section 4501(d)(1)). The Treasury Department and the IRS are of the view that the application of the proposed funding rule should not be lim- ited in this manner. This type of limitation on the scope of the funding rule poten- tially would allow the rule to be avoided with relative ease through funding to whichever related entities are excluded from the scope of the proposed funding rule. Accordingly, the proposed funding Bulletin No. 2024–20 1121 May 13, 2024 rule could apply regardless of whether the funded entity is an applicable foreign cor- poration, brother-sister entity, or subsidi- ary of the applicable specified affiliate. However, the Treasury Department and the IRS are of the view that applying the rebuttable presumption solely to fundings of downstream relevant entities is appro- priate. In line with observations from certain stakeholders, these “downstream” fundings—in which one or more appli- cable specified affiliates have a material ownership stake in the relevant entity that receives a funding and by or on behalf of whom the covered purchase is made— strongly implicate the anti-avoidance con- cerns that motivate the proposed funding rule. Accordingly, the Treasury Depart- ment and the IRS are of the view that the rebuttable presumption would appropri- ately be applied in that context. d. Recommended exclusions from the Notice funding rule Stakeholders suggested that, if the Notice funding rule is retained, then cer- tain ordinary-course fundings should be excluded from the meaning of a “fund- ing,” such as arm’s-length payments (including payments for inventory, ser- vices, or treasury functions) or payments of royalties or interest. In addition, one stakeholder requested that a “funding” should not include payments made pur- suant to a so-called “recharge agreement” in which an applicable specified affiliate reimburses the applicable foreign corpora- tion for providing stock to the applicable specified affiliate’s employees. Several stakeholders also requested that certain types of taxpayers, such as foreign banks or financial institutions, should be exempt from the Notice fund- ing rule because they frequently engage in intercompany financing transactions as part of their ordinary course of business (and such intercompany activity should not be viewed as abusive or as avoidance of the section 4501(d) excise tax). The section 4501(d) proposed regula- tions would not adopt exclusions from the rebuttable presumption or the proposed funding rule for specific types of fundings or for taxpayers in specific industries. The targeted scope of the rebuttable presump- tion means that only a limited category of fundings would be subject to the rebut- table presumption. The Treasury Depart- ment and the IRS are of the view that the elimination of the per se rule and the targeted nature of the rebuttable presump- tion appropriately address the concerns reflected in the feedback requesting these exclusions. Further, the Treasury Depart- ment and the IRS are of the view that exclusions for taxpayers in specific indus- tries are not appropriate in this context as a general matter. The Treasury Depart- ment and the IRS also are of the view that the manner in which the exception for repurchases or acquisitions by a dealer in securities would apply with respect to covered purchases further addresses these concerns. See proposed §58.4501-7(m) (4). e. Treaty and extraterritoriality concerns Stakeholders also asserted that the Notice funding rule, including the per se rule, overrides arm’s-length transfer pricing principles, is contrary to bilateral income tax treaties and Organisation for Economic Co-operation and Development (OECD) efforts involving extraterrito- rial taxation, and creates the risk of other countries imposing an analogous rule with respect to fundings provided to a U.S. cor- poration to repurchase its own stock. The Treasury Department and the IRS are of the view that the Notice funding rule generally does not implicate these concerns. The section 4501(d) excise tax is imposed on an applicable specified affiliate or expatriated entity, and not the applicable foreign corporation or covered surrogate foreign corporation, as applica- ble. The section 4501(d) excise tax is also an excise tax and not an income tax. In any event, the Treasury Department and the IRS also are of the view that the tailoring of the proposed funding rule—including the elimination of the per se rule and the other limits described previously—would appropriately address the concerns moti- vating this feedback. f. Funding from multiple sources Stakeholders also requested guid- ance on how to apply the funding rule if a funded entity receives funding from multiple sources. In those cases, different ordering rules or conventions could result in differences in the potential section 4501(d) excise tax liability after applica- tion of the funding rule. The Treasury Department and the IRS agree that guidance on ordering rules or conventions would be helpful in applying the proposed funding rule. Accordingly, the proposed fund rule would include the allocation and timing rules previously described in part XVI.D.2.b of this Expla- nation of Provisions. The Treasury Department and the IRS considered other timing and allocation rules in developing the proposed funding rule, such as allocation rules that allocate a specific funding amount to a covered purchase if the particular funds or assets can be “traced” to a covered purchase, or allocation rules that base the allocation on a proration of fundings received from all sources. The Treasury Department and the IRS are of the view that proposed ordering rules should: (i) recognize the typically fungible nature of liquid assets; (ii) take into account that transactions subject to the proposed funding rule have a principal purpose of funding a stock repurchase or acquisition; and (iii) be administrable. The Treasury Department and the IRS are of the view that the allocation method in the proposed funding rule is both rea- sonable and administrable. As previously described, the proposed funding rule would provide that a covered purchase is treated as made first from covered fund- ings such that, to the extent there is both a covered funding and a covered purchase subject to the proposed funding rule, such covered purchase is treated as funded by the covered funding before fundings received from other sources. The Treasury Department and the IRS are of the view that treating a funding made with a rele- vant principal purpose as actually being used for that purpose is appropriate. Further, the proposed allocation rules would be more administrable than other allocation rules (such as a pure “tracing” approach, or a proration of fundings from all sources) because the proposed rules would not require taxpayers to track or order fundings other than covered fund- ings. Additionally, a pure “tracing” rule potentially would permit avoidance of the funding rule with relative ease given the fungible nature of liquid assets that often May 13, 2024 1122 Bulletin No. 2024–20 may be most relevant to the proposed funding rule. E. Status as an applicable foreign corporation, covered surrogate foreign corporation, applicable specified affiliate, relevant entity, specified affiliate 1. Status as an Applicable Foreign Corporation or a Covered Surrogate Foreign Corporation The rules for determining when a cor- poration becomes or ceases to be an appli- cable foreign corporation or a covered sur- rogate foreign corporation are provided in proposed §58.4501-7(f). These rules are based on the rules in proposed §58.4501- 2(d) (duration of covered corporation sta- tus) for determining when a corporation becomes or ceases to be a covered corpora- tion. Under proposed §58.4501-7(f)(2), in general, a corporation becomes an appli- cable foreign corporation or a covered sur- rogate foreign corporation, as applicable, at the beginning of the initiation date (as defined in proposed §58.4501-1(b)(15)), and a corporation ceases to be an applica- ble foreign corporation or a covered sur- rogate foreign corporation, as applicable, at the end of the cessation date (as defined in proposed §58.4501-1(b)(2)). Proposed §58.4501-7(f)(2) and (3), respectively, would provide additional rules for when (i) a corporation transfers its assets in an inbound or outbound F reorganization, or (ii) a foreign corporation ceases to be an applicable foreign corporation or a cov- ered surrogate foreign corporation as part of a transaction that includes a section 4501(d)(1) repurchase or section 4501(d) (2) repurchase, as applicable. 2. Status as an Applicable Specified Affiliate, Relevant Entity, or Specified Affiliate The rules for determining whether a corporation or a partnership is an applica- ble specified affiliate or a relevant entity of an applicable foreign corporation or a specified affiliate of a covered surro- gate foreign corporation, as applicable, are provided in proposed §58.4501-7(g). These rules are based on the rules in pro- posed §58.4501-2(f)(2) (determination of specified affiliate status). Under proposed §58.4501-7(g)(1), the determination of whether a corporation or partnership is an applicable specified affiliate or a relevant entity of an applicable foreign corporation or a specified affiliate of a covered surro- gate foreign corporation, as applicable, is made whenever such determination is relevant. In the case of tiered ownership structures, the rules for determining indi- rect ownership are consistent with the rules provided in §58.4501-2(f)(2)(ii), except for a special rule (described in part XVI.F of this Explanation of Provisions) that applies for purposes of determining whether a domestic entity is a direct or indirect partner in a partnership. See pro- posed §58.4501-7(g)(2). Finally, similar to proposed §58.4501- 2(f)(3), proposed §58.4501-7(g)(3) describes the tax consequences if a corpo- ration or partnership becomes a specified affiliate and owns stock of the applicable foreign corporation or covered surrogate foreign corporation, as applicable, that was acquired after December 31, 2022. In this case, for purposes of applying the section 4501(d) proposed regulations, the corporation or partnership is generally treated as acquiring such stock immedi- ately after the corporation or partnership becomes a specified affiliate. F. Foreign partnerships that are applicable specified affiliates 1. In General Section 4501(d)(1) provides that, if a foreign partnership that is a specified affil- iate of an applicable foreign corporation has a direct or indirect partner that is a domestic entity, then the foreign partner- ship is an applicable specified affiliate of the application foreign corporation. The rules for determining if a foreign partner- ship is an applicable specified affiliate are in proposed §58.4501-7(h). 2. Direct and Indirect Partners In section 6 of Notice 2023-2, the Trea- sury Department and the IRS requested comments regarding the factors that should be considered in determining whether a domestic entity is an indirect partner of a foreign partnership for pur- poses of section 4501(d)(1). One stakeholder recommended that indirect domestic partners not be taken into account if they hold their interests in the foreign partnership through an intermedi- ate foreign corporation or an intermediate domestic corporation or partnership. (In the latter case, the intermediate domestic cor- poration or partnership itself already would be a direct or indirect domestic partner.) The stakeholder argued that this recommen- dation is consistent with general Federal income tax principles and would simplify the determination of whether a domestic entity is an indirect partner of a foreign part- nership. Another stakeholder recommended that the stock repurchase excise tax apply to acquisitions by a foreign partnership in which a domestic entity owns (within the meaning of section 958(a)) its interest directly or indirectly through a CFC. The Treasury Department and the IRS do not agree with the first recommenda- tion because the statute does not limit indirect ownership to indirect ownership solely through a foreign partnership. Moreover, limiting the scope of indirect ownership in this manner for purposes of determining whether a foreign partnership is an applicable specified affiliate could facilitate avoidance of the statute. For instance, a domestic entity could form a wholly owned foreign corporation to hold the domestic entity’s interest in a foreign partnership in which the domestic entity otherwise would be a domestic entity partner for purposes of section 4501(d) (1). The Treasury Department and the IRS are of the view that this type of transaction should not alter whether a foreign partner- ship is an applicable specified affiliate for purposes of section 4501(d)(1). Accord- ingly, section 4501(d) proposed regula- tions would not follow this approach. With respect to the second recommen- dation, although the stakeholder made this suggestion in the context of interpreting the term “acquisition,” the Treasury Depart- ment and the IRS agree that a domestic entity that owns its interest in a foreign partnership through a CFC generally should be an indirect partner for purposes of determining whether a foreign partner- ship is an applicable specified affiliate. The section 4501(d) proposed reg- ulations would, in part, follow a simi- lar approach. Specifically, the section 4501(d) proposed regulations would pro- Bulletin No. 2024–20 1123 May 13, 2024 vide that a domestic entity is an indirect partner with respect to a foreign partner- ship if the domestic entity owns an interest in the foreign partnership through: (i) one or more foreign partnerships; (ii) one or more foreign corporations controlled by one or more domestic entities (domestic control requirement), or (iii) an ownership chain with one or more entities described in the preceding clauses (i) and (ii). See proposed §58.4501-7(h)(2)(ii). For this purpose, a foreign corporation is controlled by one or more domestic entities if more than 50 percent of the total combined voting power of all classes of stock of such corporation entitled to vote or the total value of the stock of such cor- poration is owned, directly or indirectly, in aggregate by one or more domestic entities. See proposed §58.4501-7(h)(3). These domestic entities do not need to be related to each other. However, the section 4501(d) proposed regulations would provide that a domestic entity is not treated as indirectly owning stock in a foreign corporation or an inter- est in a foreign partnership solely by rea- son of owning, directly or indirectly, stock of the applicable foreign corporation. See proposed §58.4501-7(h)(4). For example, assume that a U.S. corporation (USX) directly owns stock of an applicable for- eign corporation (FP), which directly owns 100 percent of the stock of two foreign cor- porations, FS1 and FS2. FS1 and FS2, in aggregate, own all the interests in a foreign partnership (FPS). Under these facts, USX would not be treated as indirectly owning stock of FS1 or FS2 or an interest in FPS. The Treasury Department and the IRS are of the view that, absent the domestic control requirement, look-through for indi- rect ownership for this purpose under the statute would require full, proportionate look-through of all foreign corporations. See part XVI.E.2 of this Explanation of Provisions. The Treasury Department and the IRS are of the view that it is appropriate to narrow the application of this statutory rule in this context to address compliance and administrability concerns. 3. The Proposed De Minimis Rule for Domestic Entity Ownership Several stakeholders recommended that the Treasury Department and the IRS: (i) adopt a de minimis threshold for direct or indirect domestic ownership of a foreign partnership before the foreign partnership is treated as an applicable specified affiliate; and (ii) limit the appli- cability of section 4501(d)(1) to foreign partnerships to situations in which the domestic entity partner is related to the relevant applicable foreign corporation. Although the plain language of the statute does not provide for either of these lim- itations, the stakeholders contended that a de minimis exception or a relatedness requirement (or both) are appropriate in light of the statute’s focus on entities with a meaningful U.S. connection and the potential diligence issues with determin- ing indirect domestic ownership for for- eign partnerships potentially subject to the section 4501(d) excise tax. One stakeholder recommended a de minimis threshold of one or two per- cent, analogizing to de minimis excep- tions under other Code provisions (see §§1.351-1(c)(7), Example 1 (treating a less-than-one percent interest as de minimis for purposes of section 351(e)), and 1.1202-2(a)(2) (applying a two per- cent de minimis threshold for purposes of section 1202 of the Code)). Another stakeholder recommended a 10 percent de minimis threshold, analogizing to §1.59A-7(d)(2) (exception for base ero- sion tax benefits for certain small part- ners). A stakeholder also suggested that the section 4501(d) proposed regulations should require the domestic entity part- ner to be related (within the meaning of section 267 of the Code) to the applica- ble foreign corporation in order to be consistent with the purpose of the stock repurchase excise tax, which (in the stakeholder’s view) was to impose a tax on repurchases or acquisitions of stock of publicly traded corporations and per- sons related to them. The Treasury Department and the IRS are of the view that a de minimis thresh- old would be appropriate to address com- pliance and administrability concerns regarding the determination of when direct or indirect ownership by domestic entity partners causes a foreign partner- ship to be an applicable specified affiliate. Accordingly, the section 4501(d) proposed regulations would provide that a foreign partnership with one or more direct or indirect domestic entity partners is not considered an applicable specified affili- ate if the domestic entities hold, directly or indirectly, in aggregate, less than five percent of the capital and profits interests in the foreign partnership. See proposed §58.4501-7(h)(5). The Treasury Department and the IRS also are of the view that, because the statute does not require any relationship between the direct or indirect domestic entity partner and the applicable foreign corporation of which the foreign partner- ship is a specified affiliate, no such rela- tionship is required. The addition of such a relatedness requirement in the section 4501(d) proposed regulations would be a departure from the statutory structure. However, the de minimis rule would pro- vide a minimum threshold of direct or indirect domestic ownership required for treating a foreign partnership as an appli- cable specified affiliate. 4. Domestic Entity A stakeholder recommended that a domestic entity that is a disregarded entity and holds an interest in a partnership should not itself be treated as a partner. The statute does not treat a “true” U.S. branch as a domestic entity; therefore, the Treasury Department and the IRS agree with this recommendation. See pro- posed §58.4501-7(b)(2)(x) (definition of “domestic entity”). 5. Filing Requirements Section 6.02(6) of Notice 2023-2 requested comments on whether the for- eign partnership or the domestic entity partner should be required to file the Form 720 and pay the stock repurchase excise tax. Several stakeholders recommended that the domestic entity partner be required to file the stock repurchase excise tax return and pay the stock repurchase excise tax. One stakeholder requested guidance regarding the level of diligence required to determine whether a foreign partner- ship has a direct or indirect domestic entity as a partner. The stakeholder recom- mended that the diligence process should not impose undue burdens and expense on taxpayers given the limited application of the stock repurchase excise tax to acqui- May 13, 2024 1124 Bulletin No. 2024–20 sitions of applicable foreign corporation stock by foreign entities. The stakeholder therefore recom- mended that, assuming a 10 percent de minimis partner threshold and a relat- ed-party requirement (discussed in part XVI.F.2 of this Explanation of Provi- sions), the domestic entity partner(s), rather than the foreign partnership, should be required (i) to determine the applica- bility of the stock repurchase excise tax, and (ii) to report and pay the stock repur- chase excise tax on the full amount of the stock acquisition. The stakeholder noted that imposing the reporting and payment obligation on domestic entities does not raise the jurisdictional, enforcement, and collectability challenges that arise when such obligations are imposed on the for- eign partnership, and that regulations could impose joint and several liability on the domestic entity partner(s). The stake- holder also recommended that the section 4501(d) proposed regulations provide pro- cedures describing how a domestic entity may determine whether it holds the requi- site ownership interest in a foreign part- nership and whether the stock repurchase excise tax applies, and suggested rules similar to the safe harbor rules for deter- mining whether a domestic entity holds an interest in a CFC in Rev. Proc. 2019-40, 2019-43 I.R.B. 982. However, the stakeholder acknowl- edged that, if the 10 percent de minimis threshold and related-party requirements were not adopted, then a relatively small indirect domestic partner would not be able to file the stock repurchase excise tax return as it would be unlikely to have the requisite information. In the stakeholder’s view, imposing the full excise tax on such partners would be unfair. Accordingly, the stakeholder recommended that, in this scenario, domestic partners only should be required to pay their allocable share of stock repurchase tax, although the stake- holder acknowledged that this approach could be complex and impracticable. The Treasury Department and the IRS do not agree that the domestic entity part- ner should be required to file Form 720 and pay the section 4501(d) excise tax. Under the statute, the foreign partnership is the entity that is the applicable speci- fied affiliate, which, in turn, is the entity that is liable for the section 4501(d) excise tax. The Treasury Department and the IRS continue to evaluate adding items relevant to the section 4501(d) excise tax to other existing tax return forms, including forms that at least certain domestic entity part- ners may otherwise be required to file. Consequently, the section 4501(d) pro- posed regulations would not provide spe- cial filing or liability rules with respect to an applicable specified affiliate that is a foreign partnership with a direct or indi- rect domestic entity partner. Rather, such an applicable specified affiliate would be subject to the general requirements that apply to all entities that are section 4501(d) covered corporations. The section 4501(d) proposed regu- lations also would not include diligence procedures for determining an entity’s status as an applicable specified affiliate. The Treasury Department and the IRS are of the view that relevant diligence consid- erations may vary based on the particular facts and circumstances, and so specific guidelines would be neither appropriate nor practical. G. AFC repurchases and CSFC repurchases Proposed §58.4501-7(j) would provide rules for determining whether an acquisi- tion by an applicable foreign corporation of its stock is an “AFC repurchase” and whether an acquisition by a covered sur- rogate foreign corporation of its stock is a “CSFC repurchase” for purposes of pro- posed §58.4501-7. These rules are based on the rules in proposed §58.4501-2(e) for determining whether a transaction is a repurchase for purposes of proposed §58.4501-2. These rules are relevant for purposes of determining whether there is a covered purchase that could be subject to the proposed funding rule and whether a covered surrogate foreign corporation’s repurchase of its stock is subject to section 4501(d)(2). H. Date of section 4501(d)(1) or section 4501(d)(2) repurchase; fair market value of stock Proposed §58.4501-7(k) would pro- vide rules for determining the date on which a section 4501(d)(1) repurchase or a section 4501(d)(2) repurchase occurs. These proposed rules generally reflect the rules in proposed §58.4501-2(g), except that the rule in proposed §58.4501-7(k) (4) would provide that stock subject to a covered purchase to which the funding rule applies is treated as acquired by the applicable specified affiliate on the later of the date of the covered funding or the covered purchase. See part XVI.D.2.b of this Explanation of Provisions. Proposed §58.4501-7(l) would provide rules for determining the fair market value of stock of an applicable foreign corpora- tion or a covered surrogate foreign cor- poration, as applicable, that is subject to a section 4501(d)(1) repurchase or a sec- tion 4501(d)(2) repurchase. These rules generally follow the rules in proposed §58.4501-2(h) for determining the fair market value of stock of a covered corpo- ration that is repurchased. I. Section 4501(d) statutory exceptions 1. In General Section 4501(d) operates by modify- ing the general rules in section 4501(a) and (c). Because section 4501(d) oper- ates in this manner, the section 4501(e) exceptions can be relevant to transactions subject to section 4501(d), except in one respect described in part XVI.I.2 of this Explanation of Provisions. Proposed §58.4501-7(m) would pro- vide rules for determining the applica- bility of the statutory exceptions (section 4501(d) statutory exceptions), other than the section 4501(d) de minimis exception, to transactions that are subject to section 4501(d). The rules in proposed §58.4501- 7(m) are based on the rules in proposed §58.4501-3, with certain modifications discussed in part XVI.I.2 of this Explana- tion of Provisions. For a discussion of the section 4501(d) de minimis exception, see part XVI.B.2 of this Explanation of Pro- visions. 2. Application of Section 4501(d) Statutory Exceptions The section 4501(d) reorganization exception would apply only with respect to stock of an applicable foreign corpo- ration repurchased in an AFC repurchase that is a section 4501(d)(1) repurchase Bulletin No. 2024–20 1125 May 13, 2024 and to stock of a covered surrogate for- eign corporation repurchased in a CSFC repurchase that is a section 4501(d)(2) repurchase. See proposed §58.4501-7(m) (2). The Treasury Department and the IRS are of the view that, based on the statutory language and the operation of section 4501(d), the relevant “stock” for purposes of applying the section 4501(d) reorganization exception is the stock of the applicable foreign corporation or the covered surrogate foreign corporation, as applicable. The references to “stock” in section 4501 refer to stock of the types of corporations subject to the excise tax that is repurchased or acquired—that is, cov- ered corporations, applicable foreign cor- porations, and covered surrogate foreign corporations. Thus, the plain language of the statute demonstrates that “stock” for purposes of the section 4501(d) reorgani- zation exception can only be stock of the applicable foreign corporation or covered surrogate corporation, as applicable. In accordance with this plain meaning, the Treasury Department and the IRS are of the view that the section 4501(d) reorga- nization exception only applies to repur- chases and acquisitions of the equity of the corporation that is traded on an estab- lished securities market. The stock contribution exception would apply only with respect to contri- butions of stock of an applicable foreign corporation or a covered surrogate foreign corporation, as applicable, to an employ- er-sponsored retirement plan of the sec- tion 4501(d) covered corporation. See proposed §58.4501-7(m)(3). The section 4501(d) proposed regulations would limit the employer-sponsored retirement plan exception to contributions to the employ- er-sponsored retirement plans of the sec- tion 4501(d) covered corporation to be consistent with the scope of the section 4501(d) netting rule, which only allows netting of stock provided by an applicable specified affiliate or an expatriated entity to its respective employees. The section 4501(d) proposed regu- lations would apply the section 4501(e) (4) exception for certain repurchases by a dealer in securities in the ordinary course of the dealer’s business based on the rules in proposed §58.4501-3(e). See proposed §58.4501-7(m)(4). For this purpose, the exception would apply to any repurchas- ing or acquiring entity that is a dealer in securities, whether such entity is an appli- cable foreign corporation, covered sur- rogate foreign corporation, or a specified affiliate of either. The section 4501(d) proposed regu- lations would provide that the exception for RICs and REITs does not apply to a section 4501(d) repurchase or section 4501(d)(2) repurchase because each of an applicable foreign corporation or a cov- ered surrogate foreign corporation will not qualify as a RIC or a REIT. See proposed §58.4501-7(m)(5). The dividend equivalence exception in proposed §58.4501-7(m)(6) gener- ally reflects the exception in proposed §58.4501-3(g), including that the excep- tion would apply to repurchases (as defined in proposed §§58.4501-2(e) and 58.4501-7(j)) but not to acquisitions by specified affiliates. However, with respect to the rebuttable presumption of no div- idend equivalence, proposed §58.4501- 7(m)(6)(ii) would differ regarding how a section 4501(d) covered corporation may rebut the presumption, because section 4501(d) covered corporations are not the entities that are engaging in the repur- chase for purposes of determining divi- dend equivalence. Further, unlike covered corporations, certain applicable foreign corporations or covered surrogate foreign corporations may not have relevant Fed- eral income tax return filing requirements. 3. Feedback Received One stakeholder requested clarifica- tion that the exceptions in section 4501(e) apply with respect to stock acquisitions or repurchases under section 4501(d). The section 4501(d) proposed regula- tions would implement that request in the manner described in part XVI.I.2 of this Explanation of Provisions. One stakeholder recommended that, if an applicable specified affiliate uses stock of the applicable foreign corpora- tion as consideration in a transaction, its acquisition of the applicable foreign cor- poration stock should not be subject to section 4501(d)(1) as a matter of policy because the total amount of outstanding equity of the applicable foreign corpora- tion would not be changed as a result of the two transactions taken together. The Treasury Department and the IRS are of the view that this recommendation is con- trary to the plain language and statutory structure of section 4501(d)(1). However, in appropriate cases, transfers of applica- ble foreign corporation stock may qualify for a section 4501(d) statutory exception. J. Section 4501(d) netting rule 1. Overview Section 4501(d)(1)(C) and (d)(2) (C) provide that the adjustment in sec- tion 4501(c)(3) is determined only with respect to stock issued or provided by the section 4501(d) covered corporation to employees of the section 4501(d) cov- ered corporation. Proposed §58.4501- 7(n) would provide rules for applying the section 4501(d) netting rule. Proposed §58.4501-7(n) would clarify that the sec- tion 4501(d) netting rule applies only to stock of the applicable foreign corporation or covered surrogate foreign corporation, as applicable, that is issued or provided by a section 4501(d) covered corporation to an employee in connection with the employee’s performance of services in the employee’s capacity as an employee of the section 4501(d) covered corporation. These proposed rules are generally based on the rules in proposed §58.4501- 4, except that proposed §58.4501-7(n) generally would incorporate the provi- sions of proposed §58.4501-5 relating to the issuance or provision of stock to employees in connection with the perfor- mance of services. 2. Feedback Received a. Relevant stock Section 6 of Notice 2023-2 requested comments on whether, for purposes of the section 4501(d) netting rule, there are any circumstances in which stock of the applicable specified affiliate or expatri- ated entity should be taken into account in addition to, or in lieu of, the stock of the applicable foreign corporation or covered surrogate foreign corporation, respec- tively. One stakeholder recommended that, because the statute uses the term “issued by,” and an applicable specified affiliate or May 13, 2024 1126 Bulletin No. 2024–20 expatriated entity can issue only its own stock, stock of the applicable specified affiliate or expatriated entity, as applica- ble, should be taken into account for pur- poses of the section 4501(d) netting rule. The stakeholder also recognized that an applicable specified affiliate could provide the stock of the applicable foreign corpo- ration to its employees, or an expatriated entity could provide the stock of the cov- ered surrogate foreign corporation to its employees. The Treasury Department and the IRS are of the view that, based on the statutory language, the relevant “stock” referenced in section 4501(d)(1)(C) and (d)(2)(C) is stock of the applicable foreign corporation and covered surrogate foreign corpora- tion. All antecedent references to “stock” in section 4501(d) refer to stock of the applicable foreign corporation and cov- ered surrogate foreign corporation. More broadly, all other references to “stock” in section 4501 refer to stock of the types of corporations subject to the excise tax that is repurchased or acquired—that is, covered corporations, applicable foreign corporations, and covered surrogate for- eign corporations. Further, if an applica- ble specified affiliate or expatriated entity transfers to an employee treasury stock of an applicable foreign corporation or a covered surrogate foreign corporation, that transfer could be interpreted to con- stitute an issuance of that stock within the meaning of the statutory language. Thus, the plain language of the statute demonstrates that “stock” for purposes of the section 4501(d) netting rule only can be stock of the applicable foreign corpo- ration or covered surrogate corporation, as relevant. In accordance with this plain meaning, the Treasury Department and the IRS are of the view that the section 4501(d) netting rule functions to tailor the section 4501(d) excise tax base to the net reduction of the equity of the corporation that is traded on an established securities market. Further, the stakeholder acknowledged that, under its recommendation, a part- nership that is a section 4501(d) covered corporation would be unable to qualify for the section 4501(d) netting rule with respect to its equity because partnership interests are not “stock.” However, this discontinuity in the application of the sec- tion 4501(d) netting rule would be avoided if “stock” is interpreted to refer to stock of an applicable foreign corporation or a covered surrogate foreign corporation. The stakeholder further acknowledged that allowing netting under the section 4501(d) netting rule for stock of a section 4501(d) covered corporation would permit the section 4501(d) covered corporation to redeem any such issued stock without application of section 4501 (assuming the applicable specified affiliate or expatriated entity is not itself a covered corporation). The Treasury Department and the IRS are of the view that it is not appropriate to allow stock issuances by section 4501(d) covered corporations to reduce the section 4501(d) excise tax base if the repurchase or acquisition of that stock would not be subject to section 4501. Accordingly, the section 4501(d) pro- posed regulations would provide that only stock of the applicable foreign corporation or covered surrogate foreign corporation, as appropriate, is taken into account for purposes of the section 4501(d) netting rule. See proposed §58.4501-7(n)(1). b. Stock issued or provided by specified affiliates The section 4501(d) netting rule would apply only with respect to stock issued or provided by the section 4501(d) covered corporation to employees (in connection with the performance of services) of the section 4501(d) covered corporation. See proposed §58.4501-7(n)(1). However, stakeholders recommended that, if the Notice funding rule applies to treat an applicable specified affiliate as acquir- ing the stock of the applicable foreign corporation when it funds the applicable foreign corporation’s repurchase, the pro- posed regulations also should provide that the section 4501(d) netting rule applies at least to some degree with respect to stock issued or provided by the applicable foreign corporation to employees of the applicable foreign corporation. The Treasury Department and the IRS are of the view that such a modification would be inappropriate. The proposed funding rule is intended to prevent an applicable specified affiliate from avoid- ing the section 4501(d) excise tax through funding transactions. Therefore, the sec- tion 4501(d) proposed regulations should not provide for such an expansion of the section 4501(d) netting rule if the funding rule applies. Furthermore, the Treasury Department and the IRS are of the view that this requested modification to the sec- tion 4501(d) netting rule is unwarranted given the narrower scope of the proposed funding rule relative to the Notice funding rule. One stakeholder also requested clarifi- cation as to whether the section 4501(d) netting rule is applied on an entity-by-en- tity basis or on an aggregate basis. Under an entity-by-entity approach, the section 4501(d) netting rule would be applied sep- arately to each section 4501(d) covered corporation. In contrast, under an aggre- gate approach, the modified netting rule would be applied on an aggregate basis to all section 4501(d) covered corporations. The stakeholder expressed the view that the entity-by-entity approach arguably is more consistent with the statutory lan- guage of the section 4501(d) netting rule, but that the aggregate approach would better achieve the anti-dilutive policy focus of the stock repurchase excise tax and simplify compliance. The Treasury Department and the IRS agree with the stakeholder that the enti- ty-by-entity approach follows the statu- tory language of the section 4501(d) net- ting rule. Section 4501(d)(1)(C) and (d) (2)(C) require the section 4501(d) netting rule to apply “only” with respect to stock issued or provided by “such” applicable specified affiliate or expatriated entity. Therefore, the Treasury Department and the IRS are of the view that the statute provides for an entity-by-entity approach. Furthermore, the Treasury Department and the IRS are of the view that it is not appropriate to expand the section 4501(d) netting rule beyond that statutory scope. c. Employee-related issues One stakeholder recommended that, for purposes of applying the section 4501(d) netting rule, employee status alone should be sufficient, and there should be no requirement that the stock be issued or provided to the employee in connection with the performance of services. The Treasury Department and the IRS do not agree with the stakeholder. The Bulletin No. 2024–20 1127 May 13, 2024 reference in the statue to “employees” is most naturally read to refer to employees in their capacity as employees providing services to their employer. The require- ment that the stock be issued in connec- tion with the performance of services also would prevent potential abuse in situa- tions in which a company could make an individual into a nominal employee and then allow the individual to acquire stock of the applicable foreign corporation or covered surrogate foreign corporation, as applicable. In addition, the issuance or provi- sion of an instrument that is not in the legal form of stock generally is dis- regarded for purposes of the section 4501(d) netting rule. An exception is provided if such an instrument is repur- chased or acquired in a section 4501(d) (1) repurchase or section 4501(d)(2) repurchase, as applicable, but only if such instrument is issued or provided by the section 4501(d) covered corporation to its employees. The Treasury Depart- ment and the IRS are of the view that it is unlikely that an applicable speci- fied affiliate would issue or provide an instrument that is not in the legal form of stock to its employees in connection with the employee’s performance of services in its capacity as an employee. The Treasury Department and the IRS request comments on whether this pro- vision should be retained, deleted, or modified to reflect actual practices of applicable specified affiliate issuing or providing instruments that are not in the legal form of stock as compensation for an employee’s performance of services. In section 6 of Notice 2023-2, the Treasury Department and the IRS also requested comments on whether, in cases in which a foreign partnership is the appli- cable specified affiliate, stock issued or provided to any employees of the foreign partnership should be taken into account, or whether the section 4501(d) netting rule should be applied to stock issued or provided only to employees of the domes- tic entity that is a direct or indirect partner. One stakeholder recommended against adopting an approach that would distin- guish between the treatment of domestic and foreign partnerships that are appli- cable specified affiliates because that approach would be inconsistent with the statute, which does not make that type of distinction. The Treasury Department and the IRS agree with the stakeholder that the sec- tion 4501(d) proposed regulations should not distinguish between the treatment of domestic partnership and foreign part- nerships in this respect for purposes of the section 4501(d) netting rule. Fur- thermore, section 4501(d)(1)(C) and (d) (2)(C) apply the section 4501(d) netting rule to “employees of the specified affil- iate” and “employees of the expatriated entity” (emphasis added). The statute thus provides for netting with respect to stock issued or provided to employees of the applicable specified affiliate or the expa- triated entity itself, and not to employees of partners or shareholders of the applica- ble specified affiliate or expatriated entity. K. Rules applicable before April 13, 2024. Proposed §58.4501-7(o) would pro- vide rules that track section 3.05(2) of Notice 2023-2 and that would apply to transactions occurring on or after Decem- ber 31, 2022, and before April 12, 2024. See proposed §58.4501-7(r)(2). A section 4501(d) covered corporation may gener- ally choose, in lieu of applying proposed §58.4501-7(o) to this period, to apply the section 4501(d) proposed regulations (other than proposed §§58.4501-7(o) and (r)(1)-(2)), as finalized. See proposed §58.4501-7(r)(3). Thus, a section 4501(d) covered corporation would have this option not to apply the rules in proposed §58.4501-7(o) to any period. See part XVI.L of this Explanation of Provisions (discussion of applicability dates for pro- posed §58.4501-7). L. Applicability dates Proposed §58.4501-7(r)(1) would provide that the section 4501(d) pro- posed regulations (other than proposed §58.4501-7(o)) generally apply to trans- actions occurring after April 12, 2024. See section 7805(b)(1)(B) of the Code. Trans- actions would include a covered purchase after that date to which a covered funding that occurred on or after December 27, 2022, and on or before April 12, 2024 is allocated. See proposed §58.4501-7(e)(1). Proposed §58.4501-7(r)(2) would pro- vide that proposed §58.4501-7(o) applies to transactions occurring on or after December 31, 2022, and on or before April 12, 2024. See section 7805(b)(1)(C). Transactions would include a covered pur- chase during this period that is funded by a funding that occurred on or after Decem- ber 27, 2022, and on or before April 12, 2024. See proposed §58.4501-7(o)(2). Proposed §58.4501-7(r)(3) would provide that a section 4501(d) cov- ered corporation may generally choose instead to apply the section 4501(d) pro- posed regulations (other than proposed §§58.4501-7(o) and (r)(1)-(2)), as final- ized, with respect to transactions occur- ring after December 31, 2022, subject to a consistency requirement. Transactions would include a covered purchase after December 31, 2022, to which a covered funding that occurred on or after Decem- ber 27, 2022, is allocated. See proposed §58.4501-7(e)(1). XVII. Procedure and Administration Subpart B of part 58, as proposed else- where in this issue of the Federal Reg- ister, would add rules on procedure and administration under sections 6001, 6011, 6060, 6061, 6065, 6071, 6091, 6107, 6109, 6151, 6694, 6695, and 6696 of the Code to prescribe the manner and method of reporting and paying the stock repur- chase excise tax. Effect on Other Documents Notice 2023-2, 2023-3 I.R.B. 374, is obsoleted for repurchases, issuances, and provisions of stock of a covered corpora- tion occurring after April 12, 2024. Special Analyses I. Regulatory Planning and Review— Economic Analysis Pursuant to the Memorandum of Agreement, Review of Treasury Regula- tions under Executive Order 12866 (June 9, 2023), tax regulatory actions issued by the IRS are not subject to the requirements of section 6 of Executive Order 12866, as amended. Therefore, a regulatory impact assessment is not required. May 13, 2024 1128 Bulletin No. 2024–20 II. Paperwork Reduction Act The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) (PRA) requires that a Federal agency obtain the approval of the Office of Management and Bud- get (OMB) before collecting information from the public, whether such collection of information is mandatory, voluntary, or required to obtain or retain a benefit. The collections of information in these proposed regulations contain reporting, third-party disclosure, and recordkeep- ing requirements in §§58.4501-2(j)(6) and 58.4501-7(e)(2). This information is necessary for the IRS to accurately deter- mine the stock repurchase excise tax due and is required by law to comply with the provisions of section 4501 of the Code as enacted by section 10201 of the Inflation Reduction Act of 2022. A Federal agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid control num- ber. The recordkeeping requirements men- tioned within these proposed regulations are considered general tax records under section 6001. These records are required for the IRS to validate that taxpayers have met the regulatory requirements and are required as proof of their qualification for an exception to the stock repurchase excise tax. For PRA purposes, general tax records are already approved by OMB under 1545-0123 for business filers and 1545-0074 for individual filers. The reporting and third-party disclo- sure requirements will be covered within Form 7208 and its instructions. The IRS is seeking OMB approval and requesting a new OMB control number for Form 7208 in accordance with the procedures out- lined in 5 CFR 1320.10. III. Regulatory Flexibility Act Pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6), it is hereby cer- tified that these proposed regulations will not have a significant economic impact on a substantial number of small entities. This certification is based on the fact that these proposed regulations apply only to publicly traded corporations, which tends to consist of larger businesses. Specifically, based on data available to the IRS, for tax year 2021, 4,366 corpo- rations reported publicly traded common stock. Of those corporations, 2,407 (over 55 percent) reported gross receipts over $100 million, and 3,272 (approximately 75 percent) reported gross receipts over $10 million. Meanwhile, for tax year 2021, the IRS received 7,464,790 Corpo- ration Income Tax Returns and 4,710,457 U.S. Returns of Partnership Income. IRS Publication 6292, Fiscal Year Projec- tions for the United States: 2022-2029, Fall 2022, Table 2. Of these corporation and partnership returns for tax year 2021, 11,685,207 reported total assets below $10 million. Thus, the number of corpo- rations affected by these proposed regula- tions that reported total assets below $10 million is less than one hundredth of one percent of the total number of businesses that reported total assets below $10 mil- lion for tax year 2021. Therefore, these proposed regulations will not create addi- tional obligations for, or impose an eco- nomic impact on, a substantial number of small entities. Accordingly, the Secretary certifies that the proposed regulations will not have a significant economic impact on a substantial number of small entities and a regulatory flexibility analysis under the Regulatory Flexibility Act is not required. IV. Section 7805(f) Pursuant to section 7805(f) of the Code, this notice of proposed rulemaking has been submitted to the Chief Counsel for the Office of Advocacy of the Small Business Administration for comment on its impact on small business. V. Unfunded Mandates Reform Act Section 202 of the Unfunded Mandates Reform Act of 1995 requires that agencies assess anticipated costs and benefits and take certain other actions before issuing a final rule that includes any Federal man- date that may result in expenditures in any one year by a State, local, or Tribal gov- ernment, in the aggregate, or by the pri- vate sector, of $100 million in 1995 dol- lars, updated annually for inflation. These proposed regulations do not include any Federal mandate that may result in expenditures by State, local, or Tribal governments, or by the private sec- tor in excess of that threshold. VI. Executive Order 13132: Federalism Executive Order 13132 (Federalism) prohibits an agency from publishing any rule that has federalism implications if the rule either imposes substantial, direct compliance costs on State and local gov- ernments, and is not required by statute, or preempts State law, unless the agency meets the consultation and funding requirements of section 6 of the Execu- tive order. These proposed regulations do not have federalism implications and do not impose substantial direct compliance costs on State and local governments or preempt State law within the meaning of the Executive order. Comments and Requests for a Public Hearing Before these proposed regulations are adopted as final regulations, consideration will be given to any comments that are submitted timely to the IRS as prescribed in this preamble under the ADDRESSES heading. The Treasury Department and the IRS request comments on all aspects of the proposed regulations, including on forms related to the proposed regulations. In addi- tion, the Treasury Department and the IRS request comments on the specific requests made in the Explanation of Provisions. All commenters are strongly encouraged to submit comments electronically. The Trea- sury Department and the IRS will publish for public availability any comment sub- mitted electronically or on paper to its pub- lic docket on https://www.regulations.gov. A public hearing will be scheduled if requested in writing by any person who timely submits electronic or written com- ments. Requests for a public hearing are encouraged to be made electronically. If a public hearing is scheduled, a notice of the date and time for the public hearing will be published in the Federal Register. Statement of Availability of IRS Documents Any IRS Revenue Procedure, Revenue Ruling, Notice, or other guidance cited in this document is published in the Internal Bulletin No. 2024–20 1129 May 13, 2024 Revenue Bulletin (or Cumulative Bulletin) and is available from the Superintendent of Documents, U.S. Government Publishing Office, Washington, DC 20402, or by visit- ing the IRS website at https://www.irs.gov. Drafting Information The principal authors of these proposed regulations are Samuel G. Trammell of the Office of Associate Chief Counsel (Corpo- rate), Naomi Lehr of the Office of Asso- ciate Chief Counsel (Employee Benefits, Exempt Organizations, and Employment Taxes), Jonathan A. LaPlante of the Office of Associate Chief Counsel (Financial Insti- tutions and Products), and Brittany N. Dobi of the Office of Associate Chief Counsel (International). However, other personnel from the Treasury Department and the IRS participated in their development. List of Subjects 26 CFR Part 1 Income taxes, Reporting and record- keeping requirements. 26 CFR Part 58 Excise taxes, Stock repurchase excise tax, Reporting and recordkeeping requirements. Proposed Amendments to the Regulations Accordingly, the Treasury Department and the IRS propose to amend 26 CFR chapter 1 as follows: PART 1—INCOME TAX Paragraph 1. The authority citation for part 1 continues to read in part as fol- lows: Authority: 26 U.S.C. 7805 * * * Par. 2. Section 1.1275-6 is amended by adding paragraph (f)(12)(iii) to read as follows: §1.1275-6 Integration of qualifying debt instruments. * * * * * (f) * * * (12) * * * (iii) Excise tax on repurchase of corpo- rate stock. If a taxpayer enters into an inte- grated transaction (for example, a convert- ible debt instrument integrated with one or more §1.1275-6 hedges consisting of an option on the taxpayer’s own stock), then, solely for purposes of section 4501 of the Code and the stock repurchase excise tax regulations (as defined in §58.4501- 1(b)(30) of this chapter), the taxpayer must apply the rules that would apply on a separate basis to the components of the integrated transaction rather than the rules that otherwise would apply to the integrated transaction under this section. Notwithstanding paragraph (j) of this sec- tion, this paragraph (f)(12)(iii) applies to an integrated transaction outstanding after December 31, 2022 (regardless of when such integrated transaction was entered into by the taxpayer). * * * * * Par. 3. Add part 58 to read as follows: PART 58—STOCK REPURCHASE EXCISE TAX Subpart A—Excise Tax on Stock Repurchases Sec. 58.4501-0 Table of contents. 58.4501-1 Excise tax on stock repur- chases. 58.4501-2 General rules regarding excise tax on stock repurchases. 58.4501-3 Statutory exceptions. 58.4501-4 Application of netting rule. 58.4501-5 Examples. 58.4501-6 Applicability dates. 58.4501-7 Special rules for acquisitions or repurchases of stock of certain foreign corporations. Subpart B [Reserved] Authority: 26 U.S.C. 4501(f) and 7805. Subpart A—Excise Tax on Stock Repurchases §58.4501-0 Table of contents. This section lists the major captions that appear in §§58.4501-1 through 58.4501-7. §58.4501-1 Excise tax on stock repurchases. (a) Excise tax imposed. (b) Definitions. (1) Acquisitive reorganization. (2) Applicable percentage. (3) Cessation date. (4) Clawback. (5) Controlled corporation. (6) Covered corporation. (7) De minimis exception. (8) Distributing corporation. (9) Economically similar transaction. (10) Employee. (11) Employer-sponsored retirement plan. (i) In general. (ii) ESOPs included. (12) E reorganization. (13) Established securities market. (14) F reorganization. (15) Forfeiture. (16) Initiation date. (17) IRS. (18) Netting rule. (19) Qualifying property repurchase. (20) REIT. (21) Reorganization exception. (22) Repurchase. (23) RIC. (24) Section 317(b) redemption. (25) Specified affiliate. (26) Split-off. (27) Statutory exception. (28) Statutory references. (i) Chapter 1. (ii) Code. (29) Stock. (i) In general. (ii) Additional tier 1 capital. (30) Stock repurchase excise tax. (31) Stock repurchase excise tax base. (32) Stock repurchase excise tax reg- ulations. (33) Taxable year. (34) Treasury stock. (c) No application for any purposes of chapter 1. (d) Status as a domestic or foreign cor- poration. §58.4501-2 General rules regarding excise tax on stock repurchases. (a) Scope. (b) Computation of excise tax liability. May 13, 2024 1130 Bulletin No. 2024–20 (1) Imposition of tax. (2) De minimis exception. (i) In general. (ii) Determination. (c) Stock repurchase excise tax base. (1) In general. (2) Taxable year determination. (3) Repurchases before January 1, 2023. (d) Duration of covered corporation status. (1) Initiation date. (2) Cessation date. (i) In general. (ii) Repurchases after cessation date. (3) Inbound and outbound F reorgani- zations. (i) Inbound F reorganization. (ii) Outbound F reorganization. (e) Repurchase. (1) Overview. (2) Scope of repurchase. (3) Certain section 317(b) redemptions that are not repurchases. (i) Section 304(a)(1) transactions. (ii) Payment by a covered corporation of cash in lieu of fractional shares. (4) Economically similar transactions. (i) Acquisitive reorganizations. (ii) E reorganizations. (iii) F reorganizations. (iv) Split-offs. (v) Complete liquidations to which both sections 331 and 332 apply. (vi) Certain forfeitures and clawbacks of stock. (5) Transactions that are not repur- chases. (i) Complete liquidations generally. (ii) Distributions during taxable year of complete liquidation or dissolution. (iii) Divisive transactions under section 355 other than split-offs. (iv) Non-redemptive distributions sub- ject to section 301(c)(2) or (3). (v) Net cash settlement of an option contract or other derivative financial instrument. (f) Acquisitions by specified affiliates. (1) Acquisitions of stock of a covered corporation by a specified affiliate treated as a repurchase. (2) Determination of specified affiliate status. (i) Timing of determination. (ii) Indirect ownership. (3) Constructive specified affiliate acquisition. (i) General rule. (ii) Stock previously treated as repur- chased not subject to deemed repurchase more than once. (iii) Specific identification. (g) Date of repurchase. (1) General rule. (2) Regular-way sale. (3) Repurchase pursuant to certain eco- nomically similar transactions. (4) Constructive specified affiliate acqui- sition. (h) Fair market value of repurchased stock. (1) In general. (2) Stock traded on an established securities market. (i) In general. (ii) Acceptable methods. (iii) Date of repurchase not a trading day. (iv) Consistency requirement. (v) Stock traded on multiple exchanges. (3) Stock not traded on an established securities market. (i) General rule. (ii) Consistency requirement. (4) Market price of stock denominated in non-U.S. currency. §58.4501-3 Statutory exceptions. (a) Scope. (b) Reduction of covered corporation’s stock repurchase excise tax base. (c) Reorganization exception. (d) Stock contributions to an employ- er-sponsored retirement plan. (1) Reductions in computing covered corporation’s stock repurchase excise tax base. (i) General rule. (ii) Special rule for leveraged ESOPs. (2) Classes of stock contributed to an employer-sponsored retirement plan. (3) Same class of stock repurchased and contributed. (4) Different class of stock repurchased and contributed. (i) In general. (ii) Maximum reduction permitted. (5) Timing of contributions. (i) In general. (ii) Treatment of contributions after close of taxable year. (iii) No duplicate reductions. (6) Contributions before January 1, 2023. (e) Repurchases or acquisitions by a dealer in securities in the ordinary course of business. (1) In general. (2) Applicability. (f) Repurchases by a RIC or a REIT. (g) Repurchase treated as a dividend. (1) Reduction of covered corporation’s stock repurchase excise tax base. (2) Rebuttable presumption of no divi- dend equivalence. (i) Presumption. (ii) Condition to rebut presumption. (iii) Sufficient evidence requirement. (3) Content of shareholder certifica- tion. (4) Agreement to shareholder certifica- tion. (5) Documentation of sufficient evi- dence. §58.4501-4 Application of netting rule. (a) Scope. (b) Issuances and provisions of stock that are a reduction in computing stock repurchase excise tax base. (1) General rule. (2) Stock issued or provided outside period of covered corporation status. (3) Issuances or provisions before Jan- uary 1, 2023. (4) F reorganizations. (c) Stock issued or provided in connec- tion with the performance of services. (1) In general. (2) Sale of shares to cover exercise price and withholding. (i) Payment or advance by third party equal to exercise price. (ii) Advance by third party equal to withholding obligation. (d) Date of issuance. (1) In general. (2) Stock issued or provided in connec- tion with the performance of services. (e) Fair market value of issued or pro- vided stock. (1) In general. (2) Stock traded on an established securities market. (i) In general. (ii) Acceptable methods. (iii) Date of issuance not a trading day. (iv) Consistency requirement. Bulletin No. 2024–20 1131 May 13, 2024 (v) Stock traded on multiple ex- changes. (3) Stock not traded on an established securities market. (i) General rule. (ii) Consistency requirement. (4) Market price of stock denominated in non-U.S. currency. (5) Stock issued or provided in connec- tion with the performance of services. (f) Issuances that are disregarded for purposes of applying the netting rule. (1) Distributions by a covered corpora- tion of its own stock. (2) Issuances to a specified affiliate. (i) In general. (ii) Subsequent transfer by a specified affiliate. (iii) Specific identification. (iv) Subsequent transfers in connection with the performance of services for a specified affiliate. (3) No double benefit for issuances that are part of a transaction to which the reor- ganization exception applies. (4) Deemed issuances under section 304(a)(1). (5) Deemed issuance of a fractional share. (6) Issuance by a covered corporation that is a dealer in securities. (7) Issuance by the target corporation in a reverse triangular merger. (8) Issuance as part of a section 1036(a) exchange. (9) Issuance as part of a distribution under section 355. (10) Stock contributions to an employ- er-sponsored retirement plan. (11) Net exercises and share withhold- ing. (i) In general. (ii) Net share settlement not in connec- tion with performance of services. (12) Settlement other than in stock. (13) Instrument not in the legal form of stock. (i) Generally disregarded. (ii) Certain instruments treated as issued. §58.4501-5 Examples. (a) Scope. (b) In general. (1) Example 1: Redemption of pre- ferred stock. (2) Example 2: Valuation of repur- chase. (3) Example 3: Acquisition partially funded by the target corporation. (4) Example 4: Leveraged buyout. (5) Example 5: Pro rata stock split. (6) Example 6: Acquisition of a target corporation in an acquisitive reorganiza- tion. (7) Example 7: Cash paid in lieu of fractional shares. (8) Example 8: Two-step asset acqui- sition. (9) Example 9: E Reorganization. (10) Example 10: F Reorganization. (11) Example 11: Section 355 split-off. (12) Example 12: Section 355 split-off as part of a D reorganization. (13) Example 13: Spin-off. (14) Example 14: Section 355 spin-off as part of a D reorganization. (15) Example 15: Repurchase pursuant to an accelerated share repurchase agree- ment. (16) Example 16: Distribution in com- plete liquidation of a covered corporation. (17) Example 17: Complete liquidation of a covered corporation to which sec- tions 331 and 332(a) both apply. (18) Example 18: Acquisition by disre- garded entity. (19) Example 19: Reverse triangular merger. (20) Example 20: Multiple repurchases and contributions of same class of stock. (21) Example 21: Multiple repurchases and contributions of different classes of stock. (22) Example 22: Treatment of contri- butions after the taxable year. (23) Example 23: Becoming a covered corporation. (24) Example 24: Actual redemption in partial liquidation. (25) Example 25: Constructive redemp- tion in partial liquidation. (26) Example 26: Physical settlement of call option contract. (27) Example 27: Net cash settlement of call option contract. (28) Example 28: Physical settlement of put option contract. (29) Example 29: Net cash settlement of put option contract. (30) Example 30: Indirect ownership. (31) Example 31: Constructive speci- fied affiliate acquisition. (32) Example 32: Restricted stock pro- vided to a service provider. (33) Example 33: Restricted stock pro- vided to a service provider with section 83(b) election. (34) Example 34: Vested stock pro- vided to a service provider with share withholding. (35) Example 35: Stock option net exercise. (36) Example 36: Net share settlement not in connection with the performance of services. (37) Example 37: Broker-assisted net exercise. (38) Example 38: Stock provided by a specified affiliate to an employee. (39) Example 39: Stock provided by a specified affiliate to a nonemployee. (40) Example 40: Corporation treated as a domestic corporation under section 7874(b). §58.4501-6 Applicability date. (a) In general. (b) Exceptions. (1) Applicability date for certain rules. (2) Special rules for acquisitions or repurchases of stock of certain foreign corporations. §58.4501-7 Special rules for acquisi- tions or repurchases of stock of certain foreign corporations. (a) Scope. (b) Definitions. (1) Application of definitions in §58.4501-1(b). (2) Section 4501(d) definitions. (i) AFC repurchase. (ii) Allocable amount of a covered pur- chase. (iii) Applicable foreign corporation. (iv) Applicable specified affiliate. (v) CSFC repurchase. (vi) Covered funding. (vii) Covered purchase. (viii) Covered surrogate foreign corpo- ration. (ix) Direct partner. (x) Domestic entity. (xi) Downstream relevant entity. (xii) Expatriated entity. (xiii) Indirect partner. (xiv) Relevant entity. (xv) Section 4501(d) covered corpora- tion. (xvi) Section 4501(d) de minimis exception. May 13, 2024 1132 Bulletin No. 2024–20 (xvii) Section 4501(d) economically similar transaction. (xviii) Section 4501(d) excise tax. (xix) Section 4501(d) excise tax base. (xx) Section 4501(d) netting rule. (xxi) Section 4501(d) reorganization exception. (xxii) Section 4501(d)(1) repurchase. (xxiii) Section 4501(d)(2) repurchase. (xxiv) Section 4501(d) statutory excep- tion. (c) Computation of section 4501(d) excise tax liability for a section 4501(d) covered corporation. (1) Imposition of tax. (2) Section 4501(d) de minimis excep- tion. (i) In general. (ii) Determination. (3) Section 4501(d) excise tax base. (i) In general. (ii) Taxable year determination. (4) Section 4501(d)(1) repurchases or section 4501(d)(2) repurchases before January 1, 2023. (d) Section 4501(d)(2) coordination rules. (1) Coordination rule for section 4501(d)(1) repurchases and section 4501(d)(2) repurchases. (2) Coordination rule for multiple sec- tion 4501(d) covered corporations. (i) In general. (ii) Full payment and reporting by a section 4501(d) covered corporation. (e) Acquisitions and AFC repurchases of stock funded by applicable specified affiliates. (1) Principal purpose rule. (2) Rebuttable presumption. (3) Date stock of applicable foreign corporation is treated as acquired. (4) Amount of stock of applicable for- eign corporation treated as acquired. (5) Rules for determining the allocable amount of a covered purchase. (6) Priority rule for covered fundings. (7) Rules for allocating covered fund- ings to allocable amounts of covered pur- chases. (i) In general. (ii) Multiple covered purchases. (iii) Single covered funding. (iv) Multiple covered fundings. (f) Status as applicable foreign corpo- ration or covered surrogate foreign corpo- ration. (1) Initiation date. (2) Cessation date. (i) In general. (ii) Repurchases after cessation date. (3) Inbound and outbound F reorgani- zations. (i) Inbound F reorganization. (ii) Outbound F reorganization. (g) Status as applicable specified affil- iate, a relevant entity of an applicable for- eign corporation, or a specified affiliate of a covered surrogate foreign corporation. (1) Timing of determination. (2) Determination of indirect owner- ship. (3) Consequences of becoming a spec- ified affiliate. (i) General rule. (ii) Stock previously treated as acquired not subject to deemed acquisition more than once. (iii) Specific identification. (h) Foreign partnerships that are appli- cable specified affiliates. (1) In general. (2) Direct or indirect partner. (3) Control of a foreign corporation. (4) Indirect interests held through applicable foreign corporations. (5) De minimis domestic entity (direct or indirect) partner. (i) [Reserved] (j) AFC repurchase or CSFC repur- chase. (1) Overview. (2) Scope of AFC repurchases and CSFC repurchases. (3) Certain section 317(b) redemptions not AFC repurchases or CSFC repur- chases. (i) Section 304(a)(1) transactions. (ii) Payment by an applicable foreign corporation or a covered surrogate foreign corporation of cash in lieu of fractional shares. (4) Section 4501(d) economically sim- ilar transactions. (i) Acquisitive reorganizations. (ii) E Reorganizations. (iii) F Reorganizations. (iv) Split-offs. (v) Complete liquidations to which both sections 331 and 332 apply. (vi) Certain forfeitures and clawbacks of stock. (5) Transactions that are not AFC repurchases or CSFC repurchases. (i) Complete liquidations generally. (ii) Distributions during taxable year of complete liquidation or dissolution. (iii) Divisive transactions under section 355 other than split-offs. (iv) Non-redemptive distributions sub- ject to section 301(c)(2) or (3). (v) Net cash settlement of an option contract. (k) Date of section 4501(d)(1) repur- chase or section 4501(d)(2) repurchase. (1) General rule. (2) Regular-way sale. (3) AFC repurchase or CSFC repur- chase pursuant to certain section 4501(d) economically similar transactions. (4) Section 4501(d)(1) repurchase pur- suant to a covered funding. (l) Fair market value of stock of an applicable foreign corporation or a cov- ered surrogate foreign corporation that is repurchased or acquired. (1) In general. (2) Stock traded on an established securities market. (i) In general. (ii) Acceptable methods. (iii) Date of section 4501(d)(1) repur- chase or section 4501(d)(2) repurchase not a trading day. (iv) Consistency requirement. (v) Stock traded on multiple exchanges. (3) Stock not traded on an established securities market. (i) General rule. (ii) Consistency requirement. (4) Market price of stock denominated in non-U.S. currency. (m) Section 4501(d) statutory excep- tions. (1) In general. (i) Overview. (ii) Reduction of section 4501(d) excise tax base. (2) Section 4501(d) reorganization exception. (3) Stock contributions to an employ- er-sponsored retirement plan. (i) Reductions to section 4501(d) excise tax base. (ii) Classes of stock contributed to an employer-sponsored retirement plan. (iii) Determining amount of reduction to section 4501(d) excise tax base. (iv) Timing of contributions. (v) Contributions before January 1, 2023. Bulletin No. 2024–20 1133 May 13, 2024 (4) Repurchases or acquisitions by a dealer in securities in the ordinary course of business. (i) In general. (ii) Applicability. (5) Repurchases by a RIC or REIT. (6) AFC repurchase or CSFC repur- chase treated as a dividend. (i) In general. (ii) Rebuttable presumption of no divi- dend equivalence. (n) Application of section 4501(d) net- ting rule. (1) In general. (2) Stock issued or provided outside period of applicable foreign corporation or covered surrogate foreign corporation status. (3) Issuances or provisions before Jan- uary 1, 2023. (4) F reorganizations. (5) Stock Issued or provided in connec- tion with the performance of services. (i) In general. (ii) Sale of shares to cover exercise price or withholding. (6) Date of issuance or provision for section 4501(d) netting rule. (i) In general. (ii) Stock options and stock apprecia- tion rights. (iii) Stock on which a section 83(b) election is made. (7) Fair market value of stock of an applicable foreign corporation or a cov- ered surrogate foreign corporation that is issued or provided to employees. (i) In general. (ii) Market price of stock denominated in non-U.S. currency. (8) Issuances that are disregarded for purposes of applying the section 4501(d) netting rule. (i) In general. (ii) Stock contributions to an employ- er-sponsored retirement plan. (iii) Net exercises and share withhold- ing. (iv) Settlement other than in stock. (v) Instrument not in the legal form of stock. (o) Rules applicable before April 13, 2024. (1) Section 4501(d)(1) repurchase. (2) Funding rule. (3) Per se rule. (4) Section 4501(d)(2) repurchase. (5) Definitions solely for purposes of paragraph (o). (i) Application of definitions in §58.4501-1(b) and §58.4501-7(b)(2). (ii) Definition of applicable specified affiliate. (p) Section 4501(d)(1) examples. (1) Example 1: The section 4501(d) netting rule with respect to a single appli- cable specified affiliate. (2) Example 2: The section 4501(d) netting rule with respect to multiple appli- cable specified affiliates. (3) Example 3: A single covered fund- ing and covered purchase. (4) Example 4: Multiple covered fund- ings and a single covered purchase. (5) Example 5: The rebuttable pre- sumption. (6) Example 6: Indirect funding subject to rebuttable presumption. (7) Example 7: Indirect funding. (8) Example 8: A foreign partnership that is an applicable specified affiliate. (9) Example 9: A foreign partnership that is not an applicable specified affiliate. (10) Example 10: A foreign partnership that is directly owned by foreign corpora- tions and is an applicable specified affil- iate. (q) Section 4501(d)(2) examples. (1) Example 1: The section 4501(d) netting rule with respect to an expatriated entity. (2) Example 2: Section 4501(d)(2) repurchase from the covered surrogate foreign corporation or another specified affiliate of the covered surrogate foreign corporation. (3) Example 3: Liability with respect to multiple expatriated entities. (r) Applicability dates. (1) In general. (2) Rules applicable before April 13, 2024. (3) Early application. §58.4501-1 Excise tax on stock repurchases. (a) Excise tax imposed. Section 4501(a) of the Code imposes on each covered cor- poration an excise tax (stock repurchase excise tax) equal to the applicable percent- age of the fair market value of any stock of the corporation that is repurchased by the corporation during the taxable year. This section and §58.4501-2 provide generally applicable definitions and operating rules regarding the application of the stock repur- chase excise tax and the computation of the stock repurchase excise tax liability of a covered corporation. Section 58.4501-3 provides rules regarding the application of the exceptions in section 4501(e) (other than the de minimis exception described in section 4501(e)(3), which is addressed in §58.4501-2(b)(2)), and §58.4501-4 provides rules regarding the application of section 4501(c)(3). Section 58.4501-5 provides examples that illustrate the application of section 4501 and the stock repurchase excise tax regulations. Section 58.4501-6 provides applicability dates for the stock repurchase excise tax regulations (other than §58.4501-7). For special rules and examples regarding the application of section 4501(d) to acquisitions or repur- chases of stock of certain foreign corpora- tions, see §58.4501-7. (b) Definitions. The following defini- tions apply for purposes of this section and 58.4501-2 through 58.4501-6, and, to the extent provided in §58.4501-7, for purposes of §58.4501-7: (1) Acquisitive reorganization. The term acquisitive reorganization means a transaction that qualifies as a reorganiza- tion under— (i) Section 368(a)(1)(A) of the Code (A reorganization) (including by reason of section 368(a)(2)(D) or section 368(a)(2) (E) (reverse triangular merger)); (ii) Section 368(a)(1)(C); (iii) Section 368(a)(1)(D) (D reorgani- zation) (if the D reorganization satisfies the requirements of section 354(b)(1) of the Code); or (iv) Section 368(a)(1)(G) (if the reor- ganization satisfies the requirements of section 354(b)(1)). (2) Applicable percentage. The term applicable percentage means the percent- age provided in section 4501(a). (3) Cessation date. The term cessation date means the date on which all stock of a covered corporation ceases to be traded on an established securities market. (4) Clawback. The term clawback means a surrender of stock pursuant to a contractual provision that requires an employee to return vested stock. (5) Controlled corporation. The term controlled corporation has the meaning May 13, 2024 1134 Bulletin No. 2024–20 given the term in section 355(a)(1)(A) of the Code. (6) Covered corporation. The term covered corporation means any domestic corporation (including within the meaning of paragraph (f) of this section) the stock of which is traded on an established secu- rities market. (7) De minimis exception. The term de minimis exception has the meaning given the term in §58.4501-2(b)(2)(i). (8) Distributing corporation. The term distributing corporation has the meaning given the term in section 355(a)(1)(A). (9) Economically similar transaction. The term economically similar trans- action means a transaction described in §58.4501-2(e)(4). (10) Employee. The term employee means an employee as defined in sec- tion 3401(c) of the Code and §31.3401(c)-1 of this chapter, or a former employee, of the covered corporation or specified affili- ate (as appropriate). (11) Employer-sponsored retirement plan—(i) In general. The term employ- er-sponsored retirement plan means a retirement plan that is qualified under sec- tion 401(a) of the Code and maintained by a covered corporation or a specified affili- ate of the covered corporation. (ii) ESOPs included. The term employ- er-sponsored retirement plan includes an employee stock ownership plan described in section 4975(e)(7) of the Code (ESOP) that is maintained by a covered corpora- tion or a specified affiliate of the covered corporation. (12) E reorganization. The term E reorganization means a transaction that qualifies as a reorganization under section 368(a)(1)(E). (13) Established securities market. The term established securities market has the meaning given the term in §1.7704-1(b) of this chapter. (14) F reorganization. The term F reorganization means a transaction that qualifies as a reorganization under section 368(a)(1)(F). (15) Forfeiture. The term forfeiture means a surrender of stock to the issuing corporation for no consideration. (16) Initiation date. The term initia- tion date means the date on which stock of a corporation begins to be traded on an established securities market. (17) IRS. The term IRS means the Inter- nal Revenue Service. (18) Netting rule. The term netting rule has the meaning given the term in §58.4501-4(a). (19) Qualifying property repurchase. The term qualifying property repur- chase has the meaning given the term in §58.4501-3(c). (20) REIT. The term REIT has the meaning given the term real estate invest- ment trust in section 856(a) of the Code. (21) Reorganization exception. The term reorganization exception has the meaning given the term in §58.4501-3(c). (22) Repurchase. The term repur- chase has the meaning given the term in §58.4501-2(e)(2). (23) RIC. The term RIC has the mean- ing given the term regulated investment company in section 851 of the Code. (24) Section 317(b) redemption. The term section 317(b) redemption means a redemption within the meaning of sec- tion 317(b) of the Code with regard to the stock of a covered corporation. (25) Specified affiliate. The term spec- ified affiliate means, with regard to any corporation— (i) Any corporation more than 50 per- cent 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 per- cent of the capital interests or profits inter- ests of which is held, directly or indirectly, by the corporation. (26) Split-off. The term split-off means a distribution qualifying under section 355 (or so much of section 356 of the Code as relates to section 355) by a distributing corporation pursuant to which the share- holders of the distributing corporation exchange stock of the distributing corpo- ration for stock of the controlled corpo- ration and, if applicable, other property (including securities of the controlled cor- poration) or money. (27) Statutory exception. The term stat- utory exception has the meaning given the term in §58.4501-3(a). (28) Statutory references. For purposes of this part— (i) The term chapter 1 means chapter 1 of the Code; and (ii) The term Code means the Internal Revenue Code. (29) Stock—(i) In general. The term stock means any instrument issued by a corporation that is stock (including trea- sury stock) or that is treated as stock for Federal tax purposes at the time of issu- ance, regardless of whether the instrument is traded on an established securities mar- ket. (ii) Additional tier 1 capital. The term stock does not include preferred stock that-- (A) Qualifies as additional tier 1 capi- tal (within the meaning of 12 CFR 3.20(c), 217.20(c), or 324.20(c)); and (B) Does not qualify as common equity tier 1 capital (within the meaning of 12 CFR 3.20(b), 217.20(b), or 324.20(b)). (30) Stock repurchase excise tax. The term stock repurchase excise tax has the meaning given the term in paragraph (a) of this section. (31) Stock repurchase excise tax base. The term stock repurchase excise tax base has the meaning given the term in §58.4501-2(c)(1). (32) Stock repurchase excise tax regu- lations. The term stock repurchase excise tax regulations means the following pro- visions of 26 CFR chapter I: (i) Subpart A of this part, which con- sists of this section and §§58.4501-2 through 58.4501-7. (ii) Subpart B of this part. (iii) Section 1.1275-6(f)(12)(iii) of this chapter, which provides that the integra- tion of a qualifying debt instrument with a hedge pursuant to §1.1275-6 of this chapter is not taken into account in deter- mining whether and when stock is repur- chased or issued. (33) Taxable year. The term taxable year has the meaning given the term in section 7701(a)(23) of the Code. (34) Treasury stock. The term treasury stock means treasury stock within the meaning of section 317(b). (c) No application for any purposes of chapter 1. The rules of this part have no application for purposes of chapter 1. (d) Status as a domestic or foreign cor- poration. If a corporation is, or is treated as, a domestic corporation for purposes of the Code or for purposes that include chapter 37 of the Code, then the corpo- ration is a domestic corporation for pur- poses of the stock repurchase excise tax regulations. A corporation that is not a Bulletin No. 2024–20 1135 May 13, 2024 domestic corporation for purposes of the stock repurchase excise tax regulations is a foreign corporation for such purposes. §58.4501-2 General rules regarding excise tax on stock repurchases. (a) Scope. This section provides gen- eral rules regarding the application of the stock repurchase excise tax and the com- putation of the stock repurchase excise tax liability of a covered corporation. Paragraphs (b) and (c) of this section provide rules for computing a covered corporation’s stock repurchase excise tax liability. Paragraph (d) of this section provides rules for determining whether a corporation is a covered corporation. Paragraph (e) of this section provides rules for determining whether a transac- tion is a repurchase. Paragraph (f) of this section provides rules for acquisitions of stock of a covered corporation by a specified affiliate of the covered corpo- ration. Paragraph (g) of this section pro- vides rules for determining when stock is repurchased. Paragraph (h) of this sec- tion provides rules for determining the fair market value of repurchased stock. (b) Computation of excise tax liabil- ity—(1) Imposition of tax. Except as pro- vided in paragraph (b)(2) of this section (regarding the de minimis exception), the amount of stock repurchase excise tax imposed on a covered corporation for a taxable year equals the product obtained by multiplying— (i) The applicable percentage; by (ii) The stock repurchase excise tax base of the covered corporation for the taxable year determined in accordance with paragraph (c)(1) of this section. (2) De minimis exception—(i) In gen- eral. A covered corporation is not subject to the stock repurchase excise tax with regard to a taxable year if, during that tax- able year, the aggregate fair market value of the stock described in paragraphs (b) (2)(i)(A) and (B) of this section does not exceed $1,000,000 (de minimis excep- tion): (A) The stock of the covered corpo- ration that is repurchased by the covered corporation. (B) The stock of the covered corpora- tion that is acquired by a specified affiliate of the covered corporation. (ii) Determination. A determination of whether the de minimis exception applies with regard to a taxable year is made before applying— (A) Any statutory exception under §58.4501-3; and (B) Any adjustments pursuant to the netting rule under §58.4501-4. (c) Stock repurchase excise tax base— (1) In general. With regard to a covered corporation, the term stock repurchase excise tax base means the dollar amount (not less than zero) that is obtained by— (i) Determining (in accordance with paragraphs (e) through (h) of this section) the aggregate fair market value of— (A) The stock of the covered corpo- ration that is repurchased by the covered corporation during the covered corpora- tion’s taxable year; and (B) The stock of the covered corpora- tion that is acquired by a specified affiliate of the covered corporation during the cov- ered corporation’s taxable year; (ii) Reducing the amount determined under paragraph (c)(1)(i) of this section by the fair market value of the stock of the covered corporation repurchased by the covered corporation or acquired by a spec- ified affiliate of the covered corporation during the covered corporation’s taxable year to the extent any statutory exceptions apply in accordance with §58.4501-3; and then (iii) Reducing the amount determined under paragraphs (c)(1)(i) and (ii) of this section by the aggregate fair market value of stock of the covered corporation issued by the covered corporation, or provided by a specified affiliate of the covered corporation, during the covered corpora- tion’s taxable year under the netting rule in accordance with §58.4501-4. (2) Taxable year determination—(i) In general. The determinations under para- graph (c)(1)(i) of this section are made separately for each covered corporation and for each taxable year of the covered corporation. (ii) No carrybacks or carryforwards. Reductions under paragraphs (c)(1)(ii) and (iii) of this section in excess of the amount determined under paragraph (c) (1)(i) of this section with regard to a cov- ered corporation are not carried forward or backward to preceding or succeeding taxable years of the covered corporation. (3) Repurchases before January 1, 2023. Stock of a covered corporation repurchased by the covered corporation or acquired by a specified affiliate of the covered corporation before January 1, 2023 (as determined under paragraphs (e) through (g) of this section) is neither— (i) Included in the stock repurchase excise tax base of the covered corpora- tion; nor (ii) Taken into account in determining the applicability of the de minimis excep- tion. (d) Duration of covered corporation status—(1) Initiation date. A corporation becomes a covered corporation at the beginning of the corporation’s initiation date. (2) Cessation date—(i) In general. Except as provided in paragraph (d)(2)(ii) of this section, a corporation ceases to be a covered corporation at the end of the cor- poration’s cessation date. (ii) Repurchases after cessation date. If a corporation ceases to be a covered cor- poration pursuant to a plan that includes a repurchase, and if the cessation date pre- cedes the date on which any repurchase undertaken pursuant to the plan occurs (for example, if stock of a covered corpo- ration ceases trading prior to completion of an acquisitive reorganization), then the corporation will continue to be a covered corporation with regard to each repur- chase pursuant to the plan until the end of the date on which the last repurchase pur- suant to the plan occurs. (3) Inbound and outbound F reorga- nizations—(i) Inbound F reorganization. In the case of a foreign corporation that transfers its assets or that is treated as transferring its assets to a domestic corpo- ration in an F reorganization (as described in §1.367(b)-2(f) of this chapter), the cor- poration is not treated as a domestic cor- poration until the day after the reorgani- zation. (ii) Outbound F reorganization. In the case of a domestic corporation that trans- fers its assets or that is treated as trans- ferring its assets to a foreign corporation in an F reorganization (as described in §1.367(a)-1(e) of this chapter), the corpo- ration is not treated as a foreign corpora- tion until the day after the reorganization. (e) Repurchase—(1) Overview. This paragraph (e) provides rules for determin- May 13, 2024 1136 Bulletin No. 2024–20 ing whether a transaction is a repurchase. Paragraph (e)(2) of this section provides a general rule regarding the scope of the term repurchase. Paragraph (e)(3) of this section provides an exclusive list of transactions that are treated as a section 317(b) redemption but are not a repur- chase. Paragraph (e)(4) of this section provides an exclusive list of transactions that are economically similar transactions. Paragraph (e)(5) of this section provides a non-exclusive list of transactions that are not repurchases. Paragraph (f) of this sec- tion provides rules regarding acquisitions of covered corporation stock by specified affiliates. (2) Scope of repurchase. A repurchase means solely— (i) A section 317(b) redemption, except as provided in paragraph (e)(3) of this sec- tion; or (ii) An economically similar transac- tion described in paragraph (e)(4) of this section. (3) Certain section 317(b) redemptions that are not repurchases. This paragraph (e)(3) provides an exclusive list of trans- actions that are section 317(b) redemp- tions but are not repurchases. (i) Section 304(a)(1) transactions— (A) Rule regarding deemed distributions. If section 304(a)(1) of the Code applies to an acquisition of stock by an acquiring corporation (within the meaning of section 304(a)(1)), the acquiring corporation’s deemed distribution in redemption of the acquiring corporation’s stock (resulting from the application of section 304(a)(1)) is not a repurchase. (B) Scope of rule. The rule described in paragraph (e)(3)(i)(A) of this section applies to a transaction described in para- graph (e)(3)(i)(A) of this section regard- less of whether section 302(a) or (d) of the Code applies to the acquiring corpora- tion’s deemed distribution in redemption of its stock. (C) 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 section 304(a)(1), see §58.4501-4(f)(4). (ii) Payment by a covered corporation of cash in lieu of fractional shares. A pay- ment by a covered corporation of cash in lieu of a fractional share of the covered corporation’s stock is not a repurchase if— (A) The payment is carried out as part of a transaction that qualifies as a reorga- nization under section 368(a) or a distri- bution to which section 355 applies, or pursuant to the settlement of an option or similar financial instrument (for example, a convertible debt instrument or convert- ible preferred share); (B) The cash received by the share- holder entitled to the fractional share is not separately bargained-for consider- ation (that is, the cash paid by the cov- ered corporation in lieu of the fractional share represents a mere rounding off of the shares issued in the exchange or set- tlement); (C) The payment is carried out solely for administrative convenience (and, therefore, solely for non-tax reasons); and (D) The amount of cash paid to the shareholder in lieu of a fractional share does not exceed the fair market value of one full share of the class of stock of the covered corporation with respect to which the payment of cash in lieu of a fractional share is made. (4) Economically similar transac- tions. This paragraph (e)(4) provides an exclusive list of transactions that are eco- nomically similar transactions. For rules regarding the statutory exceptions, see §58.4501-3. (i) Acquisitive reorganizations. In the case of an acquisitive reorganization in which the target corporation is a covered corporation, the exchange by the target corporation shareholders of their target corporation stock pursuant to the plan of reorganization is a repurchase by the tar- get corporation. (ii) E reorganizations. In the case of an E reorganization in which the recapitaliz- ing corporation is a covered corporation, the exchange by the recapitalizing corpo- ration shareholders of their recapitalizing corporation stock pursuant to the plan of reorganization is a repurchase by the recapitalizing corporation. (iii) F reorganizations. In the case of an F reorganization in which the transferor corporation (as defined in §1.368-2(m)(1) of this chapter) is a covered corporation, the exchange by the transferor corporation shareholders of their transferor corpora- tion stock pursuant to the plan of reorga- nization is a repurchase by the transferor corporation. (iv) Split-offs. In the case of a split-off by a distributing corporation that is a cov- ered corporation, the exchange by the dis- tributing corporation shareholders of their distributing corporation stock is a repur- chase by the distributing corporation. (v) Complete liquidations to which both sections 331 and 332 apply. In the case of a complete liquidation of a cov- ered corporation to which sections 331 and 332(a) of the Code respectively apply to component distributions of the com- plete liquidation— (A) Each distribution to which section 331 applies is a repurchase by the covered corporation; and (B) The distribution to which section 332(a) applies is not a repurchase by the covered corporation (see paragraph (e)(5) (i)(A) of this section). (vi) Certain forfeitures and clawbacks of stock—(A) In general. In the case of a forfeiture or clawback of stock of a covered corporation pursuant to a legal or contrac- tual obligation, the forfeiture or clawback is a repurchase by the covered corporation or acquisition by a specified affiliate of the covered corporation (as appropriate) on the date of forfeiture or clawback (as appropriate) if the stock was treated as issued or provided under §58.4501-4(b) and the forfeiture or clawback of the stock (as appropriate) is described in paragraph (e)(4)(vi)(B), (C), or (D) of this section. (B) Stock subject to post-closing price adjustments. The stock was issued pur- suant to an acquisition of a target entity or its business, and the forfeiture of the stock was in accordance with the terms of the documents governing the transaction (for example, to compensate the acquir- ing corporation for breaches of represen- tations or warranties made by the target entity, or because the business of the target entity did not achieve certain performance benchmarks agreed upon in the transac- tion documents). (C) Stock for which a section 83(b) election was made. The stock was subject to a substantial risk of forfeiture within the meaning of section 83(a) of the Code on the date the stock was issued or provided, the service provider made a valid election under section 83(b) with regard to the stock, and the forfeiture resulted from the Bulletin No. 2024–20 1137 May 13, 2024 service provider failing to meet the vest- ing condition. (D) Clawbacks. On the date the stock was issued or provided, the stock was subject to a clawback agreement, and a clawback of the stock resulted from the occurrence of an event specified in the clawback agreement. (5) Transactions that are not repur- chases. This paragraph (e)(5) provides a non-exclusive list of transactions that are not repurchases. (i) Complete liquidations generally. Except as provided in paragraph (e)(4)(v) (A) of this section, the following is not a repurchase by a covered corporation: (A) A distribution in complete liquida- tion of the covered corporation to which section 331 or 332(a) applies. (B) A distribution pursuant to the reso- lution or plan of dissolution of the covered corporation that is reported on the original (but not a supplemented or an amended) IRS Form 966, Corporate Dissolution or Liquidation (or any successor form). (C) A distribution pursuant to a deemed dissolution of the covered corporation (for instance, pursuant to a deemed liquidation under §301.7701-3 of this chapter). (ii) Distributions during taxable year of complete liquidation or dissolution. Unless paragraph (e)(4)(v) of this sec- tion applies, no distribution by a covered corporation during a taxable year of the covered corporation is a repurchase by the covered corporation if the covered corpo- ration— (A) Completely liquidates during the taxable year (that is, has a final distribu- tion during the taxable year in a complete liquidation to which section 331 applies); (B) Dissolves during the taxable year pursuant to the resolution or plan of disso- lution as reported on the original (but not a supplemented or an amended) IRS Form 966, Corporate Dissolution or Liquida- tion (or any successor form); or (C) Is deemed to dissolve during the taxable year (for instance, pursuant to a deemed liquidation under §301.7701-3 of this chapter). (iii) Divisive transactions under sec- tion 355 other than split-offs—(A) In gen- eral. Subject to paragraph (e)(5)(iii)(B) of this section, a distribution by a distribut- ing corporation that is a covered corpora- tion of stock of a controlled corporation qualifying under section 355 that is not a split-off is not a repurchase by the distrib- uting corporation. (B) Exception regarding non-qualify- ing property in spin-offs. A distribution by a distributing corporation that is a covered corporation of other property or money in exchange for stock of the distributing cor- poration is a repurchase by the distribut- ing corporation if it occurs in pursuance of a transaction qualifying under section 355 in which the distribution by the distribut- ing corporation of stock of the controlled corporation is with respect to stock of the distributing corporation. (iv) Non-redemptive distributions sub- ject to section 301(c)(2) or (3). A distri- bution to which section 301 of the Code applies by a covered corporation to a dis- tributee is not a repurchase by the covered corporation if the distribution— (A) Is subject to section 301(c)(2) or (3); and (B) The distributee does not exchange stock of the covered corporation (and is not treated as exchanging stock of the covered corporation for Federal income tax purposes). (v) Net cash settlement of an option contract or other derivative financial instrument. The net cash settlement of an option contract or other derivative finan- cial instrument with respect to stock of a covered corporation is not a repurchase by the covered corporation. The net cash set- tlement of an instrument in the legal form of an option contract or other derivative financial instrument that is treated as stock for Federal tax purposes at the time of issuance is treated as a repurchase of that instrument, and therefore a repurchase by the covered corporation. (f) Acquisitions by specified affiliates— (1) Acquisitions of stock of a covered cor- poration by a specified affiliate treated as a repurchase. 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 corpora- tion, the acquisition is treated as a repur- chase of the stock of the covered corpora- tion by the covered corporation. (2) Determination of specified affili- ate status—(i) Timing of determination. A covered corporation must determine if another corporation or a partnership is a specified affiliate of the covered corpo- ration if the determination is relevant for purposes of computing the stock repur- chase excise tax with regard to the cov- ered corporation. (ii) Indirect ownership. For purposes of determining whether a corporation or a partnership is a specified affiliate of a cov- ered corporation, the covered corporation is treated as indirectly owning stock in the corporation or holding capital or profits interests in the partnership in the percent- age equal to the covered corporation’s proportionate percentage of stock owned, or capital or profits interests held, through other entities. (3) Constructive specified affiliate acquisition—(i) General rule. Except as provided in paragraph (f)(3)(ii) of this section, shares of stock of a covered cor- poration are treated as repurchased by the covered corporation if— (A) A corporation or a partnership becomes a specified affiliate of the cov- ered corporation; (B) At the time the corporation or part- nership becomes a specified affiliate of the covered corporation, the corporation or partnership owns such shares, and such shares represent more than one percent of the fair market value of the assets of the corporation or partnership as determined at such time; and (C) The corporation or partnership acquired such shares after December 31, 2022. (ii) Stock previously treated as repur- chased not subject to deemed repurchase more than once. Paragraph (f)(3)(i) of this section does not apply with regard to any shares of stock of a covered corporation— (A) Held by the corporation or part- nership described in paragraph (f)(3)(i) of this section at the time that it becomes a specified affiliate of the covered corpora- tion; and (B) That the covered corporation iden- tifies as previously having been treated as repurchased by the covered corporation under paragraph (f)(3)(i) of this section when held by the corporation or partner- ship. (iii) Specific identification. For pur- poses of paragraphs (f)(3)(i) and (ii) of this section, if the corporation or partner- ship described in paragraph (f)(3)(i) of this section is unable to specifically iden- May 13, 2024 1138 Bulletin No. 2024–20 tify which shares of stock of the covered corporation the corporation or partnership is treated as holding at the time it becomes a specified affiliate of the covered corpo- ration, the covered corporation must treat the corporation or partnership as holding the most recently acquired shares of the stock of the covered corporation. (g) Date of repurchase—(1) General rule. In general, stock of a covered cor- poration is treated as repurchased by the covered corporation or acquired by a specified affiliate of the covered corpora- tion on the date on which ownership of the stock transfers to the covered corporation or specified affiliate (as appropriate) for Federal income tax purposes. To deter- mine the date of repurchase in particular situations, see paragraphs (g)(2), (3), and (4) of this section. (2) Regular-way sale. A regular-way sale of stock of a covered corporation (that is, a transaction in which a trade order is placed on the trade date, and settlement of the transaction, including payment and delivery of the stock, occurs a standard- ized number of days after the trade date that is set by a regulator) is treated as a repurchase by the covered corporation or an acquisition by a specified affiliate of the covered corporation on the trade date. (3) Repurchase pursuant to certain economically similar transactions. Stock of a covered corporation repurchased in an economically similar transaction described in paragraph (e)(4) of this sec- tion is treated as repurchased on the date the shareholders of the covered corpora- tion exchange their stock in the covered corporation. (4) Constructive specified affiliate acquisition. Stock of a covered corpora- tion that is treated as repurchased by the covered corporation under paragraph (f) (3)(i) of this section is treated as acquired by a specified affiliate on the date on which the other corporation or partnership described in paragraph (f)(3)(i) of this section becomes a specified affiliate of the covered corporation. (h) Fair market value of repurchased stock—(1) In general. The fair market value of stock of a covered corporation that is repurchased by the covered corpo- ration or acquired by a specified affiliate of the covered corporation is the market price of the stock on the date the stock is repurchased or acquired (as determined under paragraph (g) of this section). That is, if the price at which the repurchased or acquired stock is purchased differs from the market price of the stock on the date the stock is repurchased or acquired, the fair market value of the stock is the market price on the date the stock is repurchased or acquired. (2) Stock traded on an established secu- rities market—(i) In general. If stock of a covered corporation that is repurchased by the covered corporation or acquired by a specified affiliate of the covered corpo- ration is traded on an established securi- ties market, the covered corporation must determine the market price of the repur- chased or acquired stock by applying one of the methods provided in paragraph (h) (2)(ii) of this section. For purposes of this paragraph (h)(2), repurchased or acquired stock of a covered corporation 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 or acquired are so traded. (ii) Acceptable methods. The follow- ing are acceptable methods for determin- ing the market price of repurchased or acquired stock of a covered corporation traded on an established securities market: (A) The daily volume-weighted aver- age price as determined on the date the stock is repurchased by the covered cor- poration or acquired by a specified affili- ate of the covered corporation. (B) The closing price on the date the stock is repurchased by the covered cor- poration or acquired by a specified affili- ate of the covered corporation. (C) The average of the high and low prices on the date the stock is repurchased by the covered corporation or acquired by a specified affiliate of the covered corpo- ration. (D) The trading price at the time the stock is repurchased by the covered cor- poration or acquired by a specified affili- ate of the covered corporation. (iii) Date of repurchase not a trading day. For purposes of each method pro- vided in paragraph (h)(2)(ii) of this sec- tion, if the date the stock of a covered corporation is repurchased by the covered corporation or acquired by a specified affiliate of the covered corporation is not a trading day, the date on which the mar- ket price is determined is the immediately preceding trading day. (iv) Consistency requirement—(A) Solely one method permitted for deter- mining market price of repurchased or acquired stock. The market price of repur- chased or acquired stock of a covered cor- poration 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 para- graph (h)(2)(ii) of this section to all stock of the covered corporation repurchased by the covered corporation or acquired by a specified affiliate of the covered corpora- tion throughout the covered corporation’s taxable year. (B) Application to netting rule. Except as provided in the second sentence of this paragraph (h)(2)(iv)(B), the method used by the covered corporation under para- graph (h)(2)(iv)(A) of this section must be consistently applied to determine the market price of all stock of the covered corporation issued or provided under the netting rule throughout the covered cor- poration’s taxable year. The consistency rule set forth in the first sentence of this paragraph (h)(2)(iv)(B) does not apply to the determination of the fair market value of stock of a covered corporation that the covered corporation issues, or that a specified affiliate of the covered corpo- ration provides, in connection with the performance of services. See §58.4501- 4(e)(5). (v) Stock traded on multiple exchanges—(A) In general. A covered corporation the stock of which is traded on multiple established securities markets must determine the market price of the stock of the covered corporation by ref- erence to trading on the established secu- rities market in the country in which the covered corporation is organized, includ- ing a regional established securities mar- ket that trades in that country. (B) Stock traded on multiple exchanges in country where covered corporation is organized. If a covered corporation’s stock is traded on multiple established securities markets in the country in which the cov- ered corporation is organized, the covered corporation must determine the market price of the stock by reference to trading on the established securities market in that Bulletin No. 2024–20 1139 May 13, 2024 country with the highest trading volume in that stock in the prior taxable year. (C) Other cases in which stock is traded on multiple exchanges. If stock of a covered corporation is traded on multi- ple established securities markets and nei- ther paragraph (h)(2)(v)(A) nor (B) of this section applies, the covered corporation must determine the fair market value of its traded stock in a manner that is reasonable under the facts and circumstances. (3) Stock not traded on an established securities market—(i) General rule. If repurchased or acquired stock of a cov- ered corporation is not traded on an estab- lished securities market, the market price of the stock is determined as of the date the stock is repurchased by the covered corporation or acquired by a specified affiliate of the covered corporation under the principles of §1.409A-1(b)(5)(iv)(B) (1) of this chapter. (ii) Consistency requirement—(A) Solely one method permitted for deter- mining market price of repurchased or acquired stock. The valuation method for determining the market price of repur- chased or acquired stock of a covered corporation that is not traded on an estab- lished securities market must be used for all repurchases of stock of the covered corporation or acquisitions by a speci- fied affiliate of the covered corporation of the same class throughout the covered corporation’s taxable year, unless the application of that method to a particular repurchase or acquisition would be unrea- sonable under the facts and circumstances as of the valuation date within the mean- ing of §1.409A-1(b)(5)(iv)(B)(1). (B) Application to netting rule. Except as provided in the second sentence of this paragraph (h)(3)(ii)(B), the method used by the covered corporation under para- graph (h)(3)(ii)(A) of this section also must be consistently applied to determine the market price of all stock of the covered corporation of the same class issued under the netting rule throughout the covered corporation’s taxable year. The consis- tency rule set forth in the first sentence of this paragraph (h)(3)(ii)(B) does not apply to the determination of the market price of stock of the covered corporation that is issued in connection with the performance of services or if the application of that method to a particular issuance would be unreasonable under the facts and circum- stances as of the valuation date. (4) Market price of stock denominated in non-U.S. currency. The market price of any stock of a covered corporation that is denominated in a currency other than the U.S. dollar is converted into U.S. dollars at the spot rate (as defined in §1.988-1(d) (1) of this chapter) on the date the stock is repurchased by the covered corporation or acquired by a specified affiliate of the covered corporation. §58.4501-3 Statutory exceptions. (a) Scope. This section provides rules regarding the application of each statu- tory exception (that is, each exception set forth in section 4501(e) of the Code), other than the de minimis exception described in section 4501(e)(3) and sub- ject to §58.4501-2(b)(2), to a repurchase of stock of a covered corporation by the covered corporation or an acquisition of stock of a covered corporation by a spec- ified affiliate of the covered corporation (as appropriate). For rules regarding the application of the statutory exceptions in the context of section 4501(d), see §58.4501-7(m). (c) Reorganization exception. The fair market value of stock of a covered corporation repurchased by the covered corporation in a repurchase described in any of paragraphs (c)(1) through (4) of this section is a reduction for purposes of computing the covered corporation’s stock repurchase excise tax base (that is, the reorganization exception) to the extent that the repurchase is for property permit- ted by section 354 or 355 to be received without the recognition of gain or loss (each, a qualifying property repurchase): (1) A repurchase by a target corpora- tion in an acquisitive reorganization pur- suant to the plan of reorganization. (2) A repurchase by a recapitalizing corporation in an E reorganization pursu- ant to the plan of reorganization. (3) A repurchase by a transferor corpo- ration in an F reorganization pursuant to the plan of reorganization. (4) A repurchase by a distributing cor- poration in a split-off (whether or not part of a D reorganization). (d) Stock contributions to an employ- er-sponsored retirement plan—(1) Reduc- tions in computing covered corporation’s stock repurchase excise tax base—(i) Gen- eral rule. The fair market value of stock of a covered corporation that is repurchased by the covered corporation or acquired by a specified affiliate of the covered corpo- ration is a reduction for purposes of com- puting the covered corporation’s stock repurchase excise tax base if the stock that is repurchased or acquired, or an amount of stock equal to the fair market value of the stock repurchased or acquired, is con- tributed to an employer-sponsored retire- ment plan. The amount of the reduction under this paragraph (d)(1) is determined as provided in paragraph (d)(3) or (4) of this section. (ii) Special rule for leveraged ESOPs. If a covered corporation or a specified affiliate of the covered corporation main- tains an ESOP with an exempt loan (as defined in section 4975(d)(3)), alloca- tions of qualifying employer securi- ties from the ESOP suspense account to ESOP participants’ accounts that are attributable to employer contributions (and not to dividends) are treated as con- tributions of stock under this paragraph (d) as of the date stock attributable to repayment of the exempt loan is released from the suspense account and allocated to ESOP participants’ accounts. (2) Classes of stock contributed to an employer-sponsored retirement plan. This paragraph (d) applies to contributions of any class of covered corporation stock to an employer-sponsored retirement plan, regardless of the class of stock that was repurchased or acquired. (3) Same class of stock repurchased and contributed. If stock of a covered corporation is repurchased by the covered corporation or acquired by a specified affiliate of the covered corporation, and stock of the covered corporation of the same class is contributed to an employ- er-sponsored retirement plan, the amount of the reduction under paragraph (d)(1) of this section is equal to the lesser of— (i) The aggregate fair market value of the stock of the same class that was repur- chased or acquired (as determined under §58.4501-2(h)) during the covered corpo- ration’s taxable year; or (ii) The amount obtained by— (A) Determining the aggregate fair market value of all stock of that class May 13, 2024 1140 Bulletin No. 2024–20 repurchased or acquired (as determined under §58.4501-2(h)) during the covered corporation’s taxable year, reduced by the fair market value of shares of that class of stock that is a reduction to the stock repur- chase excise tax base for the taxable year under a statutory exception other than the exception in this paragraph (d); (B) Dividing the amount determined under paragraph (d)(3)(ii)(A) of this sec- tion by the number of shares of that class repurchased or acquired, reduced by the number of shares of that class of stock the fair market value of which is a reduction to the stock repurchase excise tax base for the taxable year under a statutory excep- tion other than the exception in this para- graph (d); and (C) Multiplying the amount determined under paragraph (d)(3)(ii)(B) of this sec- tion by the number of shares of that class contributed to an employer-sponsored retirement plan for the taxable year. (4) Different class of stock repurchased and contributed—(i) In general. Sub- ject to paragraph (d)(4)(ii) of this sec- tion, if stock of a covered corporation is repurchased by the covered corporation or acquired by a specified affiliate of the covered corporation, and stock of the covered corporation of a different class is contributed to an employer-sponsored retirement plan, then the amount of the reduction under paragraph (d)(1) of this section is equal to the fair market value of the contributed stock at the time the stock is contributed to the employer-sponsored retirement plan. (ii) Maximum reduction permitted. The amount of the reduction under paragraph (d)(4)(i) of this section must not exceed the aggregate fair market value of stock repurchased or acquired during the cov- ered corporation’s taxable year, reduced by the fair market value of any stock that is a reduction to the stock repurchase excise tax base for the taxable year under a statutory exception other than the excep- tion in this paragraph (d). (5) Timing of contributions—(i) In general. The reduction in the stock repur- chase excise tax base, in accordance with paragraph (d)(1) of this section (that is, the reduction in computing the stock repurchase excise tax base), for a taxable year applies to contributions of covered corporation stock to an employer-spon- sored retirement plan during the covered corporation’s taxable year. (ii) Treatment of contributions after close of taxable year. For purposes of paragraph (d)(1) of this section, a cov- ered corporation may treat stock con- tributions to an employer-sponsored retirement plan made after the close of the covered corporation’s taxable year as having been contributed during that tax- able year if the following two require- ments are satisfied: (A) The stock must be contributed to the employer-sponsored retirement plan by the filing deadline for the form on which the stock repurchase excise tax must be reported (applicable form) that is due for the first full quarter after the close of the covered corporation’s taxable year. (B) The stock must be treated by the employer-sponsored retirement plan in the same manner that the plan would treat a contribution received on the last day of that taxable year. (iii) No duplicate reductions. Stock contributions that are treated under para- graph (d)(5)(ii) of this section as having been contributed in the taxable year to which the applicable form applies may not be treated as having been contributed for any other taxable year for purposes of the stock repurchase excise tax. (6) Contributions before January 1, 2023. A covered corporation with a tax- able year that both begins before Janu- ary 1, 2023, and ends after December 31, 2022, may include the fair market value of all contributions of its stock to an employ- er-sponsored retirement plan during the entirety of that taxable year for purposes of applying this paragraph (d). (e) Repurchases or acquisitions by a dealer in securities in the ordinary course of business—(1) In general. Subject to paragraph (e)(2) of this section, the fair market value of stock of a covered cor- poration repurchased by the covered corporation or acquired by a specified affiliate of the covered corporation (as appropriate) that is a dealer in securities (within the meaning of section 475(c)(1) of the Code) 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. (2) Applicability. The reduction described in paragraph (e)(1) of this sec- tion applies solely to the extent that— (i) The dealer accounts for the stock as securities held primarily for sale to cus- tomers 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 prac- tices 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 cor- poration) does not sell or otherwise trans- fer the stock to a specified affiliate of the covered corporation, or the dealer (if it is a specified affiliate of the covered corpo- ration) does not sell or otherwise transfer the stock to the covered corporation or to another specified affiliate of the covered corporation, in each case other than in a sale or transfer to a dealer that also satis- fies the requirements of this paragraph (e) (2). (f) Repurchases by a RIC or REIT. The fair market value of stock of a cov- ered corporation that is a RIC or a REIT that is repurchased by the covered corpo- ration or acquired by a specified affiliate of the covered corporation is a reduction for purposes of computing the covered corporation’s stock repurchase excise tax base. (g) Repurchase treated as a dividend— (1) Reduction of covered corporation’s stock repurchase excise tax base. Except as provided in paragraph (g)(2)(ii) of this section, the fair market value of stock of a covered corporation repurchased by the covered corporation (excluding stock treated as repurchased under §58.4501- 2(f)(1) and (3)) 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 distri- bution of a dividend under section 301(c) (1) or 356(a)(2). (2) Rebuttable presumption of no div- idend equivalence—(i) Presumption. A repurchase to which section 302 or 356(a) applies is presumed to be subject to sec- tion 302(a) or 356(a)(1), respectively (and, therefore, is presumed ineligible for Bulletin No. 2024–20 1141 May 13, 2024 the exception in paragraph (g)(1) of this section). (ii) Rebuttal of presumption. A covered corporation may rebut the presumption described in paragraph (g)(2)(i) of this section with regard to a specific share- holder solely by establishing with suffi- cient evidence that the shareholder treats the repurchase as a dividend on the share- holder’s Federal income tax return. (iii) Sufficient evidence requirement. To provide sufficient evidence under para- graph (g)(2)(ii) of this section to establish that the shareholder treats the repurchase as a dividend on the shareholder’s Federal income tax return, the covered corporation must— (A) Obtain certification from the share- holder, in accordance with paragraph (g) (3) of this section, that the repurchase constitutes a redemption treated as a dis- tribution to which section 301 applies by reason of section 302(d), or that the repur- chase has the effect of the distribution of a dividend under section 356(a)(2), includ- ing evidence that applicable withholding occurred if required; (B) Treat the repurchase consistent with the shareholder certification required under paragraph (g)(2)(iii)(A) of this sec- tion; (C) Have no knowledge of facts that would indicate that the shareholder certifi- cation required under paragraph (g)(2)(iii) (A) of this section is incorrect; and (D) Demonstrate sufficient earnings and profits to treat as a dividend either the redemption under section 302 or the receipt of money or other property under section 356. (3) Content of shareholder certifi- cation. The shareholder certification required under paragraph (g)(2)(iii)(A) of this section must include the following information: (i) The name of the shareholder. (ii) The name of the covered corpora- tion. (iii) The total number of shares of the covered corporation outstanding imme- diately before and immediately after the repurchase. (iv) A certification from the share- holder that either— (A) The repurchase is a payment in exchange for stock because the sharehold- er’s proportionate interest in the corpora- tion has been reduced but not completely terminated; (B) The repurchase is a payment in exchange for stock because the sharehold- er’s interest in the corporation is com- pletely terminated; or (C) The repurchase is a dividend. (v) With respect to the certification described in paragraph (g)(3)(iv) of this section— (A) The number of shares actually and constructively owned by the shareholder before and after the repurchase; and (B) The shareholder’s percentage own- ership before and after the repurchase. (vi) With respect to the certifica- tion described in paragraph (g)(3)(iv) (C) of this section, if the shareholder is not a United States person (within the meaning of section 7701(a)(30)) and the shares are held through a broker (within the meaning of section 6045(c) of the Code), the certification also must include a statement that a copy of the certification has been provided to the shareholder’s broker. (vii) Any other information required by the IRS in forms or instructions or in publi- cations or guidance published in the Inter- nal Revenue Bulletin (see §§601.601(d) (2) and 601.602 of this chapter). (viii) A penalties of perjury statement. (ix) The signature of the shareholder and date of signature. (4) Agreement to shareholder certifi- cation. After receiving the shareholder certification required under paragraph (g) (2)(iii)(A) of this section, the covered cor- poration must include on the shareholder certification a statement signed by the covered corporation under penalties of perjury that the covered corporation— (i) Agrees to treat the repurchase con- sistent with the shareholder certification required under paragraph (g)(2)(iii)(A) of this section; and (ii) Has no knowledge of facts that would indicate that the shareholder certifi- cation required under paragraph (g)(2)(iii) (A) of this section is incorrect. (5) Documentation of sufficient evi- dence—(i) Retention and availability of evidence. A covered corporation must retain the evidence described in paragraph (g)(2)(iii) of this section and make that evidence available for inspection to the IRS if any of the evidence becomes mate- rial in the administration of any internal revenue law. (ii) Retention of supporting records. The covered corporation must retain records of all information necessary to document and substantiate all content of the shareholder certification described in paragraph (g)(2)(iii)(A) of this section. §58.4501-4 Application of netting rule. (a) Scope. This section provides rules regarding the application of section 4501(c)(3) of the Code. Paragraph (b) of this section provides general rules regard- ing the adjustment to a covered corpora- tion’s stock repurchase excise tax base with respect to stock that is issued by the covered corporation or provided by a specified affiliate of the covered corpo- ration (netting rule). Paragraph (c) of this section provides special rules for stock issued or provided in connection with the performance of services. Paragraph (d) of this section provides rules for determining the date on which stock is issued or pro- vided. Paragraph (e) of this section pro- vides rules for determining the fair market value of stock that is issued or provided. Paragraph (f) of this section sets forth the sole circumstances under which an issu- ance or provision of stock is disregarded for purposes of the netting rule. For rules regarding the application of the netting rule in the context of section 4501(d), see §58.4501-7(n). (b) Issuances and provisions of stock that are a reduction in computing the stock repurchase excise tax base—(1) General rule. Under the netting rule provided by this paragraph (b)(1), the aggregate fair market value of stock of a covered corpo- ration is a reduction for purposes of com- puting the covered corporation’s stock repurchase excise tax base for a taxable year if the stock is issued by the covered corporation or provided by a specified affiliate of the covered corporation in the following circumstances: (i) Issued by the covered corporation during the covered corporation’s taxable year in connection with the performance of services for the covered corporation by an employee or other service provider of the covered corporation. (ii) Provided by a specified affiliate of the covered corporation in connection May 13, 2024 1142 Bulletin No. 2024–20 with the performance of services for the specified affiliate by an employee of the specified affiliate during the covered cor- poration’s taxable year. (iii) Issued by the covered corporation during the covered corporation’s taxable year not in connection with the perfor- mance of services. (2) Stock issued or provided outside period of covered corporation status. Any stock of a covered corporation issued by the covered corporation or provided by a specified affiliate of the covered corpora- tion before the initiation date or after the cessation date is not taken into account under paragraph (b)(1) of this section. See §58.4501-2(d). (3) Issuances or provisions before January 1, 2023. Except as provided in paragraph (b)(2) of this section, a cov- ered corporation with a taxable year that begins before January 1, 2023, and ends after December 31, 2022, must include the fair market value of all issuances or pro- visions of its stock during the entirety of that taxable year for purposes of applying paragraph (b)(1) of this section to that tax- able year. (4) F reorganizations. For purposes of this section, the transferor corporation and the resulting corporation (as defined in §1.368-2(m)(1) of this chapter) in an F reorganization are treated as the same corporation. (c) Stock issued or provided in connec- tion with the performance of services—(1) In general. For purposes of this section, stock of a covered corporation is trans- ferred by the covered corporation or a specified affiliate of the covered corpora- tion in connection with the performance of services only if the transfer is described in section 83, including pursuant to a nonqualified stock option described in §1.83-7 of this chapter, or is pursuant to a stock option described in section 421 of the Code. A specified affiliate of the cov- ered corporation is not a service provider for purposes of this section. (2) Sale of shares to cover exercise price and withholding—(i) Payment or advance by third party equal to exercise price. If a third party pays the exercise price of a stock option on behalf of a ser- vice provider or advances to a service pro- vider an amount equal to the exercise price of a stock option that the service provider uses to exercise the option, then any stock transferred by the covered corporation to the service provider, by a specified affil- iate to the specified affiliate’s employee, or by the covered corporation or specified affiliate to the third party upon exercise of the option in connection with exercising the option is treated as issued or provided in connection with the performance of the services. (ii) Advance by third party equal to withholding obligation. If a third party advances an amount equal to the with- holding obligation of a service provider, then any stock transferred by the covered corporation to the service provider, by a specified affiliate to the specified affil- iate’s employee, or by the covered cor- poration or specified affiliate to the third party in connection with this arrangement is treated as issued or provided in connec- tion with the performance of services. (d) Date of issuance—(1) In general. Except as provided in paragraph (d)(2) of this section, stock of a covered corporation is treated as issued by the covered corpo- ration or provided by a specified affiliate of the covered corporation on the date on which ownership of the stock transfers to the recipient for Federal income tax pur- poses. (2) Stock issued or provided in connec- tion with the performance of services—(i) In general. Stock of a covered corpora- tion is issued by the covered corporation or provided by a specified affiliate of the covered corporation in connection with the performance of services as of the date the recipient of the stock is treated as the beneficial owner of the stock for Federal income tax purposes. In general, a recipi- ent is treated as the beneficial owner of the stock when the stock is both transferred by the covered corporation (or a specified affiliate of the covered corporation) and substantially vested within the meaning of §1.83-3(b) of this chapter. Thus, stock transferred pursuant to a vested stock award or restricted stock unit is issued or provided when the covered corporation or a specified affiliate of the covered corpo- ration initiates payment of the stock. Stock transferred that is not substantially vested within the meaning of §1.83-3(b) of this chapter is not issued or provided until it vests, except as provided in paragraph (d) (2)(iii) of this section. (ii) Stock options and stock apprecia- tion rights. Stock of a covered corporation transferred by the covered corporation or a specified affiliate of the covered cor- poration pursuant to an option described in §1.83-7 of this chapter or section 421 or a stock appreciation right is issued by the covered corporation or provided by the specified affiliate of the covered cor- poration (as applicable) as of the date the option or stock appreciation right is exer- cised. (iii) Stock on which a section 83(b) election is made. Stock of a covered cor- poration transferred by the covered corpo- ration or a specified affiliate of the covered corporation when it is not substantially vested within the meaning of §1.83-3(b) of this chapter, but as to which a valid election under section 83(b) is made, is treated as issued by the covered corpora- tion or provided by the specified affiliate of the covered corporation (as applicable) as of the transfer date. (e) Fair market value of issued or pro- vided stock—(1) In general. Except as provided in paragraph (e)(5) of this sec- tion, the fair market value of stock of a covered corporation issued by the covered corporation or provided by a specified affiliate of the covered corporation is the market price of the stock on the date the stock is issued or provided. (2) Stock traded on an established securities market—(i) In general. If stock of a covered corporation that is issued by the covered corporation is traded on an established securities market, the covered corporation must determine the market price of the stock by applying one of the methods provided in paragraph (e)(2)(ii) of this section. (ii) Acceptable methods. The following are acceptable methods for determining the market price of stock of a covered cor- poration traded on an established securi- ties market: (A) The daily volume-weighted aver- age price as determined on the date the stock is issued by the covered corporation. (B) The closing price on the date the stock is issued by the covered corporation. (C) The average of the high and low prices on the date the stock is issued by the covered corporation. (D) The trading price at the time the stock is issued by the covered corporation. Bulletin No. 2024–20 1143 May 13, 2024 (iii) Date of issuance not a trading day. For purposes of each method provided in paragraph (e)(2)(ii) of this section, if the date the stock of a covered corporation is issued by the covered corporation is not a trading day, the date on which the mar- ket price is determined is the immediately preceding trading day. (iv) Consistency requirement—(A) Solely one method permitted for determin- ing market price of issued stock. The mar- ket price of stock of a covered corporation that is traded on an established securities market must be determined by consis- tently applying solely one of the methods provided in paragraph (e)(2)(ii) of this section to all stock of the covered corpo- ration issued by the covered corporation throughout the covered corporation’s tax- able year. (B) Application to repurchased stock. The method used by the covered corpo- ration under paragraph (e)(2)(ii)(A) of this section must be consistently applied to determine the market price of all stock of the covered corporation repurchased by the covered corporation or acquired by a specified affiliate of the covered corpora- tion throughout the covered corporation’s taxable year. See §58.4501-2(h)(2)(iv). (v) Stock traded on multiple exchanges. See §58.4501-2(h)(2)(v) for rules regard- ing the valuation of stock of a covered corporation traded on multiple established securities markets. (3) Stock not traded on an established securities market—(i) General rule. If stock of a covered corporation is not traded on an established securities market, the market price of the stock is determined as of the date the stock is issued by a cov- ered corporation under the principles of §1.409A-1(b)(5)(iv)(B)(1) of this chapter. (ii) Consistency requirement. In deter- mining the market price of stock of a cov- ered corporation that is not traded on an established securities market, the same valuation method must be used for all issuances of stock of the covered corpora- tion belonging to the same class through- out the covered corporation’s taxable year, unless the application of that method to a particular issuance would be unreasonable under the facts and circumstances as of the valuation date. That same method also must be consistently applied to determine the market price of all stock of the covered corporation of the same class repurchased by the covered corporation or acquired by a specified affiliate of the covered corpo- ration throughout the covered corpora- tion’s taxable year, unless the application of that method to a particular issuance would be unreasonable under the facts and circumstances as of the valuation date. See §58.4501-2(h)(3)(ii). (4) Market price of stock denominated in non-U.S. currency. The market price of any stock of a covered corporation that is denominated in a currency other than the U.S. dollar is converted into U.S. dollars at the spot rate (as defined in §1.988-1(d) (1) of this chapter) on the date the stock is issued by the covered corporation or pro- vided by a specified affiliate of the cov- ered corporation (as applicable). (5) Stock issued or provided in connec- tion with the performance of services. The fair market value of stock of a covered corporation issued by the covered corpo- ration or provided by a specified affiliate of the covered corporation (as applicable) in connection with the performance of ser- vices is the fair market value of the stock, as determined under section 83, as of the date the stock is issued by the covered corporation or provided by the specified affiliate of the covered corporation (as applicable). For purposes of this section, the fair market value of the stock is deter- mined under the rules provided in section 83 regardless of whether an amount is includible in the service provider’s income under section 83 or otherwise. For exam- ple, the fair market value of stock issued by a covered corporation pursuant to a stock option described in section 421 and stock issued by a covered corporation to a nonresident alien for services performed outside of the United States is determined using the rules provided in section 83. (f) Issuances that are disregarded for purposes of applying the netting rule. This paragraph (f) lists the sole circumstances in which an issuance of stock of a covered corporation is disregarded for purposes of the netting rule. (1) Distributions by a covered corpo- ration of its own stock. Stock of a cov- ered corporation distributed by the cov- ered corporation to its shareholders with respect to the covered corporation’s stock is disregarded for purposes of the netting rule. (2) Issuances to a specified affiliate— (i) In general. Subject to paragraphs (f)(2) (ii) through (iv) of this section, stock of a covered corporation issued by the covered corporation to a specified affiliate of the covered corporation, or issued by the cov- ered corporation in connection with the performance of services by an employee or other service provider for a specified affiliate of the covered corporation, is dis- regarded for purposes of the netting rule. (ii) Subsequent transfer by specified affiliate. Stock of a covered corporation issued by the covered corporation to a specified affiliate of the covered corpora- tion that is subsequently transferred by the specified affiliate of the covered corpora- tion to a person that is not a specified affil- iate of the covered corporation is regarded for purposes of the netting rule, and is treated as issued by the covered corpora- tion on the date of the subsequent transfer, only if— (A) The subsequent transfer by the specified affiliate occurs within the same taxable year that the specified affiliate receives the stock from the covered cor- poration (applicable year); (B) The covered corporation does not otherwise reduce its stock repurchase excise tax base for the applicable year with respect to the stock under this sec- tion; and (C) The subsequent transfer by the specified affiliate is not in connection with the performance of services provided to the specified affiliate. (iii) Specific identification. For pur- poses of paragraph (f)(2)(ii) of this sec- tion, unless specifically identified, the shares of stock of the covered corporation treated as subsequently transferred by the specified affiliate are the earliest shares issued by the covered corporation to the specified affiliate. (iv) Subsequent transfers in connec- tion with the performance of services for a specified affiliate. Stock issued by a cov- ered corporation in connection with the performance of services for a specified affiliate is not treated as issued by the cov- ered corporation. However, a transfer of stock of a covered corporation described in §1.83-6(d) of this chapter (in addition to an actual provision of stock by a speci- fied affiliate described in paragraph (b)(1) (ii) of this section) by a specified affiliate May 13, 2024 1144 Bulletin No. 2024–20 of the covered corporation to an employee of the specified affiliate is treated as a pro- vision of stock described in paragraph (b) (1)(ii) of this section. (3) No double benefit for issuances that are part of a transaction to which the reor- ganization exception applies. Stock of a covered corporation issued by the covered corporation as part of a transaction qual- ifying as a reorganization under section 368(a) or a distribution under section 355 is disregarded for purposes of the netting rule if— (i) The stock constitutes property per- mitted to be received under section 354 or 355 without the recognition of gain; (ii) The stock is used by another cov- ered corporation (second covered corpo- ration) to repurchase stock of the second covered corporation in a transaction that is a repurchase under §58.4501-2(e)(4)(i), (ii), (iii), or (iv); and (iii) The repurchase described in paragraph (f)(3)(ii) of this section is not included in the second covered corpora- tion’s stock repurchase excise tax base because that repurchase is a qualifying property repurchase. (4) Deemed issuances under section 304(a)(1). Any stock treated as issued by the acquiring corporation by reason of the application of section 304(a)(1) to a transaction (as more fully described in §58.4501-2(e)(3)(i)) is disregarded for purposes of the netting rule. (5) Deemed issuance of a fractional share. Any fractional share of a covered corporation’s stock deemed to be issued for Federal income tax purposes (in a pay- ment described in §58.4501-2(e)(3)(ii)) is disregarded for purposes of the netting rule. (6) Issuance by a covered corporation that is a dealer in securities. Any stock of a covered corporation issued by the cov- ered corporation that is a dealer in securi- ties is disregarded for purposes of the net- ting rule 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 business of dealing in securities. (7) Issuance by the target corporation in a reverse triangular merger. Any target corporation stock that is issued by the tar- get corporation to the merged corporation (within the meaning of section 368(a)(2) (E)) in exchange for consideration that includes the stock of the controlling cor- poration (within the meaning of section 368(a)(2)(E)) in a transaction qualifying as a reverse triangular merger is disre- garded for purposes of the netting rule. (8) Issuance as part of a section 1036(a) exchange. Any stock of a covered corporation issued by the covered corpo- ration in exchange for stock of the covered corporation in a transaction that qualifies under section 1036(a) of the Code is dis- regarded for purposes of the netting rule. (9) Issuance as part of a distribution under section 355. Any stock issued by a controlled corporation in a distribution qualifying under section 355 (or so much of section 356 as relates to section 355) that is not a split-off is disregarded for purposes of the netting rule. (10) Stock contributions to an employ- er-sponsored retirement plan. Any stock of a covered corporation contributed to an employer-sponsored retirement plan, any stock of a covered corporation treated as contributed to an employer-sponsored retirement plan under §58.4501-3(d)(1) (ii) and (d)(5)(ii), and any stock of a cov- ered corporation sold to a leveraged or non-leveraged ESOP, is disregarded for purposes of the netting rule. (11) Net exercises and share with- holding—(i) In general. Stock of a cov- ered corporation withheld by the covered corporation or a specified affiliate of the covered corporation to satisfy the exercise price of a stock option issued in connec- tion with the performance of services, or to pay any withholding obligation, is dis- regarded for purposes of the netting rule. For example, stock of a covered corpora- tion withheld by a covered corporation or a specified affiliate of the covered corpo- ration to pay the exercise price of a stock option, to satisfy an employer’s income tax withholding obligation under section 3402 of the Code, to satisfy an employer’s withholding obligation under section 3102 of the Code, or to satisfy an employer’s withholding obligation for State, local, or foreign taxes, is disregarded for purposes of the netting rule. (ii) Net share settlement not in connec- tion with the performance of services. Set- tlement in net shares of an option or other derivative financial instrument that is not issued in connection with the performance of services is treated as an issuance of the net shares delivered. (12) Settlement other than in stock. Settlement of an option contract with respect to stock of a covered corporation using any consideration other than stock of the covered corporation (including cash) is disregarded for purposes of the netting rule. (13) Instrument not in the legal form of stock—(i) Generally disregarded. Except as provided in paragraph (f)(13)(ii) of this section, the issuance by a covered corpo- ration or provision by a specified affiliate of the corporation of an instrument that is not in the legal form of stock of the cov- ered corporation but is treated as stock for Federal income tax purposes (non-stock instrument) is disregarded for purposes of the netting rule. (ii) Certain instruments treated as issued—(A) In general. Subject to para- graphs (f)(13)(ii)(B), (C), and (D) of this section, if a non-stock instrument is repurchased by a covered corporation or acquired by a specified affiliate of the covered corporation, the issuance or pro- vision of the instrument is regarded for purposes of the netting rule at the time of such repurchase or acquisition. For pur- poses of the stock repurchase excise tax regulations, the delivery of stock pursuant to the terms of a non-stock instrument is treated as a repurchase of the non-stock instrument in exchange for an issuance or provision of the stock that is delivered. (B) Issuance or provision before the initiation date or after the cessation date. Any non-stock instrument issued by the covered corporation or provided by a specified affiliate of the covered corpora- tion before the initiation date or after the cessation date is not regarded for purposes of the netting rule. (C) Identification of an instrument not in the legal form of stock. The covered corporation must identify the repurchase or acquisition of a non-stock instrument as the repurchase or acquisition of a non- stock instrument on the return on which the stock repurchase excise tax must be reported for the covered corporation’s taxable year in which the repurchase or acquisition occurs (repurchase year) in order for the issuance or provision to be regarded under paragraph (f)(13)(ii)(A) of this section. Bulletin No. 2024–20 1145 May 13, 2024 (D) Consistency requirement. In the repurchase year of a non-stock instrument (tested non-stock instrument), the issu- ance or provision of the non-stock instru- ment is not regarded under paragraph (f) (13)(ii)(A) of this section unless the cov- ered corporation reports or has reported the repurchase or acquisition of all other comparable non-stock instruments repur- chased or acquired within the five taxable years ending on the last day of the repur- chase year in a consistent manner. A com- parable non-stock instrument is a non- stock instrument that has substantially similar economic terms as the tested non- stock instrument, regardless of whether the comparable non-stock instrument and the tested non-stock instrument have the same legal form. A comparable non- stock instrument is reported in a consis- tent manner if it is or was timely reported on the return on which the stock repur- chase excise tax must be reported that is or was due for the first full quarter after the close of the repurchase year for such comparable non-stock instrument. Not- withstanding the first sentence of this paragraph (f)(13)(ii)(D), the issuance or provision of the tested non-stock instru- ment will be regarded if the covered cor- poration demonstrates to the satisfaction of the IRS that the covered corporation’s failure to timely report the repurchase or acquisition of the comparable non-stock instruments was due to reasonable cause (within the meaning of §1.6664-4 of this chapter) and not willful neglect. In deter- mining whether this failure to report was due to reasonable cause and not willful neglect, the IRS will consider all the facts and circumstances, including the steps the covered corporation took to comply with its Federal tax reporting and pay- ment obligations. (E) Fair market value of the instru- ment. The amount of the reduction for purposes of computing the covered corpo- ration’s stock repurchase excise tax base for a taxable year under this section for the issuance or provision of a non-stock instrument is equal to the lesser of the fair market value of the instrument when the instrument was issued or provided within the meaning of paragraph (e) of this sec- tion or the fair market value of the instru- ment at the time of the repurchase by the covered corporation or acquisition by the specified affiliate of the covered corpora- tion. §58.4501-5 Examples. (a) Scope. This examples in this sec- tion illustrate the application of section 4501 of the Code and the stock repurchase excise tax regulations other than the pro- visions of section 4501(d) and §58.4501- 7. See §58.4501-7(p) and (q) for examples that illustrate the application of the rules in §58.4501-7 related to section 4501(d) (1) and (2), respectively. (b) In general. For purposes of the examples in this section, unless other- wise stated: each of Corporation X and unrelated Target is a covered corporation that is a calendar-year taxpayer; the only outstanding stock of each of Corporation X and Target is a single class of com- mon stock that is traded on an established securities market; any shareholder whose stock is redeemed in a section 317(b) redemption qualifies for sale or exchange treatment under section 302(a); the de minimis exception does not apply; 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 section 356(a)(2); the covered corporation determines the fair market value of its stock repurchased or issued based on the trading price of the stock at the time it is repurchased or issued; and any instrument that is not in the legal form of stock is not treated as stock for Federal income tax purposes. (1) Example 1: Redemption of preferred stock— (i) Facts. Corporation X has outstanding common stock that is traded on an established securities mar- ket. Corporation X also has outstanding mandatorily redeemable preferred stock that is stock for Federal tax purposes but that is neither additional tier 1 cap- ital nor traded on an established securities market. On January 1, 2024, Corporation X redeems the pre- ferred stock pursuant to its terms. (ii) Analysis. The redemption by Corporation X of its mandatorily redeemable preferred stock is a repurchase because Corporation X redeemed an instrument that is stock for Federal tax purposes (that is, mandatorily redeemable preferred stock issued by Corporation X) and the redemption is a section 317(b) redemption. See §§58.4501-1(b)(29) and 58.4501-2(e)(2)(i). (2) Example 2: Valuation of repurchase—(i) Facts. On April 15, 2024, when the stock of Corpo- ration X is trading at $0.70x per share, Corporation X purchases 50 shares of its stock for $35x from one of its shareholders on an established securities mar- ket. The shareholder is required to deliver the stock to Corporation X within the standard settlement cycle for the stock (a regular-way sale), which is one business day after execution of the sale (that is, the trade date of April 15, 2024). On April 17, 2024, the 50 shares are delivered to Corporation X. (ii) Analysis. Corporation X’s purchase of 50 shares of Corporation X stock is a repurchase because the transaction is a section 317(b) redemp- tion. See §58.4501-2(e)(2)(i). For purposes of com- puting Corporation X’s stock repurchase excise tax base, the trade date of April 15, 2024, is the date of repurchase. See §58.4501-2(g)(1). The fair mar- ket value of the 50 shares of stock repurchased on April 15, 2024, is the aggregate market price of those shares on the date of repurchase, or $35x ($0.70x per share x 50 shares = $35x). See §58.4501-2(h) (1). Accordingly, the repurchase by Corporation X increases its stock repurchase excise tax base for the 2024 taxable year by $35x. (iii) Application of netting rule. The facts are the same as in paragraph (b)(2)(i) of this section (Example 2), except that, on August 1, 2024, Cor- poration X issues 20 shares of its stock to an unre- lated party, at which time ownership of the stock transfers to the unrelated party for Federal income tax purposes. On that date, the stock of Corporation X is trading at $0.50x per share. For purposes of computing Corporation X’s stock repurchase excise tax base, Corporation X is treated as issuing the 20 shares of its stock on August 1, 2024 (that is, the date on which ownership of the stock transfers to the recipient for Federal income tax purposes). See §58.4501-4(d)(1). The fair market value of that issued stock is its aggregate market price on the date of issuance by Corporation X, or $10x ($0.50x per share x 20 shares = $10x). See §58.4501-4(e) (1). Accordingly, the net increase in Corporation X’s stock repurchase excise tax base for its 2024 taxable year is $25x ($35x repurchase - $10x issu- ance = $25x). See §58.4501-2(c)(1). (3) Example 3: Acquisition partially funded by the target corporation—(i) Facts. On May 30, 2024, Corporation X acquires all of Target’s outstanding stock (Target Stock Acquisition). To effectuate the Target Stock Acquisition, Corporation X causes the following transactions steps to occur. First, Corpora- tion X contributes $40x to a newly formed corpora- tion (Merger Sub). Second, 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 share- holders 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 Tar- get redeemed 60 percent of its outstanding stock for $60x as part of the Subsidiary Merger. (This treat- ment results from the fact that Target funded $60x of the consideration received by Target’s shareholders in exchange for their Target stock.) All of Target’s stock ceases to trade on an established securities market upon completion of the Target Stock Acqui- sition. May 13, 2024 1146 Bulletin No. 2024–20 (ii) Analysis. Target ceases to be a covered corpo- ration at the end of the day on May 30, 2024 (that is, the cessation date of Target). See §58.4501-2(d)(2). Target’s redemption of 60 percent of its outstanding stock is a redemption within the meaning of section 317(b) with regard to the stock of a covered corpo- ration. See §58.4501-1(b)(24). In addition, Target’s redemption is not included in the exclusive list of transactions under §58.4501-2(e)(3) that are treated as a section 317(b) redemption but are not a repur- chase. Accordingly, the redemption is a repurchase. See §58.4501-2(e)(2). Therefore, as a result of the Target Stock Acquisition, Target’s stock repurchase excise tax base for its 2024 taxable year is increased by $60x. See §58.4501-2(c)(1). (4) Example 4: Leveraged buyout—(i) Facts. The facts are the same as in paragraph (b)(3)(i) of this section (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. In the Subsidiary Merger, Target assumes Merger Sub’s obligation on the $60x loan. As a result of the disre- garded transitory existence of Merger Sub, the Target Stock Acquisition is treated for Federal income tax purposes as though Target directly borrowed $60x from the unrelated lender and then used the loan pro- ceeds to redeem $60x of its stock from the Target shareholders. (ii) Analysis. The analysis is the same as in para- graph (b)(3)(ii) of this section (Example 3). (5) Example 5: Pro rata stock split—(i) Facts. On October 1, 2024, Corporation X distributes three shares of Corporation X stock with respect to each existing share of its outstanding stock (Corporation X Stock Split). (ii) Analysis. The stock distributed by Corpora- tion X to its shareholders through the Corporation X Stock Split is disregarded for purposes of the netting rule because Corporation X distributed the stock to its shareholders with respect to its outstanding stock. See §58.4501-4(f)(1). Accordingly, the Corporation X Stock Split is not taken into account in computing Corporation X’s stock repurchase excise tax base for its 2024 taxable year. See §58.4501-2(c)(1) (regarding the computation of the stock repurchase excise tax base). (6) Example 6: Acquisition of a target corpora- tion in an acquisitive reorganization—(i) Facts. On October 1, 2024, Target merges into Corporation X in a transaction that qualifies as an A reorganization (Target Merger). 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 stock and $40x of their Target stock for $40x of cash. (ii) Analysis regarding repurchase treatment, timing, and amount. The exchange by the Target shareholders of their Target stock for the consider- ation received in the Target Merger is a repurchase by Target because the exchange is an economically similar transaction. See §58.4501-2(e)(2)(ii) and (e) (4)(i). This repurchase occurs on October 1, 2024 (that is, the date on which the Target shareholders exchange their Target shares as part of the Target Merger). See §58.4501-2(g)(2). The amount of this repurchase by Target is $100x, which equals the aggregate fair market value of the Target stock on the date the stock is exchanged by the Target share- holders as part of the Target Merger (that is, October 1, 2024). See §58.4501-2(h)(1). (iii) Analysis regarding impact of Target Merger on Target’s stock repurchase excise tax base. Target’s stock repurchase excise tax base for its 2024 taxable year initially is increased by $100x on account of the Target Merger. See §58.4501-2(c)(1)(i). Under the reorganization exception, the fair market value of the Target stock exchanged by the Target share- holders for Corporation X stock in the Target Merger (that is, $60x) is a reduction in Target’s stock repur- chase excise tax base. See §§58.4501-2(c)(1)(ii) and 58.4501-3(c)(1) (regarding acquisitive reorganiza- tions). However, the fair market value of the Target stock exchanged by the Target shareholders for $40x of cash in the Target Merger does not qualify for the reorganization exception. See §58.4501-3(c). There- fore, Target’s stock repurchase excise tax base for its 2024 taxable year is increased by $40x ($100x repurchase - $60x exception = $40x) as a result of the Target Merger. (iv) Analysis regarding impact of Target Merger on Corporation X’s stock repurchase excise tax base. Corporation X’s transfer of Corporation X stock to Target in the Target Merger is disregarded for pur- poses of the netting rule because Corporation X’s issuance of that stock is part of a transaction to which the reorganization exception applies. See §58.4501- 4(f)(3) (disregarding such types of issuances to ensure no double benefit). Specifically, Corporation X’s transfer of Corporation X stock to Target is dis- regarded for purposes of the netting rule because the Corporation X stock constitutes property permitted to be received under section 354 without the recog- nition of gain, 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 §58.4501-2(e)(4)(i), and the repurchase by Target is not included in Target’s stock repurchase excise tax base because it is a qualifying property repurchase. See id. Therefore, Corporation X does not take into account any of the $60x of its stock transferred to Target in the Target Merger in computing Corpora- tion X’s stock repurchase excise tax base for its 2024 taxable year under §58.4501-4(b)(1). (7) Example 7: Cash paid in lieu of fractional shares—(i) Facts. The facts are the same as in para- graph (b)(6)(i) of this section (Example 6). Addition- ally, the exchange ratio in the Target Merger is 1.25 shares of Corporation X stock for each share of Tar- get 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 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 was not separately bargained-for consideration (that is, the cash paid by Corporation X in lieu of the frac- tional shares represented a mere rounding off of the two Corporation X shares issued to Shareholder A in the exchange). In addition, the payment by Corpora- tion X to Shareholder A of cash in lieu of a fractional share of Corporation X stock was carried out solely for administrative convenience (and therefore, solely for non-tax reasons) and was for an amount of cash that did not exceed the value of one full share of Cor- poration X stock. (ii) 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 distributed by Corporation X to Shareholder A as part of the Target Merger and then redeemed by Corporation X for cash. This deemed redemption is not a repurchase because the payment of cash in lieu of a fractional share satisfies the requirements of §58.4501-2(e)(3)(ii). In addition, Corporation X’s deemed issuance of the fractional share to Share- holder A is disregarded for purposes of the netting rule. See §58.4501-4(f)(5). (8) Example 8: Two-step asset acquisition—(i) Facts. Corporation X acquires the assets of Target through the following transaction steps pursuant to an integrated plan to effect the acquisition. First, on September 30, 2024, Corporation X contributes $60x of Corporation X stock and $40x of cash to a newly formed subsidiary (Merger Sub). Second, on October 1, 2024, Merger Sub merges into Target in a statutory merger, with Target surviving (Subsidiary Merger). Third, on October 15, 2024, Target merges into Corporation X in a statutory merger (Upstream Merger). On the date of the Subsidiary Merger, the fair market value of Target’s outstanding stock is $100x. In the Subsidiary Merger, $60x of Target stock is exchanged for Corporation X stock, and $40x of Target stock is exchanged for $40x of cash. For Federal income tax purposes, the Subsidiary Merger and the Upstream Merger are integrated into a single statutory merger of Target into Corporation X that qualifies as an A reorganization. (ii) Analysis. The analysis is the same as in para- graph (b)(6) of this section (Example 6). (9) Example 9: E reorganization—(i) Facts. On November 1, 2024, Corporation X issues new stock, with an aggregate fair market value of $100x (New Common Stock), to its shareholders in exchange for their outstanding stock in Corporation X (Old Com- mon Stock). The exchange (Recapitalization) quali- fies as an E reorganization. At the time of the Recap- italization, the fair market value of Corporation X’s Old Common Stock is $100x. (ii) Analysis regarding repurchase treatment, timing, and amount. The exchange by the Corpora- tion X shareholders of their Old Common Stock for New Common Stock in the Recapitalization pursu- ant to the plan of reorganization is a repurchase by Corporation X because that exchange is an econom- ically similar transaction. See §58.4501-2(e)(2)(ii) and (e)(4)(ii). This repurchase occurs on November 1, 2024 (that is, the date on which the Target share- holders exchange their old Common Stock pursuant to the plan of reorganization). See §58.4501-2(g)(2). The amount of this repurchase by Corporation X is $100x, which equals the aggregate fair market value of the Old Common Stock on the date that stock is exchanged by the Corporation X shareholders pursu- ant to the plan of reorganization (that is, November 1, 2024). See §58.4501-2(h)(1). (iii) 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 2024 taxable year initially is increased by $100x on account of the Recapitalization. See §58.4501-2(c)(1)(i). Under the reorganization exception, the fair market value Bulletin No. 2024–20 1147 May 13, 2024 of the Old Common Stock exchanged by the Cor- poration X shareholders for New Common Stock in the Recapitalization (that is, $100x) is a qualifying property repurchase that reduces the amount of Cor- poration X’s stock repurchase excise tax base. See §§58.4501-2(c)(1)(ii) and §58.4501-3(c)(2). Con- sequently, 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 2024 taxable year ($100x repurchase - $100x exception = $0). (iv) Analysis regarding impact of issuance of New Common Stock on Corporation X’s stock repur- chase excise tax base. Corporation X’s issuance of the New Common Stock is disregarded for purposes of the netting rule because Corporation X’s issuance of that stock is part of a transaction to which the reorganization exception applies. See §58.4501-4(f) (3) (disregarding such types of issuances to ensure no double benefit). Specifically, Corporation X’s issuance of its New Common Stock to Corporation X’s shareholders is disregarded for purposes of the netting rule because the New Common Stock consti- tutes property permitted to be received under section 354 without the recognition of gain, the New Com- mon Stock is used by a covered corporation (that is, Corporation X) to repurchase its stock in a transac- tion that is a repurchase under §58.4501-2(e)(4)(ii), and the repurchase by Corporation X is not included in Corporation X’s stock repurchase excise tax base for its 2024 taxable year because it is a qualifying property repurchase. See id. Therefore, Corporation X does not take into account any of the $100x of New Common Stock issued to its shareholders in computing its stock repurchase excise tax base for its 2024 taxable year under §58.4501-4(b)(1). (10) Example 10: F reorganization—(i) Facts. Corporation X is a State A corporation. In order to reorganize under the laws of State B, on November 15, 2024, Corporation X forms Corporation Y (a State B corporation) and merges into Corporation Y in a transaction (Corporation X Redomiciliation) that qualifies as an F reorganization. On the date of the Corporation X Redomiciliation, 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 Redomiciliation, Shareholder A transfers all its Corporation X stock to Corporation X in exchange for $25x of cash, which is treated for Federal income tax purposes as an unrelated, sepa- rate transaction from the Corporation X Redomicili- ation to which section 302(a) applies (Shareholder A Redemption). See §1.368-2(m)(3)(iii) of this chapter. The remaining Corporation X shareholders exchange their Corporation X stock for Corporation Y stock as part of the Corporation X Redomiciliation. (ii) Analysis regarding repurchase treatment, timing, and amount. The exchange by Shareholder A of its Corporation X stock is a repurchase by Cor- poration X in the amount of $25x because it is a section 317(b) redemption. See §58.4501-2(e)(2)(i). In addition, the exchange by Corporation X’s other shareholders of their Corporation X stock for Corpo- ration Y stock is a repurchase by Corporation X in the amount of $75x because that exchange is an econom- ically similar transaction. See §58.4501-2(e)(2)(ii) and (e)(4)(iii). These repurchases occur on Novem- ber 15, 2024 (that is, the date on which the Corpo- ration X shareholders transfer their Corporation X stock to Corporation X as part of the transaction). See §58.4501-2(g)(1) and (2). The total amount of these repurchases by Corporation X is $100x, which equals the sum of $25x (the fair market value of the Corporation X stock redeemed in the Shareholder A Redemption on the date of the redemption) and $75x (the aggregate fair market value of the Corporation X stock on the date that stock is exchanged by the remaining Corporation X shareholders as part of the Corporation X Redomiciliation (that is, November 15, 2024)). See §58.4501-2(h)(1). (iii) Analysis regarding impact of Shareholder A Redemption and Corporation X Redomiciliation on Corporation X’s stock repurchase excise tax base. Corporation X’s stock repurchase excise tax base for its 2024 taxable year initially is increased by $100x on account of the Shareholder A Redemption and the Corporation X Redomiciliation. See §58.4501-2(c) (1)(i). Under the reorganization exception, the fair market value of the Corporation X stock exchanged by the Corporation X shareholders for Corporation Y stock in the Corporation X Redomiciliation (that is, $75x) is a qualifying property repurchase that reduces the amount of Corporation X’s stock repur- chase excise tax base. See §§58.4501-2(c)(1)(ii) and 58.4501-3(c)(3). Accordingly, Corporation X’s stock repurchase excise tax base for its 2024 taxable year is increased by $25x ($25x repurchase + ($75x repurchase - $75x exception) = $25x) because of the Corporation X Redomiciliation. (iv) Analysis regarding impact of Corporation X Redomiciliation on Corporation Y’s stock repur- chase excise tax base. Corporation Y’s transfer of the $75x of its stock to Corporation X in the Corporation X Redomiciliation is disregarded for purposes of the netting rule because Corporation Y’s issuance of that stock is part of a transaction to which the reorganiza- tion exception applies. See §58.4501-4(f)(3) (disre- garding such types of issuances to ensure no double benefit). Specifically, Corporation Y’s transfer of its stock to Corporation X is disregarded for purposes of the netting rule because the Corporation Y stock constitutes property permitted to be received under section 354 without the recognition of gain, the Cor- poration Y stock is used by a covered corporation (that is, Corporation X) to repurchase its stock in a transaction that is a repurchase under §58.4501-2(e) (4)(iii), and the repurchase by Corporation X is not included in Corporation X’s stock repurchase excise tax base for its 2024 taxable year because it is a qual- ifying property repurchase. See id. Therefore, Corpo- ration Y does not take into account any of the $75x of its stock transferred to Corporation X in computing Corporation Y’s stock repurchase excise tax base for its 2024 taxable year under §58.4501-4(f)(2)(i). (11) Example 11: Section 355 split-off—(i) Facts. Corporation X owns all the stock of a pre-ex- isting subsidiary (Controlled). On December 1, 2024, Corporation X distributes all the stock of Con- trolled and $20x of cash to certain of its shareholders (Participating Shareholders) in exchange for $100x of Corporation X stock in a split-off (Corporation X Split-Off). On the date of the Corporation X Split- Off, the Corporation X stock has a fair market value of $100x, and the Controlled stock has a fair market value of $80x. (ii) Analysis regarding repurchase treatment, timing, and amount. The exchange by the Partici- pating Shareholders of their Corporation X stock for the $80x of Controlled stock and $20x of cash in the Corporation X Split-Off is a repurchase by Corpo- ration X because the exchange is an economically similar transaction. See §58.4501-2(e)(2)(ii) and (e) (4)(iv). This repurchase occurs on December 1, 2024 (that is, the date on which the Participating Share- holders exchange their Corporation X stock as part of the Corporation X Split-Off). See §58.4501-2(g) (2). The amount of the repurchase by Corporation X is $100x, which equals the aggregate fair market value of the Corporation X stock on the date the stock is exchanged by the Participating Shareholders in the Corporation X Split-Off (that is, December 1, 2024). See §58.4501-2(h)(1). (iii) Analysis regarding impact of Corporation X Split-Off on Corporation X’s stock repurchase excise tax base. Corporation X’s stock repurchase excise tax base for its 2024 taxable year initially is increased by $100x on account of the Corporation X Split-Off. However, under the reorganization exception, the fair market value of the Corporation X stock exchanged by the Participating Shareholders for Controlled stock in the Corporation X Split-Off (that is, $80x) is a qualifying property repurchase that reduces the amount of Corporation X’s stock repurchase excise tax base. See §§58.4501-2(c)(1) (ii) and 58.4501-3(c)(4). The fair market value of the Corporation X stock exchanged by the Participating Shareholders for the $20x of cash in the Corporation X Split-Off does not qualify for the reorganization exception. See §58.4501-3(c). Therefore, Corpora- tion X’s stock repurchase excise tax base for its 2024 taxable year is increased by $20x ($100x repurchase - $80x exception = $20x) as a result of the Corpora- tion X Split-Off. (12) Example 12: Section 355 split-off as part of a D reorganization—(i) Facts. The facts are the same as in paragraph (b)(11)(i) of this section (Example 11), except that Controlled is a newly formed corporation, and the Corporation X Split-Off is carried out as part of a transaction qualifying as a D reorganization in which Corporation X transfers assets to Controlled. (ii) General analysis. Except as described in paragraph (b)(12)(iii) of this section, the analysis is the same as in paragraphs (b)(11)(ii) and (iii) of this section (Example 11). (iii) Analysis regarding Controlled’s stock repur- chase excise tax base. Controlled’s transfer of $80x of its stock to Corporation X in the Corporation X Split-Off is disregarded for purposes of the netting rule because Controlled’s issuance of that stock is part of a transaction to which the reorganization exception applies. See §58.4501-4(f)(3) (disregard- ing such types of issuances to ensure no double ben- efit). Specifically, Controlled’s transfer of its stock to Corporation X is disregarded for purposes of the netting rule because the Controlled stock constitutes property permitted to be received under section 355 without the recognition of gain, the Controlled stock is used by a covered corporation (that is, Corpora- tion X) to repurchase its stock in a transaction that is a repurchase under §58.4501-2(e)(4)(iv), and the repurchase by Corporation X is not included in Cor- poration X’s stock repurchase excise tax base for its May 13, 2024 1148 Bulletin No. 2024–20 2024 taxable year because it is a qualifying property repurchase. See id. Controlled’s transfer of its stock to Corporation X also is disregarded for purposes of the netting rule because Controlled is not a covered corporation at the time of the transfer. See §58.4501- 2(d)(1). Therefore, Controlled does not take into account any of the $80x of its stock transferred to Corporation X in computing Controlled’s stock repurchase excise tax base for its 2024 taxable year under §58.4501-4(b)(1). (13) Example 13: Spin-off—(i) Facts. The facts are the same as in paragraph (b)(11)(i) of this section (Example 11), except that Corporation X distributes the Controlled stock and cash to its shareholders pro rata without the shareholders exchanging any Corpo- ration X stock (Corporation X Spin-Off). (ii) Analysis. The Corporation X Spin-Off is not a repurchase by Corporation X. See §58.4501-2(e) (5)(iii). (14) Example 14: Section 355 spin-off as part of a D reorganization—(i) Facts. The facts are the same as in paragraph (b)(13)(i) of this section (Example 13), except that Controlled is a newly formed cor- poration, the Corporation X Spin-Off is carried out as part of a transaction qualifying as a D reorganiza- tion in which Corporation X transfers assets to Con- trolled, and Corporation X receives the $20x of cash from Controlled and distributes the cash to certain of Corporation X’s shareholders in exchange for Cor- poration X stock. (ii) Analysis regarding Corporation X. The dis- tribution by Corporation X of the $80x of stock of Controlled in the Corporation X Spin-Off is not a repurchase by Corporation X. See §58.4501-2(e)(5) (iii)(A). The distribution by Corporation X of the $20x of cash in exchange for Corporation X stock is a repurchase. See §58.4501-2(e)(5)(iii)(B). (iii) Analysis regarding Controlled’s stock repur- chase excise tax base. Controlled’s transfer of the $80x of its stock to Corporation X is disregarded for purposes of the netting rule. See §58.4501-4(f) (9) (providing that any stock issued by a controlled corporation in a distribution qualifying under section 355 (or so much of section 356 as relates to section 355) that is not a split-off is disregarded for purposes of the netting rule). (15) Example 15: Repurchase pursuant to an accelerated share repurchase agreement—(i) 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 deter- mined 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, Cor- poration X paid Bank a prepayment amount. Bank borrowed 80 shares of Corporation X stock from a party not related to Bank or Corporation X. Pursuant to the terms of the ASR agreement, Bank delivered 80 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 80 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 set- tle in 2023. On February 1, 2023, Bank delivers an additional 20 shares to Corporation X in final settle- ment of the ASR agreement. For Federal income tax purposes, ownership of those 20 shares is treated as transferring from Bank to Corporation X at the time of delivery (that is, February 1, 2023). (ii) Analysis. Corporation X is treated as repur- chasing 80 shares of Corporation X stock on October 12, 2022 (that is, the date on which ownership of the 80 shares delivered by Bank transferred from Bank to Corporation X for Federal income tax purposes). See §58.4501-2(g)(1). However, the repurchase by Cor- poration X of the 80 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 §58.4501-2(c)(3); see also section 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 20 shares of Corporation X stock on February 1, 2023, con- stitutes 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 §58.4501-2(g)(1). Therefore, the repurchase by Corporation X of those 20 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 liqui- dation of a covered corporation—(i) Facts. Corpo- ration X adopts a plan of complete liquidation that becomes effective on March 1, 2024 (Corporation X Liquidation). Corporation X has 100 shares of stock outstanding. On April 1, 2024, all shareholders of Corporation X receive a liquidating distribution by Corporation X in full payment for their Corpo- ration X stock. On the date on which Corporation X distributes all its corporate assets to its shareholders in complete liquidation (that is, April 1, 2024), Cor- poration X stock is trading at $1x per share. Each distribution in complete liquidation is subject to sec- tion 331. (ii) Analysis. A distribution in complete liquida- tion of a covered corporation (that is, Corporation X) to which section 331 (but not section 332(a)) applies is not a repurchase by the covered corporation. See §58.4501-2(e)(5)(i). Therefore, none of the distribu- tions by Corporation X in complete liquidation is a repurchase by Corporation X, and Corporation X’s stock repurchase excise tax for its 2024 taxable year is not increased because of the Corporation X Liq- uidation. (17) Example 17: Complete liquidation of a cov- ered corporation to which sections 331 and 332(a) both apply—(i) Facts. The facts are the same as in paragraph (b)(16)(i) of this section (Example 16), except that one of Corporation X’s sharehold- ers (Corporation Z) is an 80-percent distributee (as defined in section 337(c) of the Code), and the liqui- dating distribution by Corporation X to Corporation Z as part of the Corporation X Liquidation qualifies as a complete liquidation under section 332(a). (ii) Analysis. In the case of a complete liquida- tion of a covered corporation, if sections 331 and 332(a), respectively, apply to component distribu- tions of the complete liquidation, a distribution to which section 331 applies is a repurchase by the cov- ered corporation, and the distribution to which sec- tion 332(a) applies is not a repurchase by the covered corporation. See §58.4501-2(e)(4)(v). Therefore, as a result of the component liquidating distributions of the Corporation X Liquidation to which section 331 applies, Corporation X repurchased 20 shares of its stock on April 1, 2024. The Corporation X Liqui- dation results in a $20x increase in Corporation X’s stock repurchase excise tax base for its 2024 taxable year because the fair market value of Corporation X’s stock on the date of repurchase (that is, April 1, 2024) was $1x per share (20 shares x $1x = $20x). See §58.4501-2(h)(1). (18) Example 18: Acquisition by disregarded entity—(i) Facts. Corporation X owns all the inter- ests 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 this chapter. On May 31, 2024, LLC purchases shares of Corporation X’s stock for cash from an unrelated shareholder. (ii) Analysis. Because LLC is a disregarded entity, the May 31, 2024, acquisition of Corporation X stock is treated as an acquisition by Corporation X. Accordingly, the acquisition is a section 317(b) redemption and therefore a repurchase. See §58.4501-2(e)(2)(i). Section 301.7701-2(c)(2)(v) of this chapter (treating disregarded entities as corpo- rations for purposes of certain excise taxes) does not apply to treat LLC as a corporation because neither chapter 37 of the Code nor section 4501 is described in §301.7701-2(c)(2)(v)(A) of this chapter. (19) Example 19: Reverse triangular merger— (i) Facts. On October 1, 2024, Corporation X acquires all of Target’s outstanding stock (Target Stock Acquisition) in a transaction that qualifies as a reverse triangular merger. To effectuate the Target Stock Acquisition, Corporation X causes the follow- ing steps to occur on the same day. First, Corporation X contributes $80x of Corporation X stock and $20x of cash (Merger Consideration) to a newly formed corporation (Merger Sub). Second, Merger Sub merges into Target in a statutory merger, with Target surviving (Reverse Triangular Merger). On the date of the Reverse Triangular Merger (that is, October 1, 2024), the fair market value of Target’s outstanding stock is $100x. In the Reverse Triangular Merger, $80x of Target stock is exchanged for Corporation X stock, and $20x of Target stock is exchanged for $20x of cash. (ii) Analysis regarding repurchase treatment, timing, and amount. The exchange by the Target shareholders of their Target stock for the Merger Consideration is a repurchase by Target because that exchange is an economically similar transaction. See §58.4501-2(e)(2)(ii) and (e)(4)(i). The repur- chase occurs on October 1, 2024 (that is, the date on which the Target shareholders exchange their Target shares as part of the Reverse Triangular Merger). See §58.4501-2(g)(2). The amount of the repurchase is $100x, which equals the aggregate fair market value of the Target stock on the date the stock is exchanged by the Target shareholders as part of the Reverse Triangular Merger (that is, October 1, 2024). See §58.4501-2(h)(1). Bulletin No. 2024–20 1149 May 13, 2024 (iii) Analysis regarding impact of Reverse Tri- angular Merger on Target’s stock repurchase excise tax base. Target’s stock repurchase excise tax base for its 2024 taxable year initially is increased by $100x on account of the Reverse Triangular Merger. See §58.4501-2(c)(1)(i). Under the reorganization exception, the fair market value of the Target stock exchanged by the Target shareholders for Corpora- tion X stock in the Reverse Triangular Merger (that is, $80x) is a qualifying property repurchase that reduces the amount of Target’s stock repurchase excise tax base. See §§58.4501-2(c)(1)(ii) and 58.4501-3(c)(1) (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 Triangular Merger does not qualify for the reorganization exception. See §58.4501-3(c). In addition, any Target stock that is deemed to be issued by Target to Merger Sub in exchange for the Merger Consideration is disregarded for purposes of the net- ting rule. See §58.4501-4(f)(7). Therefore, Target’s stock repurchase excise tax base for its 2024 taxable year is increased by $20x ($100x repurchase - $80x exception = $20x) as a result of the Reverse Trian- gular Merger. (iv) Analysis regarding impact of Reverse Trian- gular Merger on Corporation X’s stock repurchase excise tax base. Corporation X’s issuance of Corpo- ration X stock in the Reverse Triangular Merger is disregarded for purposes of the netting rule because Corporation X’s issuance of that stock is part of a transaction to which the reorganization exception applies. See §58.4501-4(f)(3) (disregarding such types of issuances to ensure no double benefit). Spe- cifically, Corporation X’s issuance of Corporation X stock is disregarded for purposes of the netting rule because the Corporation X stock constitutes property permitted to be received under section 354 without the recognition of gain, the Corporation X stock is used by a covered corporation (that is, Target) to repurchase its stock in a transaction that is a repur- chase under §58.4501-2(e)(4)(i), and the repurchase by Target is not included in Target’s stock repurchase excise tax base because it is a qualifying property repurchase. See id. Therefore, Corporation X does not take into account any of the $80x of its stock issued in the Reverse Triangular Merger in comput- ing its stock repurchase excise tax base for its 2024 taxable year under §58.4501-4(b)(1). (20) Example 20: Multiple repurchases and contributions of same class of stock—(i) Facts. On January 15, 2024, Corporation X repurchases 100 shares of its Class A stock that have an aggregate fair market value of $1,000x ($10x per share). On September 16, 2024, Corporation X repurchases 50 shares of its Class A stock that have an aggregate fair market value of $200x ($4x per share). Corporation X contributes to its ESOP 75 shares of its Class A stock on March 15, 2024, and 75 shares of its Class A stock on October 15, 2024. (ii) Analysis. Corporation X’s stock repurchase excise tax base for its 2024 taxable year initially is increased by $1,200x ($1,000x + $200x = $1,200x) as a result of the repurchases of its Class A stock. See §58.4501-2(c)(1)(i). Under the exception for stock contributions to an employer-sponsored retirement plan, Corporation X’s stock contributions reduce the amount of Corporation X’s stock repurchase excise tax base. See §§58.4501-2(c)(1)(ii) and 58.4501- 3(d). The amount of the reduction is determined by dividing the aggregate fair market value of shares of Class A stock repurchased by the number of shares repurchased ($1,200x/150 shares = $8 per share) and multiplying the number of shares contributed by the average price of the repurchased shares (150 shares x $8 per share = $1,200x). See §58.4501-3(d)(3)(i). Therefore, Corporation X’s stock repurchase excise tax base for its 2024 taxable year is $0 ($1,200x repurchase - $1,200x exception = $0). (21) Example 21: Multiple repurchases and con- tributions of different classes of stock—(i) Facts. The facts are the same as in paragraph (b)(20)(i) of this section (Example 20), except that Corporation X has Class B stock and contributes its Class B stock rather than its Class A stock to its ESOP. On October 15, 2024, Corporation X contributes to its ESOP 75 shares of its Class B stock that have an aggregate fair market value of $1,000x. On December 16, 2024, Corporation X contributes to its ESOP 25 shares of its Class B stock that have an aggregate fair market value of $500x. (ii) Analysis. Corporation X’s reduction in com- puting its stock repurchase excise tax base is equal to the sum of the fair market values of the different class of stock at the time the stock is contributed to the employer-sponsored retirement plan ($1,000x + $500x = $1,500x). However, the amount of the reduction must not exceed the aggregate fair market value of stock of a different class repurchased during the taxable year by Corporation X (that is, $1,200x). See §58.4501-3(d)(4)(ii). Therefore, Corporation X’s stock repurchase excise tax base for its 2024 taxable year is $0 ($1,200x repurchase - $1,200x exception = $0). (22) Example 22: Treatment of contributions after the taxable year—(i) Facts. Corporation X repurchases 200 shares of its stock on December 31, 2024, for $200x ($1x per share). Corporation X has no other repurchases in 2024. On February 2, 2026, Corporation X contributes 200 shares of stock to its ESOP. Corporation X treats the contribution as if it had been received for the 2024 calendar year for plan allocation purposes. See §58.4501-3(d)(5)(ii). (ii) Analysis. Corporation X may use the contri- bution of the 200x shares of its stock on February 2, 2026, to reduce its $200x stock repurchase excise tax base for 2024. See §58.4501-3(d)(5)(ii). (23) Example 23: Becoming a covered corpora- tion—(i) Facts. As of January 1, 2024, all of Cor- poration X’s stock is privately held (and, therefore, none of Corporation X’s stock is traded on an estab- lished securities market). On February 15, 2024, Corporation X purchases 10 shares of its stock for $5x of cash ($.50x per share). On April 1, 2024, Cor- poration X issues 100 shares of its stock to the public (Public Shareholders), at which time Corporation X’s stock begins trading on an established securities market. On November 15, 2024, when Corporation X stock is trading at $2x per share, Corporation X purchases 60 shares of its stock for $120x of cash. (ii) Analysis regarding purchase on February 15, 2024. Corporation X becomes a covered corporation at the beginning of the day on April 1, 2024 (the initiation date). See §58.4501-2(d)(1). Accordingly, Corporation X’s purchase of 10 shares of its stock for $5x of cash on February 15, 2024, is not a repur- chase. See §58.4501-1(b)(24). Thus, the purchase on February 15, 2024, is not included in Corporation X’s stock repurchase excise tax base for its 2024 taxable year. (iii) Analysis regarding issuance on April 1, 2024. Corporation X is a covered corporation on April 1, 2024. See §58.4501-2(d)(1). Accordingly, the Corporation X stock issued to the Public Share- holders on that date is stock of a covered corporation for purposes of the netting rule. See §58.4501-4(b) (1). As a result, Corporation‘s stock repurchase excise tax base for its 2024 taxable year is reduced by $100x. See §58.4501-2(c)(1)(iii). (iv) Analysis regarding purchase on November 15, 2024. Corporation X is a covered corporation on November 15, 2024. Accordingly, Corporation X’s purchase of 60x shares of its stock on that date is a repurchase because the transaction is a section 317(b) redemption (that is, a redemption within the meaning of section 317(b) with regard to the stock of a covered corporation). See §§58.4501-1(b)(24) and 58.4501-2(e)(2)(i). For purposes of computing Corporation X’s stock repurchase excise tax base, the fair market value of the 60 shares of stock repur- chased on November 15, 2024, is the aggregate market price of those shares on that repurchase date, or $120x ($2x per share x 60 shares = $120x). See §58.4501-2(g)(1). Accordingly, Corporation‘s stock repurchase excise tax base for its 2024 taxable year is increased by $120x. See §58.4501-2(c)(1)(i). (24) Example 24: Actual redemption in partial liquidation—(i) Facts. Corporation X is actively engaged in the conduct of Businesses A and B. Each business constitutes a qualified trade or business within the meaning of section 302(e)(3). On Septem- ber 1, 2024, pursuant to a plan of partial liquidation adopted in the same taxable year, Corporation X sells Business B for $100x and distributes the proceeds to its shareholders pro rata in redemption of $100x of Corporation X stock. The transaction qualifies as a distribution in partial liquidation under section 302(b)(4) and (e). (ii) Analysis. Corporation X’s distribution in partial liquidation is a section 317(b) redemption. In addition, Corporation X’s distribution in partial liq- uidation is not included in the exclusive list of trans- actions under §58.4501-2(e)(3) that are treated as a section 317(b) redemption but are not a repurchase. Accordingly, the distribution in partial liquidation is a repurchase. See §58.4501-2(e)(2)(i). Therefore, as a result of the distribution, Corporation X’s stock repurchase excise tax base for its 2024 taxable year is increased by $100x. See §58.4501-2(c)(1)(i). (25) Example 25: Constructive redemption in partial liquidation—(i) Facts. The facts are the same as in paragraph (b)(24)(i) of this section (Example 24), except that the shareholders of Corporation X surrender no stock in exchange for the proceeds from the sale of Business B. For Federal income tax pur- poses, a constructive redemption of stock is deemed to occur, and the transaction qualifies as a distribu- tion in partial liquidation under section 302(b)(4) and (e). (ii) Analysis. The analysis is the same as in para- graph (b)(24)(ii) of this section (Example 24). (26) Example 26: Physical settlement of call option contract—(i) Facts. On March 1, 2024, Cor- poration X issues an option that entitles the holder to May 13, 2024 1150 Bulletin No. 2024–20 buy 100 shares of Corporation X stock from Corpo- ration X for $150x ($1.50x per share). On the date the option is issued, Corporation X stock is trading at $1x per share. On November 1, 2024, when Corpo- ration X stock is trading at $2x per share, the holder pays Corporation X $150x to exercise the option, and Corporation X issues 100 shares of Corporation X stock to the holder, at which time ownership of the shares transfers to the holder for Federal income tax purposes. (ii) Analysis. For purposes of computing Corpo- ration X’s stock repurchase excise tax base, Corpora- tion X is treated as issuing 100 shares of Corporation X stock on November 1, 2024. See §58.4501-4(d)(1). The fair market value of that stock is its aggregate market price on the date of issuance by Corporation X, or $200x ($2x per share x 100 shares = $200x). See §58.4501-4(e)(1). Accordingly, the issuance is a reduction of $200x in computing Corporation X’s stock repurchase excise tax base for its 2024 taxable year. See §58.4501-2(c)(1)(iii). (27) Example 27: Net cash settlement of call option contract—(i) Facts. The facts are the same as in paragraph (b)(26)(i) of this section (Example 26), except that Corporation X net cash settles the option by paying the holder $50x. (ii) Analysis. The net cash settlement is dis- regarded for purposes of the netting rule. See §58.4501-4(f)(12) (disregarding the settlement of an option contract with respect to stock of a covered corporation using any consideration other than stock of the covered corporation). (28) Example 28: Physical settlement of put option contract—(i) Facts. On April 1, 2024, Corporation X issues an option entitling the holder to sell 100 shares of Corporation X stock to Corporation X for $100x ($1x per share). On the date the option is issued, Cor- poration X stock is trading at $1.25x per share. On October 1, 2024, when Corporation X stock is trading at $0.75x per share, the holder exercises the option, and Corporation X purchases 100 shares of Corpora- tion X stock for $100x, at which time ownership of the shares transfers to Corporation X. (ii) Analysis. Corporation X’s purchase on Octo- ber 1, 2024, is a repurchase because it is a section 317(b) redemption. For purposes of computing Corporation X’s stock repurchase excise tax base, the fair market value of the repurchased stock is its aggregate market price on the date on which own- ership of the stock transfers to Corporation X for Federal income tax purposes (October 1, 2024), or $75x ($0.75x per share x 100 shares = $75x). See §58.4501-2(g)(1) and (h)(1). Accordingly, the repur- chase is an increase of $75x in computing Corpora- tion X’s stock repurchase excise tax base for its 2024 taxable year. See §58.4501-2(c)(1)(i). (29) Example 29: Net cash settlement of put option contract—(i) Facts. The facts are the same as in paragraph (b)(28)(i) of this section (Example 28), except that Corporation X net cash settles the put option by paying the holder $25x. (ii) Analysis. The net cash settlement is not a repurchase. See §58.4501-2(e)(5)(iv) (providing that net cash settlement of an option contract with respect to stock of a covered corporation is not a repurchase by the covered corporation). (30) Example 30: Indirect ownership—(i) Facts. Corporation X owns 60 percent of the only class of stock of Sub 1, a domestic corporation. Sub 1 owns 60 percent of the only class of stock of Sub 2, which is also a domestic corporation. On October 15, 2024, Sub 2 purchases stock of Corporation X with a mar- ket price of $100,000. (ii) Analysis. The determination of whether Sub 2 is a specified affiliate of Corporation X is relevant at the time Sub 2 purchases Corporation X stock on October 15, 2024, and therefore must be made at that time. See §58.4501-2(f)(2)(i). Under §58.4501-2(f) (2)(ii), Corporation X indirectly owns 36 percent (60% x 60% = 36%) of the stock of Sub 2. Sub 2 is not a specified affiliate of Corporation X, because Corporation X does not own, directly or indirectly, more than 50 percent of the stock of Sub 2. See §58.4501-1(b)(25). Accordingly, Sub 2’s purchase of Corporation X stock on October 15, 2024, is not a repurchase under §58.4501-2(f)(1). (31) Example 31: Constructive specified affiliate acquisition—(i) Facts. The facts are the same as in paragraph (b)(30)(i) of this section (Example 30), except that, on January 15, 2025, Sub 1 acquires an additional 40 percent of the stock of Sub 2. (ii) Analysis. Because Sub 2 owns stock of Cor- poration X, the determination of whether Sub 2 is a specified affiliate of Corporation X is relevant at the time Sub 1 purchases acquires additional stock of Sub 2 on January 15, 2025. See §58.4501-2(f)(2)(i). Under §58.4501-2(f)(2)(ii), Corporation X indirectly owns 60 percent (60% x 100% = 60%) of the stock of Sub 2. Accordingly, Sub 2 becomes a specified affil- iate of Corporation X on January 15, 2025, because Corporation X owns, directly or indirectly, more than 50 percent of the stock of Sub 2. See §58.4501-1(b) (25). Because Sub 2 owns stock of Corporation X that Sub 2 acquired after December 31, 2022, and Sub 2 became a specified affiliate of Corporation X after Sub 2 acquired the stock of Corporation X, the stock of Corporation X owned by Sub 2 is treated as repurchased by Corporation X on January 15, 2025. See §58.4501-2(f)(3)(i) and (g)(4). (32) Example 32: Restricted stock provided to a service provider—(i) Facts. Individual M pro- vides services to Corporation X. In 2024, as com- pensation for Individual M’s services, Corporation X transfers to individual M 100 shares of Corpora- tion X restricted stock with an aggregate fair market value of $500x ($5x per share). The shares vest in 2028. Individual M does not make an election under section 83(b). In 2028, Corporation X withholds from Individual M’s other wages amounts that are required to pay the income tax and employment tax withholding obligations arising from the stock trans- fer. The shares have a fair market value of $7x per share when they vest. (ii) Analysis. Corporation X is treated as issu- ing 100 shares of stock to Individual M when they become substantially vested in 2028. See §58.4501- 4(d)(2)(i). The fair market value of the shares issued is $700x (100 shares x $7x per share = $700x). Accordingly, the issuance is a reduction of $700x in computing corporation X’s stock repurchase excise tax base for its 2028 taxable year. (33) Example 33: Restricted stock provided to a service provider with section 83(b) election—(i) Facts. The facts are the same as in paragraph (b) (32)(i) of this section (Example 32), except that Individual M makes a valid election under section 83(b) to include the fair market value of the shares of restricted stock in gross income when the shares are transferred. (ii) Analysis. Corporation X is treated as issuing 100 shares of stock to Individual M when the shares are transferred in 2024. See §58.4501-4(d)(2)(iii). The fair market value of the shares issued is $500x (100 shares x $5x per share = $500x). Accordingly, the issuance is a reduction of $500x in computing Corporation X’s stock repurchase excise tax base for its 2024 taxable year. Corporation X is not treated as issuing stock to Individual M when the shares vest in 2028. (34) Example 34: Vested stock provided to a service provider with share withholding—(i) Facts. Employee N is an employee of Corporation X. In 2024, as compensation for Employee N’s services, Corporation X grants Employee N 100 restricted stock units (RSUs). Pursuant to the RSUs, if Employee N remains employed by Corpora- tion X through December 31, 2027, Corporation X will transfer 100 shares of Corporation X stock to Employee N in January 2028. Employee N remains employed by Corporation X through December 31, 2027. In January 2028, when the shares have a fair market value of $5x per share, Corporation X initi- ates the transfer of 60 shares of Corporation X stock to Employee N and withholds 40 shares to satisfy its income tax and employment tax withholding obliga- tions arising from Employee N vesting in the shares. (ii) Analysis. Corporation X is treated as issuing 60 shares of stock to Employee N when the shares are transferred in 2028. See §58.4501-4(d)(2)(i). The 40 shares of Corporation X stock withheld to satisfy Corporation X’s withholding obligations are disregarded for purposes of the netting rule. See §58.4501-4(f)(11)(i). The fair market value of the shares issued is $300x (60 shares x $5x per share = $300x). Accordingly, the issuance is a reduction of $300x in computing Corporation X’s stock repur- chase excise tax base for its 2028 taxable year. (35) Example 35: Stock option net exercise—(i) Facts. Employee O is an employee of Corporation X. In 2024, in connection with the performance of services, Corporation X transfers to Employee O options to purchase 100 shares of Corporation X stock with an exercise price of $4x per share ($400x exercise price in total). The options are described in §1.83-7 of this chapter and do not have a readily ascertainable fair market value. Employee O exer- cises the option to purchase 100 shares in 2026, when the fair market value is $5x per share. Corpora- tion X withholds 80 shares to pay the $400x exercise price (80 shares x $5x per share = $400x). (ii) Analysis. Corporation X is treated as issuing 20 shares of stock to Employee O when Employee O exercises the options in 2026. See §58.4501-4(d)(2) (ii). The 80 shares of Corporation X stock withheld to pay the exercise price are disregarded for purposes of the netting rule. See §58.4501-4(f)(11)(i). The fair market value of the shares issued is $100x (20 shares x $5x per share = $100x). Accordingly, the issuance is a reduction of $100x in computing Corporation X’s stock repurchase excise tax base for its 2026 taxable year. (36) Example 36: Net share settlement not in connection with performance of services—(i) Facts. Corporation X issues a call option to Individual A Bulletin No. 2024–20 1151 May 13, 2024 that entitles Individual A to buy 100 shares of Cor- poration X stock for $100x ($1x per share) from Corporation X for a limited time. The terms of the option require or permit net share settlement. On the date the option is issued, Corporation X stock is trading at $1x per share. On the date the option is exercised, Corporation X stock is trading at $1.25x per share. To settle the option, Individual A makes no payment to Corporation X, and Corporation X issues 20 shares of Corporation X stock (worth $25x). (ii) Analysis. Corporation X is treated as issu- ing 20 shares with a fair market value of $25x. See §58.4501-4(f)(11)(ii). (37) Example 37: Broker-assisted net exercise— (i) Facts. The facts are the same as in paragraph (b) (35)(i) of this section (Example 35), 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 (that is, $400x) to Corporation X. Corporation X transfers 100 shares of Corporation X stock to the third-party broker, which deposits the 100 shares into Employee O’s account. The third-party broker then immediately sells 80 shares to recover the $400x exercise price paid to Corporation X (80 shares x $5x per share = $400x). (ii) Analysis. Corporation X is treated as issuing 100 shares of stock to Employee O when Employee O exercises the options in 2026. See §58.4501-4(c) (2) and (d)(1)(i). The fair market value of the shares issued is $500x (100 shares x $5x per share = $500x). Accordingly, the issuance is a reduction of $500x in computing Corporation X’s stock repurchase excise tax base for its 2026 taxable year. (38) Example 38: Stock provided by a specified affiliate to an employee—(i) Facts. Individual P is an employee of Corporation Y, which is a specified affiliate of Corporation X. In 2024, Corporation X transfers 100 shares of its stock to Individual P, when the stock is valued at $9x per share, in connection with Individual P’s performance of services as an employee of Corporation Y. (ii) Analysis. Under §1.83-6(d) of this chapter, Corporation X is treated as contributing the stock to the capital of Corporation Y, which is treated as transferring the shares to Individual P as compen- sation for services. Corporation Y is treated as pro- viding 100 shares to individual P. See §58.4501-4(b) (1)(ii) and (f)(2)(iv). The fair market value of the shares provided is $900x (100 shares x $9x per share = $900x). Accordingly, the provision is a reduction of $900x in computing Corporation X’s stock repur- chase excise tax base for its 2024 taxable year. (39) Example 39: Stock provided by a specified affiliate to a nonemployee—(i) Facts. The facts are the same as in paragraph (b)(38)(i) of this section (Example 38), except that Individual P provides ser- vices as a non-employee service provider of Corpo- ration Y. (ii) Analysis. Corporation Y is not treated as pro- viding shares for purposes of the netting rule because P is a non-employee service provider. See §58.4501- 4(b)(1)(ii) and (f)(2)(iv). Accordingly, there is no reduction in Corporation X’s stock repurchase excise tax base for its 2024 taxable year. (40) Example 40: Corporation treated as a domestic corporation under section 7874(b)—(i) Facts. Corporation FB is a corporation the stock of which is traded on an established securities market (within the meaning of section 7704(b)(1) of the Code) and that is created or organized in a foreign jurisdiction. Corporation FB is treated as a domestic corporation under section 7874(b). (ii) Analysis. Corporation FB is treated for pur- poses of this title as a domestic corporation under section 7874(b). Corporation FB is a covered corpo- ration because it is treated for purposes of this title as a domestic corporation and its stock is traded on an established securities market. See §58.4501-1(b)(6). §58.4501-6 Applicability dates. (a) In general. Except as provided in paragraph (b) of this section, §§58.4501-1 through 58.4501-5 apply to— (1) Repurchases of stock of a covered corporation occurring after December 31, 2022, and during taxable years ending after December 31, 2022; and (2) Issuances and provisions of stock of a covered corporation occurring during taxable years ending after December 31, 2022. (b) Exceptions—(1) Applicability date for certain rules. Sections 58.4501-2(d), (e)(4)(vi), (f)(2) and (3), (g)(4), (h)(2)(v), and (h)(3)(ii), 58.4501-3(g)(3) and (4), 58.4501-4(e)(2)(v), (e)(3)(ii), (f)(2)(ii), and (f)(8), (9), and (13) apply to— (i) Repurchases of stock of a covered corporation occurring after April 12, 2024, and during taxable years ending after April 12, 2024; and (ii) Issuances and provisions of stock of a covered corporation occurring after April 12, 2024, and during taxable years ending after April 12, 2024. (2) Special rules for acquisitions or repurchases of stock of certain for- eign corporations. See §58.4501-7(r) for applicability dates for the provisions of §58.4501-7 and the provisions of §58.4501-1 as applicable to transactions subject to §58.4501-7. §58.4501-7 Special rules for acquisitions or repurchases of stock of certain foreign corporations. (a) Scope. This section provides rules regarding the application of section 4501(d) of the Code. Paragraph (b) of this section provides definitions applicable for purposes of this section. Paragraph (c) of this section provides rules for computing a section 4501(d) covered corporation’s section 4501(d) excise tax liability. Para- graph (d) of this section provides cer- tain coordination rules related to section 4501(d)(2). Paragraph (e) of this section provides rules that apply if an applicable specified affiliate funds certain acquisi- tions or repurchases of stock of an appli- cable foreign corporation. Paragraph (f) of this section provides certain rules for determining the status of a corporation as an applicable foreign corporation or a covered surrogate foreign corporation. Paragraph (g) of this section provides cer- tain rules for determining the status of a corporation or partnership as an applicable specified affiliate, a relevant entity of an applicable foreign corporation, or a speci- fied affiliate of a covered surrogate foreign corporation. Paragraph (h) of this section provides rules for determining whether a foreign partnership is an applicable spec- ified affiliate. Paragraph (i) of this section is reserved. Paragraph (j) of this section defines the terms AFC repurchase and CSFC repurchase. Paragraph (k) of this section provides rules for determining the date of a section 4501(d)(1) repurchase or section 4501(d)(2) repurchase. Para- graph (l) of this section provides rules for determining the fair market value of stock of an applicable foreign corporation or a covered surrogate foreign corporation that is repurchased or acquired. Paragraph (m) of this section provides rules regarding the application of certain section 4501(d) statutory exceptions. Paragraph (n) of this section provides rules regarding the sec- tion 4501(d) netting rule. Paragraph (o) of this section provides rules applicable before April 13, 2024. Paragraph (p) of this section illustrates the application of the rules of this section through examples involving section 4501(d)(1). Paragraph (q) of this section illustrates the applica- tion of the rules of this section through examples involving section 4501(d)(2). Paragraph (r) of this section provides the applicability date of this section. (b) Definitions—(1) Application of definitions in §58.4501-1(b). Any term used in this section (other than paragraph (o) of this section as provided in paragraph (o)(5) of this section) but not defined in paragraph (b)(2) of this section has the meaning provided in §58.4501-1(b), pro- vided, however, that: (i) For all definitions provided in §58.4501-1(b) other than those described May 13, 2024 1152 Bulletin No. 2024–20 in paragraph (b)(1)(ii) of this section, any reference in those definitions to a covered corporation is treated as a reference to a section 4501(d) covered corporation or applicable foreign corporation or covered surrogate foreign corporation as appropri- ate based on the context. (ii) For the definitions of employee and employer-sponsored retirement plan provided in §58.4501-1(b)(10) and (11), any reference to a covered corporation or its specified affiliates is treated solely as a reference to a section 4501(d) covered corporation. (2) Section 4501(d) definitions. The definitions in this paragraph (b)(2) apply solely for purposes of this section (other than paragraph (o) of this section as pro- vided in paragraph (o)(5) of this section). (i) AFC repurchase. The term AFC repurchase has the meaning provided in paragraph (j) of this section. (ii) Allocable amount of a covered purchase. The term allocable amount of a covered purchase has the meaning pro- vided in paragraph (e)(5) of this section. (iii) Applicable foreign corporation. The term applicable foreign corporation means any foreign corporation the stock of which is traded on an established secu- rities market. (iv) Applicable specified affiliate. The term applicable specified affiliate means a specified affiliate of an applicable for- eign corporation, other than a foreign cor- poration or a foreign partnership (unless the partnership has a domestic entity as a direct or indirect partner, as determined under paragraph (h) of this section). (v) CSFC repurchase. The term CSFC repurchase has the meaning provided in paragraph (j) of this section. (vi) Covered funding. The term cov- ered funding means a funding described in paragraph (e)(1) of this section. (vii) Covered purchase. The term cov- ered purchase means an AFC repurchase or an acquisition of stock of an applicable foreign corporation by a relevant entity. (viii) Covered surrogate foreign cor- poration. The term covered surrogate foreign corporation means any surro- gate foreign corporation (as determined under section 7874(a)(2)(B) of the Code by substituting September 20, 2021 for March 4, 2003 each place it appears) the stock of which is traded on an established securities market, including any succes- sor to the surrogate foreign corporation (as determined under §1.7874-12(a)(10) of this chapter), but only with respect to taxable years that include any portion of the applicable period with respect to such corporation under section 7874(d)(1). (ix) Direct partner. The term direct partner has the meaning given the term in paragraph (h)(2)(i) of this section. (x) Domestic entity. The term domes- tic entity means a domestic corporation, a domestic partnership, or a trust within the meaning of section 7701(a)(30)(E) of the Code. (xi) Downstream relevant entity. The term downstream relevant entity means a relevant entity— (A) 25 percent or more of the stock of which is owned (by vote or by value), directly or indirectly, by, individually or in aggregate, one or more applicable speci- fied affiliates of an applicable foreign cor- poration; or (B) 25 percent or more of the capital interests or profits interests of which is held, directly or indirectly, by, individu- ally or in aggregate, one or more appli- cable specified affiliates of an applicable foreign corporation. (xii) Expatriated entity. The term expatriated entity has the meaning given the term in section 7874(a)(2)(A) and §1.7874-12(a)(8) of this chapter, includ- ing any successor (as determined under §1.7874-12(a)(6) of this chapter). (xiii) Indirect partner. The term indi- rect partner has the meaning given the term in paragraph (h)(2)(ii) of this section. (xiv) Relevant entity. The term rele- vant entity means a specified affiliate of an applicable foreign corporation that is not an applicable specified affiliate of the applicable foreign corporation. (xv) Section 4501(d) covered corpo- ration. The term section 4501(d) covered corporation means either— (A) An applicable specified affiliate of an applicable foreign corporation that is treated as a covered corporation under section 4501(d)(1)(A) by reason of a sec- tion 4501(d)(1) repurchase; or (B) Any expatriated entity with respect to a covered surrogate foreign corporation that is treated as a covered corporation under section 4501(d)(2)(A) by reason of a section 4501(d)(2) repurchase. (xvi) Section 4501(d) de minimis exception. The term section 4501(d) de minimis exception has the meaning pro- vided in paragraph (c)(2)(i) of this section. (xvii) Section 4501(d) economically similar transaction. The term section 4501(d) economically similar transaction has the meaning provided in paragraph (j) (4) of this section. (xviii) Section 4501(d) excise tax. The term section 4501(d) excise tax has the meaning provided in paragraph (c)(1) of this section. (xix) Section 4501(d) excise tax base. The term section 4501(d) excise tax base has the meaning provided in paragraph (c) (3)(i) of this section. (xx) Section 4501(d) netting rule. The term section 4501(d) netting rule has the meaning provided in paragraph (n)(1) of this section. (xxi) Section 4501(d) reorganization exception. The term section 4501(d) reor- ganization exception has the meaning pro- vided in paragraph (m)(2) of this section. (xxii) Section 4501(d)(1) repurchase. The term section 4501(d)(1) repurchase means— (A) An acquisition of stock of an appli- cable foreign corporation by an applicable specified affiliate of the applicable foreign corporation from a person other than the applicable foreign corporation or a speci- fied affiliate of the applicable foreign cor- poration; and (B) A covered purchase to the extent an applicable specified affiliate is treated under paragraph (e) of this section as acquiring stock of the applicable for- eign corporation that is repurchased or acquired, as applicable, in the covered purchase. (xxiii) Section 4501(d)(2) repurchase. The term section 4501(d)(2) repurchase means a CSFC repurchase or an acquisi- tion of stock of a covered surrogate for- eign corporation by a specified affiliate of the covered surrogate foreign corporation. (xxiv) Section 4501(d) statutory excep- tion. The term section 4501(d) statutory exception has the meaning provided in paragraph (m)(1) of this section. (c) Computation of section 4501(d) excise tax liability for a section 4501(d) covered corporation—(1) Imposition of tax. Except as provided in paragraph (c) (2) of this section (regarding the sec- Bulletin No. 2024–20 1153 May 13, 2024 tion 4501(d) de minimis exception), the amount of excise tax imposed pursuant to section 4501(d) on a section 4501(d) cov- ered corporation (section 4501(d) excise tax) for a taxable year equals the product obtained by multiplying— (i) The applicable percentage; by (ii) The section 4501(d) excise tax base of the section 4501(d) covered cor- poration for the taxable year determined in accordance with paragraph (c)(3)(i) of this section. (2) Section 4501(d) de minimis exception—(i) In general. A section 4501(d) covered corporation is not subject to the section 4501(d) excise tax with regard to a taxable year of the section 4501(d) covered corporation if, during that taxable year, the aggregate fair market value of all section 4501(d) (1) repurchases with respect to all appli- cable specified affiliates or all section 4501(d)(2) repurchases with respect to an expatriated entity, as applicable, does not exceed $1,000,000 (section 4501(d) de minimis exception). (ii) Determination. A determination of whether the section 4501(d) de minimis exception applies with regard to a taxable year of a section 4501(d) covered corpora- tion is made before applying— (A) Any section 4501(d) statutory exception under paragraph (m) of this sec- tion; and (B) Any adjustments pursuant to the section 4501(d) netting rule under para- graph (n) of this section. (3) Section 4501(d) excise tax base— (i) In general. With regard to a section 4501(d) covered corporation, the term section 4501(d) excise tax base means the dollar amount (not less than zero) that is obtained by— (A) Determining the aggregate fair market value of, as applicable, all section 4501(d)(1) repurchases or section 4501(d) (2) repurchases during the section 4501(d) covered corporation’s taxable year; (B) Reducing the amount determined under paragraph (c)(3)(i)(A) of this sec- tion by the fair market value of stock repurchased or acquired in all section 4501(d)(1) repurchases or section 4501(d) (2) repurchases, as applicable, during the section 4501(d) covered corporation’s tax- able year to the extent any section 4501(d) statutory exceptions apply in accordance with paragraph (m) of this section; and then (C) Reducing the amount determined under paragraphs (c)(3)(i)(A) and (B) of this section by the aggregate fair market value of, as applicable, stock of the appli- cable foreign corporation or stock of the covered surrogate foreign corporation to the extent the section 4501(d) netting rule applies in accordance with paragraph (n) of this section. (ii) Taxable year determination—(A) In general. The determinations under paragraph (c)(3)(i) of this section are made separately for each section 4501(d) covered corporation and for each taxable year of such section 4501(d) covered cor- poration. (B) No carrybacks or carryforwards. Reductions under paragraphs (c)(3)(i) (B) and (C) of this section in excess of the amount determined under paragraph (c)(3)(i)(A) of this section with regard to a section 4501(d) covered corporation are not carried forward or backward to preceding or succeeding taxable years of the section 4501(d) covered corpora- tion. (4) Section 4501(d)(1) repurchases or section 4501(d)(2) repurchases before January 1, 2023. Section 4501(d)(1) repurchases and section 4501(d)(2) repur- chases before January 1, 2023, are neither included in the section 4501(d) excise tax base of a section 4501(d) covered corpo- ration nor taken into account in determin- ing the applicability of the section 4501(d) de minimis exception. (d) Section 4501(d)(2) coordination rules—(1) Coordination rule for sec- tion 4501(d)(1) repurchases and section 4501(d)(2) repurchases. To the extent any CSFC repurchase or acquisition of stock of a covered surrogate foreign corporation would be both a section 4501(d)(1) repur- chase and a section 4501(d)(2) repurchase absent this paragraph (d)(1), the CSFC repurchase or acquisition will only be a section 4501(d)(2) repurchase. (2) Coordination rule for multiple sec- tion 4501(d) covered corporations—(i) In general. Except as provided in paragraph (d)(2)(ii) of this section, each section 4501(d) covered corporation with respect to a covered surrogate foreign corporation is liable for any section 4501(d) excise tax with respect to section 4501(d)(2) repur- chases that occur during a taxable year of the section 4501(d) covered corporation. (ii) Full payment and reporting by a section 4501(d) covered corporation. If there are multiple section 4501(d) covered corporations with respect to a covered sur- rogate foreign corporation, then provided that one of those section 4501(d) covered corporations pays the amount of section 4501(d) excise tax determined under para- graph (c)(1) of this section with respect to all section 4501(d)(2) repurchases relating to the covered surrogate foreign corpora- tion and its specified affiliates that occur during the paying section 4501(d) covered corporation’s taxable year and fulfills the filing obligations for the taxable year with respect to such section 4501(d)(2) repur- chases, no other section 4501(d) covered corporation with respect to the covered surrogate foreign corporation is liable for section 4501(d) excise tax related to such section 4501(d)(2) repurchases. (e) Acquisitions and AFC repurchases of stock funded by applicable specified affiliates—(1) Principal purpose rule. An applicable specified affiliate of an appli- cable foreign corporation is treated as acquiring stock of the applicable foreign corporation to the extent the applicable specified affiliate funds by any means (including through distributions, debt, or capital contributions), directly or indi- rectly, a covered purchase with a principal purpose of avoiding the section 4501(d) excise tax (a covered funding). If a prin- cipal purpose of the covered funding is to fund, directly or indirectly, a covered pur- chase, then there is a principal purpose of avoiding the section 4501(d) excise tax. Whether a covered funding is described in this paragraph (e)(1) is determined based on all the facts and circumstances. A cov- ered funding may be described in this paragraph (e)(1) regardless of whether the funding occurs before or after a covered purchase. This paragraph (e)(1) applies to fundings that occur on or after December 27, 2022, in taxable years ending after December 27, 2022. (2) Rebuttable presumption. A prin- cipal purpose described in paragraph (e) (1) of this section is presumed to exist if the applicable specified affiliate funds by any means, directly or indirectly, a downstream relevant entity, and the fund- ing occurs within two years of a covered May 13, 2024 1154 Bulletin No. 2024–20 purchase by or on behalf of the down- stream relevant entity. The presumption described in this paragraph (e)(2) may be rebutted only if facts and circumstances clearly establish that there was not a prin- cipal purpose described in paragraph (e) (1) of this section. An applicable speci- fied affiliate that takes the position that the presumption is rebutted must, for the taxable year that includes the date on which the applicable specified affiliate would, absent the rebuttal, be treated as acquiring stock of the applicable foreign corporation: (i) attach a statement to its stock repurchase excise tax return dis- closing the relevant fundings and covered purchases and the facts that rebut the pre- sumption, and (ii) provide any additional information that the stock repurchase excise tax return or the accompanying instructions require. See paragraph (e) (3) of this section for the date on which the applicable specified affiliate would, absent the rebuttal, be treated as acquir- ing stock of the applicable foreign cor- poration. (3) Date stock of applicable foreign corporation is treated as acquired. To the extent an applicable specified affiliate is treated, by reason of a covered funding, as acquiring stock of an applicable foreign corporation that is acquired by a relevant entity or applicable foreign corporation in a covered purchase, such stock is treated as acquired by the applicable specified affiliate on the later of the date of the cov- ered funding or the covered purchase. (4) Amount of stock of applicable for- eign corporation treated as acquired. The amount of stock of an applicable foreign corporation acquired in a covered pur- chase that is treated as acquired by an applicable specified affiliate is equal to the amount of the applicable specified affili- ate’s covered fundings that are allocated to the covered purchase under paragraph (e)(7) of this section. (5) Rules for determining the allocable amount of a covered purchase. The allo- cable amount of a covered purchase is equal to the aggregate fair market value of the shares repurchased or acquired in the covered purchase (as determined in accor- dance with paragraph (l) of this section), reduced by the amount described in para- graph (m)(2), (4), or (6) of this section, as applicable. (6) Priority rule for covered fundings. The allocable amount of a covered pur- chase is treated as made first from covered fundings. (7) Rules for allocating covered fund- ings to allocable amounts of covered pur- chases—(i) In general. The rules of this paragraph (e)(7) apply for purposes of determining the extent to which a covered purchase is treated as funded by covered fundings. For purposes of applying this paragraph (e)(7), a reference to covered fundings means all covered fundings by all applicable specified affiliates with respect to an applicable foreign corpora- tion, and a covered funding denominated in a currency other than the U.S. dollar is converted into U.S. dollars at the spot rate (as defined in §1.988-1(d)(1) of this chapter) on the date of the funding. To the extent covered fundings are allocated to an allocable amount of a covered pur- chase under this paragraph (e)(7), those fundings are not allocated to any other allocable amounts of covered purchases. (ii) Multiple covered purchases. If there are multiple covered purchases by one or more relevant entities or an appli- cable foreign corporation, then covered fundings are allocated to the allocable amounts of covered purchases in the order in which the covered purchases occur. If multiple covered purchases occur simulta- neously, covered fundings are allocated to the allocable amounts of those simultane- ous covered purchases on a pro rata basis, based on the relative allocable amounts of those covered purchases. (iii) Single covered funding. If there is a single covered funding, the covered funding is allocated to a covered purchase to the extent of the lesser of the amount of the covered funding or the allocable amount of the covered purchase. (iv) Multiple covered fundings. If there are multiple covered fundings and the aggregate amount of those fundings exceeds the allocable amount of the cov- ered purchase, then covered fundings are allocated to the allocable amount of the covered purchase in the order in which the covered fundings occur. If multiple cov- ered fundings occur simultaneously, those covered fundings are allocated to the allo- cable amount of the covered purchase on a pro rata basis, based on the relative amounts of those covered fundings. To the extent the aggregate amount of covered fundings exceeds the allocable amount of the covered purchase, those excess cov- ered fundings are allocated to the alloca- ble amounts of other covered purchases, if any. (f) Status as applicable foreign cor- poration or covered surrogate foreign corporation—(1) Initiation date. A cor- poration becomes an applicable foreign corporation or a covered surrogate foreign corporation, as applicable, at the begin- ning of the corporation’s initiation date. (2) Cessation date—(i) In general. Except as provided in paragraph (f)(2) (ii) of this section, a corporation ceases to be an applicable foreign corporation or a covered surrogate foreign corporation, as applicable, at the end of the corporation’s cessation date. (ii) Repurchases after cessation date. If an applicable foreign corporation or a covered surrogate foreign corporation, as applicable, ceases to be an applicable foreign corporation or a covered surro- gate foreign corporation, as applicable, pursuant to a plan that includes a repur- chase, and if the cessation date precedes the date on which any section 4501(d)(1) repurchase or section 4501(d)(2) repur- chase, as applicable, undertaken pursuant to the plan occurs (for example, if stock of an applicable foreign corporation ceases trading prior to completion of an acquis- itive reorganization), then the corporation will continue to be an applicable foreign corporation or a covered surrogate foreign corporation, as applicable, with regard to each repurchase pursuant to the plan until the end of the date on which the last section 4501(d)(1) repurchase or section 4501(d)(2) repurchase, as applicable, pur- suant to the plan occurs. (3) Inbound and outbound F reorga- nizations—(i) Inbound F reorganization. In the case of a foreign corporation that transfers its assets or that is treated as transferring its assets to a domestic corpo- ration in an F reorganization (as described in §1.367(b)-2(f) of this chapter), the cor- poration is not treated as a domestic cor- poration until the day after the reorgani- zation. (ii) Outbound F reorganization. In the case of a domestic corporation that trans- fers its assets or that is treated as trans- ferring its assets to a foreign corporation Bulletin No. 2024–20 1155 May 13, 2024 in an F reorganization (as described in §1.367(a)-1(e) of this chapter), the corpo- ration is not treated as a foreign corpora- tion until the day after the reorganization. (g) Status as applicable specified affil- iate, a relevant entity of an applicable foreign corporation, or a specified affili- ate of a covered surrogate foreign corpo- ration—(1) Timing of determination. The determination of whether a corporation or partnership is an applicable specified affil- iate or a relevant entity of an applicable foreign corporation or a specified affiliate of a covered surrogate foreign corpora- tion, as applicable, is made whenever such determination is relevant for purposes of this section. (2) Determination of indirect owner- ship. Except as provided in paragraph (h) (2)(ii)(B) of this section, a corporation or partnership is treated as indirectly owning stock in a corporation or holding capital or profits interests in a partnership equal to the corporation’s or partnership’s pro- portionate percentage of stock owned or capital or profits interests held through other entities. (3) Consequences of becoming a spec- ified affiliate—(i) General rule. Except as provided in paragraph (g)(3)(ii) of this section, if a corporation or partnership becomes a specified affiliate of an applica- ble foreign corporation or a covered sur- rogate foreign corporation, as applicable, and, at the time the corporation or part- nership becomes a specified affiliate, the corporation or partnership owns stock of the applicable foreign corporation or cov- ered surrogate foreign corporation that the corporation or partnership acquired after December 31, 2022, and such stock rep- resents more than one percent of the fair market value of the assets of the corpo- ration or partnership as determined at the time that the corporation or partnership becomes a specified affiliate, then for pur- poses of this section, such stock is treated as acquired by the corporation or partner- ship immediately after the corporation or partnership becomes a specified affiliate. (ii) Stock previously treated as acquired not subject to deemed acquisition more than once. Paragraph (g)(3)(i) of this sec- tion does not apply with regard to any shares of stock of the applicable foreign corporation or covered surrogate foreign corporation, as applicable— (A) Held by the corporation or partner- ship described in paragraph (g)(3)(i) of this section at the time that it becomes a specified affiliate; and (B) That the section 4501(d) covered corporation identifies as previously hav- ing been subject to paragraph (g)(3)(i) of this section when held by the corporation or partnership. (iii) Specific identification. For purposes of paragraphs (g)(3)(i) and (g)(3)(ii)(B) of this section, if the section 4501(d) covered corporation is unable to specifically iden- tify which shares of stock of the applica- ble foreign corporation or covered surro- gate foreign corporation, as applicable, the corporation or partnership described in paragraph (g)(3)(i) is treated as holding at the time it becomes a specified affiliate, the section 4501(d) covered corporation must treat the corporation or partnership described in paragraph (g)(3)(i) of this sec- tion as holding the most recently acquired shares of the stock of the applicable foreign corporation or covered surrogate foreign corporation, as applicable. (h) Foreign partnerships that are applicable specified affiliates—(1) In gen- eral. A foreign partnership is an applicable specified affiliate of an applicable foreign corporation, if— (i) More than 50 percent of the capital interests or profits interests of the foreign partnership are held, directly or indirectly, by the applicable foreign corporation; and (ii) Under the rules described in para- graphs (h)(2) through (5) of this section, at least one domestic entity is a direct or indirect partner with respect to the foreign partnership. (2) Direct or indirect partner. Except as provided in paragraphs (h)(4) and (5) of this section-- (i) A domestic entity is a direct partner with respect to a foreign partnership if it directly owns an interest in the foreign partnership; and (ii) A domestic entity is an indirect part- ner with respect to a foreign partnership if the domestic entity owns an interest in the foreign partnership indirectly through— (A) One or more other foreign partner- ships; (B) One or more foreign corporations controlled by one or more domestic enti- ties within the meaning of paragraph (h) (3) of this section; or (C) An ownership chain with one or more entities described in paragraphs (h) (2)(ii)(A) and (B) of this section. (3) Control of a foreign corporation. For purposes of paragraph (h)(2)(ii)(B) of this section, a foreign corporation is con- trolled by one or more domestic entities, if more than 50 percent of the total com- bined voting power of all classes of stock of such corporation entitled to vote or the total value of the stock of such corporation is owned, directly or indirectly, in aggre- gate, by one or more domestic entities. (4) Indirect interests held through applicable foreign corporations. Solely for purposes of paragraph (h)(2)(ii) of this section, if an applicable foreign corpora- tion owns, directly or indirectly, stock of a foreign corporation or an interest in a foreign partnership, a domestic entity is not treated as indirectly owning stock of the foreign corporation or an interest in the foreign partnership solely by reason of owning, directly or indirectly, stock of the applicable foreign corporation. (5) De minimis domestic entity (direct or indirect) partner. A foreign partnership that has one or more domestic entities as direct or indirect partners is not consid- ered an applicable specified affiliate if the domestic entities hold, directly or indi- rectly, in aggregate, less than five percent of the capital interests and profits interests in the foreign partnership. (i) [Reserved] (j) AFC repurchase or CSFC repur- chase—(1) Overview. This paragraph (j) provides rules for determining whether a transaction is an AFC repurchase or CSFC repurchase for purposes of this section. Paragraph (j)(2) of this section provides a general rule regarding the scope of such terms. Paragraph (j)(3) of this sec- tion provides an exclusive list of transac- tions that are treated as a section 317(b) redemption but are not AFC repurchases or CSFC repurchases. Paragraph (j)(4) of this section provides an exclusive list of transactions that are section 4501(d) eco- nomically similar transactions. Paragraph (j)(5) of this section provides a non-exclu- sive list of transactions that are not AFC repurchases or CSFC repurchases. (2) Scope of AFC repurchases and CSFC repurchases. For purposes of this section, an AFC repurchase or CSFC repurchase means solely— May 13, 2024 1156 Bulletin No. 2024–20 (i) A section 317(b) redemption with respect to stock of an applicable foreign corporation or a covered surrogate foreign corporation, as applicable, except as pro- vided in paragraph (j)(3) of this section; or (ii) A section 4501(d) economically similar transaction described in paragraph (j)(4) of this section. (3) Certain section 317(b) redemptions not AFC repurchases or CSFC repur- chases. This paragraph (j)(3) provides an exclusive list of transactions that are sec- tion 317(b) redemptions but are not AFC repurchases or CSFC repurchases. (i) Section 304(a)(1) transactions— (A) Rule regarding deemed distributions. If section 304(a)(1) applies to an acquisi- tion of stock by an acquiring corporation (within the meaning of section 304(a)(1)), the acquiring corporation’s deemed dis- tribution in redemption of the acquiring corporation’s stock (resulting from the application of section 304(a)(1)) is not an AFC repurchase or CSFC repurchase, as applicable. (B) Scope of rule. The rule described in paragraph (j)(3)(i)(A) of this section applies to a transaction described in para- graph (j)(3)(i)(A) of this section regard- less of whether section 302(a) or (d) of the Code applies to the acquiring corpora- tion’s deemed distribution in redemption of its stock. (ii) Payment by an applicable foreign corporation or a covered surrogate for- eign corporation of cash in lieu of frac- tional shares. A payment by an applicable foreign corporation or a covered surrogate foreign corporation, as applicable, of cash in lieu of a fractional share of the appli- cable foreign corporation or covered sur- rogate foreign corporation is not an AFC repurchase or CSFC repurchase, as appli- cable, if— (A) The payment is carried out as part of a transaction that qualifies as a reorga- nization under section 368(a) or a distri- bution to which section 355 of the Code applies, or pursuant to the settlement of an option or similar financial instrument (for example, a convertible debt instrument or convertible preferred share); (B) The cash received by the share- holder entitled to the fractional share is not separately bargained-for consideration (that is, the cash paid by the applicable foreign corporation or covered surrogate foreign corporation in lieu of the frac- tional share represents a mere rounding off of the shares issued in the exchange or settlement); (C) The payment is carried out solely for administrative convenience (and, therefore, solely for non-tax reasons); and (D) The amount of cash paid to the shareholder in lieu of a fractional share does not exceed the fair market value of one full share of the class of stock of the applicable foreign corporation or covered surrogate foreign corporation, as applica- ble, with respect to which the payment of cash in lieu of a fractional share is made. (4) Section 4501(d) economically sim- ilar transactions. This paragraph (j)(4) provides an exclusive list of transactions that are economically similar transactions for section 4501(d) purposes (each a sec- tion 4501(d) economically similar trans- action). (i) Acquisitive reorganizations. In the case of an acquisitive reorganization in which the target corporation is an applica- ble foreign corporation or a covered surro- gate foreign corporation, as applicable, the exchange by the target corporation share- holders of their target corporation stock pursuant to the plan of reorganization is an AFC repurchase or a CSFC repurchase, as applicable, by the target corporation. (ii) E Reorganizations. In the case of an E reorganization in which the recapi- talizing corporation is an applicable for- eign corporation or a covered surrogate foreign corporation, as applicable, the exchange by the recapitalizing corpora- tion shareholders of their recapitalizing corporation stock pursuant to the plan of reorganization is an AFC repurchase or a CSFC repurchase, as applicable, by the recapitalizing corporation. (iii) F Reorganizations. In the case of an F reorganization in which the transferor corporation (as defined in §1.368-2(m)(1) of this chapter) is an applicable foreign corporation or a covered surrogate foreign corporation, as applicable, the exchange by the transferor corporation shareholders of their transferor corporation stock pur- suant to the plan of reorganization is an AFC repurchase or a CSFC repurchase, as applicable, by the transferor corporation. (iv) Split-offs. In the case of a split-off by a distributing corporation that is an applicable foreign corporation or a covered surrogate foreign corporation, as applica- ble, the exchange by the distributing cor- poration shareholders of their distributing corporation stock is an AFC repurchase or a CSFC repurchase, as applicable, by the distributing corporation. (v) Complete liquidations to which both sections 331 and 332 apply. In the case of a complete liquidation of an applicable foreign corporation or a covered surro- gate foreign corporation, as applicable, to which sections 331 and 332(a) of the Code respectively apply to component distribu- tions of the complete liquidation— (A) Each distribution to which section 331 applies is an AFC repurchase or a CSFC repurchase, as applicable; and (B) The distribution to which section 332(a) applies is not an AFC repurchase or a CSFC repurchase, as applicable. See paragraph (j)(5)(i)(A) of this section. (vi) Certain forfeitures and claw- backs of stock—(A) In general. In the case of a forfeiture or clawback of stock of an applicable foreign corporation or a covered surrogate foreign corporation, as applicable, pursuant to a legal or con- tractual obligation, the forfeiture or claw- back is an AFC repurchase or a CSFC repurchase, as applicable, on the date of forfeiture or clawback (as appropriate) if the stock was treated as issued or provided under paragraph (n)(1) of this section and the forfeiture or clawback of the stock (as appropriate) is described in paragraph (j) (4)(vi)(B), (C), or (D) of this section. (B) Stock subject to post-closing price adjustments. The stock was issued pur- suant to an acquisition of a target entity or its business, and the forfeiture of the stock was in accordance with the terms of the documents governing the transaction (for example, to compensate the acquir- ing corporation for breaches of represen- tations or warranties made by the target entity, or because the business of the target entity did not achieve certain performance benchmarks agreed upon in the transac- tion documents). (C) Stock for which a section 83(b) election was made. The stock was subject to a substantial risk of forfeiture within the meaning of section 83(a) of the Code on the date the stock was issued or provided, the service provider made a valid election under section 83(b) with regard to the stock, and the forfeiture resulted from the Bulletin No. 2024–20 1157 May 13, 2024 service provider failing to meet the vest- ing condition. (D) Clawbacks. On the date the stock was issued or provided, the stock was subject to a clawback agreement, and a clawback of the stock resulted from the occurrence of an event specified in the clawback agreement. (5) Transactions that are not AFC repurchases or CSFC repurchases. This paragraph (j)(5) provides a non-exclusive list of transactions that are not AFC repur- chases or CSFC repurchases. (i) Complete liquidations generally. Except as provided in paragraph (j)(4)(v) (A) of this section, the following is not an AFC repurchase or CSFC repurchase, as applicable: (A) A distribution in complete liquida- tion of an applicable foreign corporation or a covered surrogate foreign corpora- tion, as applicable, to which section 331 or 332(a) applies. (B) A distribution pursuant to a plan of dissolution of such corporation that is reported on the original (but not a supple- mented or an amended) IRS Form 966, Corporate Dissolution or Liquidation (or any successor form). (C) A distribution pursuant to a deemed dissolution of such corporation (for instance, a deemed liquidation under §301.7701-3 of this chapter). (ii) Distributions during taxable year of complete liquidation or dissolution. Unless paragraph (j)(4)(v) of this section applies, no distribution by an applicable foreign corporation or a covered surro- gate foreign corporation, as applicable, during such corporation’s taxable year is an AFC repurchase or CSFC repurchase, as applicable, if the applicable foreign corporation or covered surrogate foreign corporation— (A) Completely liquidates during such corporation’s taxable year (that is, has a final distribution during the taxable year in a complete liquidation to which section 331 applies); (B) Dissolves during the taxable year pursuant to a plan of dissolution as reported on the original (but not a supple- mented or an amended) IRS Form 966, Corporate Dissolution or Liquidation (or any successor form); or (C) Is deemed to dissolve during the taxable year (for instance, pursuant to a deemed liquidation under §301.7701-3 of this chapter). (iii) Divisive transactions under sec- tion 355 other than split-offs—(A) In gen- eral. Subject to paragraph (j)(5)(iii)(B) of this section, a distribution by a distributing corporation that is an applicable foreign corporation or a covered surrogate foreign corporation, as applicable, of stock of a controlled corporation qualifying under section 355 that is not a split-off is not an AFC repurchase or CSFC repurchase, as applicable. (B) Exception regarding non-qualify- ing property in spin-offs. A distribution by a distributing corporation that is an applicable foreign corporation or a cov- ered surrogate foreign corporation, as applicable, of other property or money in exchange for stock of the distributing cor- poration is a repurchase by the distribut- ing corporation if it occurs in pursuance of a transaction qualifying under section 355 in which the distribution by the distribut- ing corporation of stock of the controlled corporation is with respect to stock of the distributing corporation. (iv) Non-redemptive distributions sub- ject to section 301(c)(2) or (3). A distri- bution to which section 301 of the Code applies by an applicable foreign corpora- tion or a covered surrogate foreign cor- poration to a distributee is not an AFC repurchase or CSFC repurchase if the dis- tribution— (A) Is subject to section 301(c)(2) or (3); and (B) The distributee does not exchange stock of the applicable foreign corpora- tion or covered surrogate foreign corpora- tion, as applicable (and is not treated as exchanging stock of the applicable foreign corporation or covered surrogate foreign corporation, as applicable, for Federal income tax purposes). (v) Net cash settlement of an option contract. The net cash settlement of an option contract with respect to stock of an applicable foreign corporation or a cov- ered surrogate foreign corporation is not an AFC repurchase or CSFC repurchase, as applicable. The net cash settlement of an instrument in the legal form of an option contract or other derivative finan- cial instrument that is treated as stock for Federal tax purposes at the time of issu- ance is treated as a repurchase of that instrument, and therefore an AFC repur- chase or CSFC repurchase, as applicable. (k) Date of section 4501(d)(1) repur- chase or section 4501(d)(2) repurchase— (1) General rule. In general, stock of an applicable foreign corporation or a covered surrogate foreign corporation is treated as subject to a section 4501(d)(1) repurchase or section 4501(d)(2) repur- chase, as applicable, on the date on which ownership of the stock transfers to the specified affiliate of the applicable for- eign corporation, the applicable foreign corporation, the specified affiliate of the covered surrogate foreign corporation, or the covered surrogate foreign corporation, as applicable, for Federal income tax pur- poses. To determine the date of repurchase in particular situations, see paragraphs (k) (2), (3), and (4) of this section. (2) Regular-way sale. A regular-way sale of stock of an applicable foreign corporation or a covered surrogate for- eign corporation (that is, a transaction in which a trade order is placed on the trade date, and settlement of the transaction, including payment and delivery of the stock, occurs a standardized number of days after the trade date that is set by a regulator) is treated as subject to a section 4501(d)(1) repurchase or section 4501(d) (2) repurchase, as applicable, on the trade date. (3) AFC repurchase or CSFC repur- chase pursuant to certain section 4501(d) economically similar transactions. Stock of an applicable foreign corporation or a covered surrogate foreign corpora- tion repurchased in an AFC repurchase or a CSFC repurchase that is a section 4501(d) economically similar transaction described in paragraph (j)(4) of this sec- tion is treated as repurchased on the date the shareholders of the applicable foreign corporation or covered surrogate foreign corporation exchange their stock in such corporation. (4) Section 4501(d)(1) repurchase pur- suant to a covered funding. To the extent an applicable specified affiliate of an appli- cable foreign corporation is treated under paragraph (e) of this section as acquiring stock of the applicable foreign corpora- tion that is repurchased or acquired in a covered purchase, such stock is treated as acquired by the applicable specified affil- iate on the date of the covered purchase. May 13, 2024 1158 Bulletin No. 2024–20 However, if the date of the covered fund- ing occurs after the date of the covered purchase, then such stock is treated as acquired by the applicable specified affili- ate on the date of the covered funding. (l) Fair market value of stock of an applicable foreign corporation or a cov- ered surrogate foreign corporation that is repurchased or acquired—(1) In general. The fair market value of stock of an appli- cable foreign corporation or a covered surrogate foreign corporation, as applica- ble, that is subject to a section 4501(d)(1) repurchase or section 4501(d)(2) repur- chase is the market price of the stock on the date of the section 4501(d)(1) repur- chase or section 4501(d)(2) repurchase (as determined under paragraph (k) of this section without regard to the last sentence of paragraph (k)(4) of this section). That is, if the price at which the repurchased or acquired stock is purchased differs from the market price of the stock on the date the stock is repurchased or acquired, the fair market value of the stock is the market price on the date the stock is repurchased or acquired. (2) Stock traded on an established securities market—(i) In general. If stock of an applicable foreign corporation or a covered surrogate foreign corporation, as applicable, that is subject to a section 4501(d)(1) repurchase or section 4501(d) (2) repurchase with respect to a section 4501(d) covered corporation is traded on an established securities market, the sec- tion 4501(d) covered corporation must determine the market price of the stock by applying one of the methods provided in paragraph (l)(2)(ii) of this section. For purposes of this paragraph (l)(2), stock of an applicable foreign corporation or a covered surrogate foreign corporation, as applicable, 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 or acquired are so traded. (ii) Acceptable methods. The following are acceptable methods for determining the market price of stock of an applicable foreign corporation or a covered surrogate foreign corporation, as applicable, traded on an established securities market: (A) The daily volume-weighted aver- age price as determined on the date the stock is subject to a section 4501(d)(1) repurchase or section 4501(d)(2) repur- chase. (B) The closing price on the date the stock is subject to a section 4501(d)(1) repurchase or section 4501(d)(2) repur- chase. (C) The average of the high and low prices on the date the stock is subject to a section 4501(d)(1) repurchase or section 4501(d)(2) repurchase. (D) The trading price at the time the stock is subject to a section 4501(d)(1) repurchase or section 4501(d)(2) repur- chase. (iii) Date of section 4501(d)(1) repur- chase or section 4501(d)(2) repurchase not a trading day. For purposes of each method provided in paragraph (l)(2)(ii) of this section, if the date stock is subject to a section 4501(d)(1) repurchase or sec- tion 4501(d)(2) repurchase is not a trading day, the date on which the market price is determined is the immediately preceding trading day. (iv) Consistency requirement. The mar- ket price of stock of an applicable foreign corporation or a covered surrogate foreign corporation, as applicable, that is traded on an established securities market must be determined by consistently applying one (but not more than one) of the methods pro- vided in paragraph (l)(2)(ii) of this section to all section 4501(d)(1) repurchases with respect to an applicable foreign corporation or all section 4501(d)(2) repurchases with respect to a covered surrogate foreign cor- poration, as applicable, in the same taxable year of the applicable foreign corporation or covered surrogate foreign corporation, as applicable (which, if the applicable for- eign corporation or covered surrogate for- eign corporation, as applicable, does not have a taxable year for Federal income tax purposes, is the calendar year). (v) Stock traded on multiple exchanges—(A) In general. A section 4501(d) covered corporation must deter- mine the fair market value of the stock of the applicable foreign corporation or covered surrogate foreign corporation, as applicable, by reference to trading on the established securities market in the country in which the applicable foreign corporation or covered surrogate foreign corporation, as applicable, is organized, including a regional established securities market that trades in that country. (B) Stock traded on multiple exchanges in country where corporation is organized. If the stock of an applicable foreign corpo- ration or a covered surrogate foreign cor- poration, as applicable, is traded on mul- tiple established securities markets in the country in which the applicable foreign corporation or covered surrogate foreign corporation, as applicable, is organized, a section 4501(d) covered corporation must treat the established securities mar- ket with the highest trading volume in the stock of the applicable foreign corporation or covered surrogate foreign corporation, as applicable, in the section 4501(d) cov- ered corporation’s prior taxable year as the established securities market that the section 4501(d) covered corporation must reference to determine the fair market value of the stock of the applicable foreign corporation or covered surrogate foreign corporation, as applicable. (C) Other cases in which stock is traded on multiple exchanges. If stock of an applicable foreign corporation or a covered surrogate foreign corporation, as applicable is traded on multiple estab- lished securities markets and paragraphs (l)(2)(v)(A) and (B) of this section do not apply, a section 4501(d) covered corpora- tion must determine the fair market value of the stock of the applicable foreign cor- poration or covered surrogate foreign cor- poration, as applicable, in a manner that is reasonable under the facts and circum- stances. (3) Stock not traded on an established securities market—(i) General rule. If stock of an applicable foreign corpora- tion or a covered surrogate foreign corpo- ration, as applicable, is not traded on an established securities market, the market price of the stock is determined as of the date of the section 4501(d)(1) repurchase or section 4501(d)(2) repurchase under the principles of §1.409A-1(b)(5)(iv)(B) (1) of this chapter. (ii) Consistency requirement. The val- uation method for determining the market price of stock of an applicable foreign corporation or a covered surrogate for- eign corporation, as applicable, that is not traded on an established securities market must be used for all section 4501(d)(1) repurchases with respect to the same class of stock of an applicable foreign corpora- tion or all section 4501(d)(2) repurchases Bulletin No. 2024–20 1159 May 13, 2024 with respect to the same class of stock of a covered surrogate foreign corporation, as applicable, in the same taxable year of the applicable foreign corporation or covered surrogate foreign corporation, as applicable (which, if the applicable for- eign corporation or covered surrogate for- eign corporation, as applicable, does not have a taxable year for Federal income tax purposes, is the calendar year), unless the application of that method to a particular section 4501(d)(1) repurchase or section 4501(d)(2) repurchase would be unrea- sonable under the facts and circumstances as of the valuation date within the mean- ing of §1.409A-1(b)(5)(iv)(B)(1) of this chapter. (4) Market price of stock denominated in non-U.S. currency. The market price of any stock of an applicable foreign corpo- ration or a covered surrogate foreign cor- poration that is denominated in a currency other than the U.S. dollar is converted into U.S. dollars at the spot rate (as defined in §1.988-1(d)(1) of this chapter) on the date the stock is subject to a section 4501(d)(1) repurchase or section 4501(d)(2) repur- chase. (m) Section 4501(d) statutory excep- tions—(1) In general—(i) Overview. This paragraph (m) provides rules regarding the application of the exceptions in sec- tion 4501(e) (each, a section 4501(d) stat- utory exception), other than the section 4501(d) de minimis exception, to a section 4501(d)(1) repurchase or section 4501(d) (2) repurchase. (ii) Reduction of section 4501(d) excise tax base. The fair market value of stock of an applicable foreign corporation or a covered surrogate foreign corporation, as applicable, repurchased or acquired in a section 4501(d)(1) repurchase or section 4501(d)(2) repurchase described in this paragraph (m) is a reduction for purposes of computing the section 4501(d) covered corporation’s section 4501(d) excise tax base. See paragraph (c)(3)(i)(B) of this section. (2) Section 4501(d) reorganization exception. The fair market value of stock repurchased in an AFC repurchase that is a section 4501(d)(1) repurchase or a CSFC repurchase that is a section 4501(d)(2) repurchase described in any of paragraphs (m)(2)(i) through (iv) of this section is a reduction for purposes of computing the section 4501(d) covered corporation’s section 4501(d) excise tax base (section 4501(d) reorganization exception) to the extent that such AFC repurchase or CSFC repurchase is for property permitted by section 354 or 355 of the Code to be received without the recognition of gain or loss: (i) A repurchase by a target corporation in an acquisitive reorganization pursuant to the plan of reorganization. (ii) A repurchase by a recapitalizing corporation in an E reorganization pursu- ant to the plan of reorganization. (iii) A repurchase by a transferor cor- poration in an F reorganization pursuant to the plan of reorganization. (iv) A repurchase by a distributing cor- poration in a split-off (whether or not part of a D reorganization). (3) Stock contributions to an employ- er-sponsored retirement plan—(i) Reduc- tions to section 4501(d) excise tax base— (A) General rule. The fair market value of stock of an applicable foreign corporation or a covered surrogate foreign corpora- tion, as applicable, that is repurchased or acquired in a section 4501(d)(1) repur- chase or section 4501(d)(2) repurchase, as applicable, with respect to a section 4501(d) covered corporation, is a reduc- tion for purposes of computing the section 4501(d) covered corporation’s section 4501(d) excise tax base if the stock that is repurchased or acquired, or an amount of stock equal to the fair market value of the stock repurchased or acquired, is contrib- uted to an employer-sponsored retirement plan. (B) Special rule for leveraged ESOPs. If a section 4501(d) covered corporation maintains an ESOP with an exempt loan (as defined in section 4975(d)(3) of the Code), allocations of qualifying employer secu- rities that are stock of the applicable for- eign corporation or covered surrogate for- eign corporation from the ESOP suspense account to ESOP participants’ accounts that are attributable to employer contribu- tions (and not to dividends) are treated as contributions of stock under this paragraph (m)(3), as of the date stock attributable to repayment of the exempt loan is released from the suspense account and allocated to ESOP participants’ accounts. (ii) Classes of stock contributed to an employer-sponsored retirement plan. This paragraph (m)(3) applies to contributions of any class of stock of an applicable foreign corporation or a covered surro- gate foreign corporation, as applicable, to an employer-sponsored retirement plan regardless of the class of stock that was repurchased or acquired in a section 4501(d)(1) repurchase or section 4501(d) (2) repurchase by the section 4501(d) cov- ered corporation. (iii) Determining amount of reduction to section 4501(d) excise tax base. The amount of the reduction under paragraph (m)(3)(i) of this section for a section 4501(d) covered corporation is deter- mined as provided in paragraph (m)(3)(iii) (A) or (B) of this section. (A) Same class of stock repurchased and contributed. If stock of an applica- ble foreign corporation or a covered sur- rogate foreign corporation, as applicable, is repurchased or acquired in a section 4501(d)(1) repurchase or section 4501(d) (2) repurchase, as applicable, with respect to a section 4501(d) covered corporation, and stock of the applicable foreign corpo- ration or covered surrogate foreign corpo- ration, as applicable, that is of the same class is contributed to an employer-spon- sored retirement plan of the section 4501(d) covered corporation, the amount of the reduction under paragraph (m)(3)(i) of this section is equal to the lesser of— (1) The aggregate fair market value of the stock of the same class that was repur- chased or acquired (as determined under paragraph (l) of this section) during the taxable year; or (2) The amount obtained by— (i) Determining the aggregate fair mar- ket value of all stock of that class repur- chased or acquired in all section 4501(d) (1) repurchases or section 4501(d)(2) repurchases, as applicable, with respect to the section 4501(d) covered corpora- tion (as determined under paragraph (l) of this section) during its taxable year, reduced by the fair market value of shares of that class of stock that is a reduction to the section 4501(d) excise tax base for the taxable year under a section 4501(d) stat- utory exception other than this paragraph (m)(3); (ii) Dividing the amount determined under paragraph (m)(3)(iii)(A)(2)(i) of this section by the number of shares of that class repurchased or acquired in all May 13, 2024 1160 Bulletin No. 2024–20 section 4501(d)(1) repurchases or section 4501(d)(2) repurchases, as applicable, with respect to the section 4501(d) cov- ered corporation during the taxable year, reduced by the number of shares of that class of stock the fair market value of which is a reduction to the section 4501(d) excise tax base for the taxable year under a section 4501(d) statutory exception other than this paragraph (m)(3); and (iii) Multiplying the amount deter- mined under paragraph (m)(3)(iii)(A)(2) (ii) of this section by the number of shares of that class contributed to an employ- er-sponsored retirement plan for the tax- able year. (B) Different class of stock repur- chased and contributed—(1) In general. If stock of an applicable foreign corpora- tion or a covered surrogate foreign corpo- ration, as applicable, of a different class of stock than is repurchased or acquired in a section 4501(d)(1) repurchase or sec- tion 4501(d)(2) repurchase, as applicable, with respect to a section 4501(d) covered corporation is contributed to an employ- er-sponsored retirement plan of the sec- tion 4501(d) covered corporation, then the amount of the reduction under paragraph (m)(3)(i) of this section is equal to the fair market value of the contributed stock at the time the stock is contributed to the employer-sponsored retirement plan. (2) Maximum reduction permitted. The amount of the reduction under paragraph (m)(3)(i) of this section must not exceed the section 4501(d) excise tax base for the taxable year (determined without regard to any reduction under paragraph (m)(3)(i) of this section), reduced by the fair market value of any stock that is a reduction to the section 4501(d) excise tax base for the taxable year under a section 4501(d) stat- utory exception other than this paragraph (m)(3). (iv) Timing of contributions—(A) In general. The reduction in the section 4501(d) excise tax base, in accordance with paragraph (m)(3)(i) of this sec- tion (that is, the reduction in the section 4501(d) excise tax base), for a taxable year applies to contributions of stock of an applicable foreign corporation or a covered surrogate foreign corporation, as applicable, to an employer-sponsored retirement plan during the section 4501(d) covered corporation’s taxable year. (B) Treatment of contributions after close of taxable year. For purposes of paragraph (m)(3)(i) of this section, a sec- tion 4501(d) covered corporation may treat stock contributions to an employ- er-sponsored retirement plan made after the close of the section 4501(d) covered corporation’s taxable year as having been contributed during that taxable year if the following two requirements are satisfied: (1) The stock must be contributed to the employer-sponsored retirement plan by the filing deadline for the form on which the section 4501(d) excise tax must be reported (applicable form) that is due for the first full quarter after the close of the section 4501(d) covered corporation’s taxable year. (2) The stock must be treated by the employer-sponsored retirement plan in the same manner that the plan would treat a contribution received on the last day of that taxable year. (C) No duplicate reductions. Stock contributions that are treated under para- graph (m)(3)(iv)(B) of this section as hav- ing been contributed in the taxable year to which the applicable form applies may not be treated as having been contributed for any other taxable year for purposes of the section 4501(d) excise tax. (v) Contributions before January 1, 2023. A section 4501(d) covered corpora- tion with a taxable year that both begins before January 1, 2023, and ends after December 31, 2022, may include the fair market value of all contributions of its stock to an employer-sponsored retire- ment plan during the entirety of that tax- able year for purposes of applying this paragraph (m)(3). (4) Repurchases or acquisitions by a dealer in securities in the ordinary course of business—(i) In general. Subject to paragraph (m)(4)(ii) of this section, the fair market value of stock repurchased or acquired in a section 4501(d)(1) repur- chase (for this purpose, determined with- out regard to paragraph (b)(2)(xxii)(B) of this section) or a covered purchase that is treated as a section 4501(d)(1) repurchase by a specified affiliate of an applicable foreign corporation or an applicable for- eign corporation, or in a section 4501(d) (2) repurchase by a specified affiliate of a covered surrogate foreign corporation or a covered surrogate foreign corporation, is a reduction for purposes of computing the section 4501(d) covered corporation’s sec- tion 4501(d) excise tax base if the repur- chasing or acquiring entity is a dealer in securities (within the meaning of section 475(c)(1) of the Code) to the extent the stock is repurchased or acquired in the ordinary course of the dealer’s business of dealing in securities. (ii) Applicability. The reduction described in paragraph (m)(4)(i) of this section applies solely to the extent that— (A) The dealer accounts for the stock as securities held primarily for sale to cus- tomers in the dealer’s ordinary course of business; (B) 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 prac- tices prevailing in the markets for similar stock during the period in which the stock is held; and (C) The dealer (if it is an applicable foreign corporation or a covered surrogate foreign corporation) does not sell or other- wise transfer the stock to a specified affil- iate of the applicable foreign corporation or covered surrogate foreign corporation, as applicable, or the dealer (if it is a spec- ified affiliate of an applicable foreign cor- poration or of a covered surrogate foreign corporation, as applicable) does not sell or otherwise transfer the stock to the appli- cable foreign corporation, covered sur- rogate foreign corporation, or to another specified affiliate of the applicable foreign corporation or covered surrogate foreign corporation, as applicable, in each case other than in a sale or transfer to a dealer that also satisfies the requirements of this paragraph (m)(4)(ii). (5) Repurchases by a RIC or REIT. Section 4501(e)(5) does not apply for pur- poses of section 4501(d). (6) AFC repurchase or CSFC repur- chase treated as a dividend—(i) In gen- eral. In accordance with paragraph (m)(6) (ii) of this section, the fair market value of stock repurchased by an applicable for- eign corporation or a covered surrogate foreign corporation in an AFC repurchase or a CSFC repurchase, as applicable, is a reduction for purposes of computing the section 4501(d) covered corporation’s sec- Bulletin No. 2024–20 1161 May 13, 2024 tion 4501(d) excise tax base to the extent the AFC repurchase or CSFC repurchase, as applicable, is treated as a distribution of a dividend under section 301(c)(1) or 356(a)(2). (ii) Rebuttable presumption of no div- idend equivalence. An AFC repurchase or CSFC repurchase to which section 302 or 356(a) applies is presumed to be subject to section 302(a) or 356(a)(1), respectively (and, therefore, is presumed ineligible for the exception in paragraph (m)(6)(i) of this section). A section 4501(d) covered corporation may rebut this presumption with regard to a spe- cific shareholder of an applicable foreign corporation or a covered surrogate for- eign corporation, as applicable, solely by establishing with sufficient evidence that the shareholder treats the AFC repurchase or CSFC repurchase as a dividend on the shareholder’s Federal income tax return or, for a shareholder who does not have a Federal income tax filing obligation with respect to the AFC repurchase or CSFC repurchase, would properly treat the AFC repurchase or CSFC repurchase as a div- idend if the shareholder filed a Federal income tax return. (n) Application of section 4501(d) net- ting rule—(1) In general. This paragraph (n) provides the section 4501(d) netting rule, under which the section 4501(d) excise tax base with respect to a section 4501(d) covered corporation for a taxable year is reduced only by stock of the appli- cable foreign corporation or covered sur- rogate foreign corporation, as applicable, issued or provided by the section 4501(d) covered corporation to its employees during its taxable year. Any reference in this paragraph (n) to issuing or providing stock to an employee refers solely to stock of the applicable foreign corporation or covered surrogate foreign corporation, as applicable, that is issued or provided by a section 4501(d) covered corporation to an employee in connection with the employee’s performance of services in the employee’s capacity as an employee of the section 4501(d) covered corporation. The fair market value of stock of an applicable foreign corporation or a covered surrogate foreign corporation, as applicable, that is described in this paragraph (n) is a reduc- tion for purposes of computing the section 4501(d) covered corporation’s section 4501(d) excise tax base. See paragraph (c) (3)(i)(C) of this section. (2) Stock issued or provided outside period of applicable foreign corporation or covered surrogate foreign corporation status. Any stock issued or provided prior to the initiation date or after the cessation date of the applicable foreign corporation or covered surrogate foreign corporation, as applicable, is not taken into account under paragraph (n)(1) of this section. See paragraph (f)(1) of this section. (3) Issuances or provisions before January 1, 2023. Except as provided in paragraph (n)(2) of this section, a section 4501(d) covered corporation with a tax- able year that begins before January 1, 2023, and ends after December 31, 2022, must include the fair market value of issu- ances or provisions of stock that occur before January 1, 2023, in such taxable year for purposes of paragraph (n)(1) of this section for that taxable year. (4) F reorganizations. For purposes of this paragraph (n), the transferor cor- poration and the resulting corporation (as defined in §1.368-2(m)(1) of this chapter) in an F reorganization are treated as the same corporation. (5) Stock issued or provided in connec- tion with the performance of services—(i) In general. For purposes of this paragraph (n), stock of an applicable foreign corpo- ration or a covered surrogate foreign cor- poration, as applicable, is transferred by the section 4501(d) covered corporation in connection with the performance of services only if the transfer is described in section 83, including pursuant to a nonqualified stock option described in §1.83-7 of this chapter, or is pursuant to a stock option described in section 421 of the Code. (ii) Sale of shares to cover exercise price or withholding—(A) Payment or advance by third party equal to exercise price. If a third party pays the exercise price of a stock option on behalf of an employee or advances to an employee an amount equal to the exercise price of a stock option that the employee uses to exercise the option, then any stock transferred by the sec- tion 4501(d) covered corporation to the employee or to the third party in connec- tion with exercising the option is treated as issued or provided in connection with the performance of the services. (B) Advance by third party equal to withholding obligation. If a third party advances an amount equal to the withhold- ing obligation of an employee, then any stock transferred by the section 4501(d) covered corporation to the employee or to the third party in connection with this arrangement is treated as issued or pro- vided in connection with the performance of services. (6) Date of issuance or provision for section 4501(d) netting rule—(i) In general. Stock of an applicable foreign corporation or a covered surrogate for- eign corporation, as applicable, is issued or provided to an employee of a section 4501(d) covered corporation as of the date the employee is treated as the beneficial owner of the stock for Federal income tax purposes. In general, an employee is treated as the beneficial owner of the stock when the stock is both transferred by the section 4501(d) covered corporation and substantially vested within the meaning of §1.83-3(b) of this chapter. Thus, stock transferred pursuant to a vested stock award or restricted stock unit is issued or provided when the section 4501(d) cov- ered corporation initiates payment of the stock. Stock transferred that is not sub- stantially vested within the meaning of §1.83-3(b) of this chapter is not issued or provided until it vests, except as provided in paragraph (n)(6)(iii) of this section. (ii) Stock options and stock apprecia- tion rights. Stock of an applicable foreign corporation or a covered surrogate foreign corporation, as applicable, transferred by a section 4501(d) covered corporation pursuant to an option described in §1.83-7 of this chapter or section 421 or a stock appreciation right is issued or provided by the section 4501(d) covered corporation as of the date the option or stock apprecia- tion right is exercised. (iii) Stock on which a section 83(b) election is made. Stock of an applicable foreign corporation or a covered surro- gate foreign corporation, as applicable, transferred by the section 4501(d) covered corporation when it is not substantially vested within the meaning of §1.83-3(b) of this chapter, but as to which a valid election under section 83(b) is made, is treated as issued or provided by the sec- tion 4501(d) covered corporation as of the transfer date. May 13, 2024 1162 Bulletin No. 2024–20 (7) Fair market value of stock of an applicable foreign corporation or a cov- ered surrogate foreign corporation that is issued or provided to employees—(i) In general. For purposes of paragraph (n) (1) of this section, the fair market value of stock of an applicable foreign corporation or a covered surrogate foreign corporation that is issued or provided is determined under section 83 as of the date the stock is issued or provided to an employee by the section 4501(d) covered corporation. The fair market value of the stock is deter- mined under the rules provided in section 83 regardless of whether an amount is includible in the employee’s income under section 83 or otherwise. For example, the fair market value of stock issued or pro- vided by a section 4501(d) covered corpo- ration to its employee pursuant to a stock option described in section 421 and stock issued or provided by a section 4501(d) covered corporation to an employee who is a nonresident alien for services per- formed outside of the United States is determined using the rules provided in section 83. (ii) Market price of stock denominated in non-U.S. currency. The market price of any stock of an applicable foreign corpo- ration or a covered surrogate foreign cor- poration that is denominated in a currency other than the U.S. dollar is converted into U.S. dollars at the spot rate (as defined in §1.988-1(d)(1) of this chapter) on the date the stock is issued or provided by the section 4501(d) covered corporation to its employee. (8) Issuances that are disregarded for purposes of applying the section 4501(d) netting rule—(i) In general. This para- graph (n)(8) lists the sole circumstances in which an issuance or provision of stock by the section 4501(d) covered corporation to its employee is disregarded for pur- poses of paragraph (n) of this section. The transfers of stock described in §58.4501- 4(f)(1) through (9) are not issuances or provisions of stock by a section 4501(d) covered corporation to its employees and therefore are not relevant to the section 4501(d) netting rule. (ii) Stock contributions to an employ- er-sponsored retirement plan. Any stock of an applicable foreign corporation or a covered surrogate foreign corporation, as applicable, contributed to an employ- er-sponsored retirement plan, any stock of an applicable foreign corporation or a covered surrogate foreign corporation, as applicable, treated as contributed to an employer-sponsored retirement plan under paragraph (m)(3) of this section, and any stock of an applicable foreign corporation or a covered surrogate foreign corpora- tion, as applicable, sold to a leveraged or non-leveraged ESOP, is disregarded for purposes of this paragraph (n). (iii) Net exercises and share withhold- ing. Stock of an applicable foreign cor- poration or a covered surrogate foreign corporation, as applicable, withheld by a section 4501(d) covered corporation to satisfy the exercise price of a stock option issued to an employee, or to pay any with- holding obligation, is disregarded for pur- poses of paragraph (n) of this section. For example, stock of an applicable foreign corporation or a covered surrogate foreign corporation, as applicable, withheld by a section 4501(d) covered corporation to pay the exercise price of a stock option, to satisfy an employer’s income tax with- holding obligation under section 3402 of the Code, to satisfy an employer’s with- holding obligation under section 3102 of the Code, or to satisfy an employer’s withholding obligation for State, local, or foreign taxes, is disregarded for purposes of this paragraph (n) to an employee. (iv) Settlement other than in stock. Set- tlement of an option contract with respect to an applicable foreign corporation or a covered surrogate foreign corporation, as applicable, using any consideration other than stock of the applicable foreign cor- poration or covered surrogate foreign cor- poration, as applicable, (including cash) is disregarded for purposes of this paragraph (n). (v) Instrument not in the legal form of stock—(A) Generally disregarded. Except as provided in paragraph (n)(8)(v)(B) of this section, the issuance or provision by a section 4501(d) covered corporation of an instrument that is not in the legal form of stock but is treated as stock for Federal income tax purposes (non-stock instru- ment) is disregarded for purposes of the section 4501(d) netting rule. (B) Certain instruments treated as issued—(1) In general. Subject to para- graphs (n)(8)(v)(B)(2), (3), and (4) of this section, if there is a section 4501(d) (1) repurchase or section 4501(d)(2) repurchase of a non-stock instrument, the issuance or provision of the instru- ment is regarded for purposes of the sec- tion 4501(d) netting rule at the time of such section 4501(d)(1) repurchase or section 4501(d)(2) repurchase, provided that the issuance or provision was by the section 4501(d) covered corporation to its employees. For purposes of the stock repurchase excise tax regulations, the delivery of stock pursuant to the terms of a non-stock instrument is treated as a section 4501(d)(1) repurchase or a section 4501(d)(2) repurchase, as applicable, of the non-stock instrument in exchange for an issuance or provision of the stock that is delivered. (2) Issuances or provisions before the initiation date or after the cessation date. Any non-stock instrument issued or pro- vided by the section 4501(d) covered cor- poration before the initiation date or after the cessation date is not regarded for pur- poses of the section 4501(d) netting rule. (3) Identification of an instrument not in the legal form of stock. The section 4501(d) covered corporation must identify the section 4501(d)(1) repurchase or sec- tion 4501(d)(2) repurchase, as applicable, of a non-stock instrument on the return on which the stock repurchase excise tax must be reported for the section 4501(d) cov- ered corporation’s taxable year in which the section 4501(d)(1) repurchase or sec- tion 4501(d)(2) repurchase, as applicable, occurs (repurchase year) in order for the issuance or provision to be regarded under paragraph (n)(8)(v)(B)(1) of this section. (4) Consistency requirement. In the repurchase year of a non-stock instrument (tested non-stock instrument), the issu- ance or provision of the non-stock instru- ment is not regarded under paragraph (n) (8)(v)(B)(1) of this section unless the sec- tion 4501(d) covered corporation reports or has reported the section 4501(d)(1) repurchase or section 4501(d)(2) repur- chase of all other comparable non-stock instruments repurchased or acquired within the five taxable years ending on the last day of the repurchase year in a con- sistent manner. A comparable non-stock instrument is a non-stock instrument that has substantially similar economic terms as the tested non-stock instrument, regard- less of whether the comparable non-stock Bulletin No. 2024–20 1163 May 13, 2024 instrument and the tested non-stock instru- ment have the same legal form. A compa- rable non-stock instrument is reported in a consistent manner if it is or was timely reported on the return on which the stock repurchase excise tax must be reported that is or was due for the first full quarter after the close of the repurchase year for such comparable non-stock instrument. Notwithstanding the first sentence of this paragraph (n)(8)(v)(B)(4), the issu- ance or provision of the tested non-stock instrument will be regarded if the section 4501(d) covered corporation demon- strates to the satisfaction of the IRS that the section 4501(d) covered corporation’s failure to timely report the repurchase or acquisition of the comparable non-stock instruments was due to reasonable cause (within the meaning §1.6664-4 of this chapter) and not willful neglect. In deter- mining whether this failure to report was due to reasonable cause and not willful neglect, the IRS will consider all the facts and circumstances, including the steps the section 4501(d) covered corporation took to comply with its Federal tax reporting and payment obligations. (5) Fair market value of the instrument. The amount of the reduction for purposes of computing the section 4501(d) covered corporation’s section 4501(d) excise tax base for a taxable year under this section for the issuance or provision of a non- stock instrument is equal to the lesser of the fair market value of the instrument when the instrument was issued or pro- vided within the meaning of paragraph (n) (7) of this section or the fair market value of the instrument at the time of the section 4501(d)(1) repurchase or section 4501(d) (2) repurchase, as applicable. (o) Rules applicable before April 13, 2024—(1) Acquisitions of applicable for- eign corporation stock. If an applicable specified affiliate of an applicable foreign corporation acquires stock of the applica- ble foreign corporation from a person that is not the applicable foreign corporation or another specified affiliate of such appli- cable foreign corporation— (i) The applicable specified affiliate is treated as a covered corporation with regard to the acquisition; and (ii) The acquisition is treated as a repur- chase of stock of a covered corporation by a covered corporation. (2) Funding rule. For purposes of applying section 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 distri- butions, debt, or capital contributions) the acquisition or repurchase of stock of the applicable foreign corporation by the applicable foreign corporation or a spec- ified affiliate that is not also an applica- ble 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 affil- iate is limited to the amount funded by the applicable specified affiliate. This paragraph (o)(2) applies with respect to a funding that occurs on or after December 27, 2022, provided that the covered pur- chase occurs after December 31, 2022, and on or before April 12, 2024. See para- graph (r)(2) of this section. (3) Per se rule. A principal purpose described in paragraph (o)(2) of this sec- tion is deemed to exist if the applicable specified affiliate funds by any means, other than through distributions, the applicable foreign corporation or a spec- ified affiliate that is not also an applicable specified affiliate, and such funded entity acquires or repurchases stock of the appli- cable foreign corporation within two years of the funding. (4) Repurchases or acquisitions of cov- ered 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 corpo- ration is treated as a covered corporation with respect to the repurchase or acquisi- tion; and (ii) The repurchase or acquisition is treated as a repurchase of stock of a cov- ered corporation by the covered corpora- tion. (5) Definitions solely for purposes of paragraph (o)—(i) Application of defini- tions in §§58.4501-1(b) and 58.4501-7(b) (2). Solely for purposes of this paragraph (o), any term used but not defined in this paragraph (o) has the meaning provided in §58.4501-1(b) or paragraph (b)(2) of this section (other than paragraph (b)(2)(xiii) of this section), as applicable. (ii) Definition of applicable specified affiliate. Solely for purposes of this para- graph (o), the term applicable specified affiliate means a specified affiliate of an applicable foreign corporation, other than a foreign corporation or a foreign partner- ship (unless the partnership has a domes- tic entity as a direct or indirect partner). (6) Early application of rules of this section other than paragraph (o). See paragraph (r)(3) of this section regarding a section 4501(d) covered corporation’s ability to choose to apply all the rules of this section (other than paragraphs (o) and (r)(1) and (2) of this section) to transac- tions occurring after December 31, 2022. (p) Section 4501(d)(1) examples. The following examples illustrate the appli- cation of the rules in this section relating to section 4501(d)(1). For purposes of the following examples, unless otherwise stated: Corporation FZ is an applicable foreign corporation; each entity has a cal- endar taxable year, has no direct or indi- rect owner that is a domestic entity, and is not related to any other entity; each corpo- ration’s only outstanding stock is a single class of common stock; the functional cur- rency (within the meaning of section 985 of the Code) of any entity is the U.S. dol- lar; any repurchase or acquisition of the stock of an applicable foreign corporation is from a person who is not the applicable foreign corporation or a specified affili- ate of the applicable foreign corporation; no stock is transferred to any employee; for examples that expressly provide that stock is transferred to any employee, such transfer is made in connection with the employee’s performance of services in its capacity as an employee of the transferor, and the employee is treated as the benefi- cial owner of the stock for Federal income tax purposes on the date of the transfer; there are no covered fundings or covered purchases; and the section 4501(d) statu- tory exceptions are inapplicable. (1) Example 1: The section 4501(d) netting rule with respect to a single applicable specified affiliate—(i) Facts. Corporation FZ owns all the outstanding stock of Corporation US1, a domestic corporation. Each of Employee M and Employee P is an employee of Corporation US1. On February 1, 2025, Corporation US1 purchases 100 shares of May 13, 2024 1164 Bulletin No. 2024–20 stock of Corporation FZ when the fair market value of each share is $8x. On May 15, 2025, Corporation US1 transfers to Employee M 50 shares of stock of Corporation FZ when the fair market value of each share is $5x. On November 1, 2025, Corporation US1 transfers to Employee P 30 shares of stock of Corporation US1 when the fair market value of each share is $9x. (ii) Analysis. Corporation US1’s purchase of 100 shares of stock of Corporation FZ on February 1, 2025, is a section 4501(d)(1) repurchase. See para- graph (b)(2)(xxii)(A) of this section. Corporation US1 is a section 4501(d) covered corporation with respect to the section 4501(d)(1) repurchase. See paragraph (b)(2)(xv)(A) of this section. For purposes of com- puting Corporation US1’s section 4501(d) excise tax base for its 2025 taxable year, the fair market value of the 100 shares of stock of Corporation FZ subject to the section 4501(d)(1) repurchase is $800x. See paragraph (l) of this section. Accordingly, the section 4501(d)(1) repurchase increases Corporation US1’s section 4501(d) excise tax base for the 2025 taxable year by $800x. 50 shares of Corporation FZ stock are treated as issued or provided to Employee M on May 15, 2025. See paragraph (n) of this section. There- fore, Corporation US1’s section 4501(d) excise tax base for its 2025 taxable year is reduced by $250x (50 shares x $5x per share = $250x). See paragraph (c)(3)(i)(C) of this section. Corporation US1’s sec- tion 4501(d) excise tax base for its 2025 taxable year is not reduced by the transfer of stock of Corpora- tion US1 to Employee P because the section 4501(d) excise tax base with respect to Corporation US1 can only be reduced by the fair market value of stock of Corporation FZ issued or provided by Corporation US1 to employees of Corporation US1. See para- graph (n) of this section. Accordingly, Corporation US1’s section 4501(d) excise tax base with respect to these transactions for its 2025 taxable year is $550x ($800x repurchase - $250x issuance = $550x). (2) Example 2: The section 4501(d) netting rule with respect to multiple applicable specified affil- iates—(i) Facts. Corporation FZ owns all the out- standing stock of both Corporation US1, a domestic corporation, and Corporation US2, a domestic cor- poration. Employee T is an employee of Corporation US2. On February 1, 2025, Corporation US1 pur- chases 100 shares of stock of Corporation FZ when the fair market value of each share is $8x. On May 15, 2025, Corporation US2 transfers to Employee T 50 shares of stock of Corporation FZ when the fair market value of each share is $5x. (ii) Analysis. Corporation US1’s purchase of 100 shares of stock of Corporation FZ on February 1, 2025, is a section 4501(d)(1) repurchase. See para- graph (b)(2)(xxii)(A) of this section. Corporation US1 is a section 4501(d) covered corporation with respect to the section 4501(d)(1) repurchase. See paragraph (b)(2)(xv)(A) of this section. For purposes of computing Corporation US1’s section 4501(d) excise tax base for its 2025 taxable year, the fair market value of the 100 shares of stock of Corpora- tion FZ subject to the section 4501(d)(1) repurchase is $800x. See paragraph (l) of this section. Accord- ingly, the section 4501(d)(1) repurchase increases Corporation US1’s section 4501(d) excise tax base for the 2025 taxable year by $800x. Corporation US1’s section 4501(d) excise tax base for its 2025 taxable year is not reduced by the transfer of stock of Corporation FZ to Employee T, an employee of Corporation US2, because the section 4501(d) excise tax base with respect to Corporation US1 can only be reduced by the fair market value of stock of Cor- poration FZ issued or provided by Corporation US1 to employees of Corporation US1. See paragraph (n) of this section. (3) Example 3: A single covered funding and cov- ered purchase—(i) Facts. Corporation FZ owns all the outstanding stock of Corporation US1, a domes- tic corporation. On March 1, 2024, Corporation US1 makes a distribution with respect to its stock of $600x to Corporation FZ. A principal purpose of the distribution is to fund a covered purchase. On May 15, 2026, Corporation FZ repurchases 100 shares of its stock when the fair market value of each share is $8x. (ii) Analysis. Because a principal purpose of the distribution by Corporation US1 to Corporation FZ is to fund a covered purchase, the distribution of $600x is a covered funding. See paragraph (e)(1) of this section. The repurchase by Corporation FZ of its stock is an AFC repurchase and therefore a covered purchase. See paragraph (b)(2)(vii) of this section. The entire amount of the covered purchase, or $800x, is the allocable amount of the covered purchase. See paragraph (e)(5) of this section. The entire amount of the covered funding, or $600x, is allocated to the allocable amount of the covered pur- chase because the amount of the covered funding is less than the amount of the covered purchase. See paragraph (e)(7)(iii) of this section. The amount of stock of Corporation FZ acquired in the covered pur- chase that is treated as acquired by Corporation US1 is equal to the amount of covered fundings allocated to the allocable amount of the covered purchase, or $600x (which represents 75 of the 100 shares of stock repurchased). See paragraph (e)(4) of this sec- tion. Corporation US1 is treated as acquiring stock of Corporation FZ in a section 4501(d)(1) repur- chase on May 15, 2026. See paragraphs (b)(2)(xxii) (B) and (k)(4) of this section. Corporation US1 is a section 4501(d) covered corporation with respect to the section 4501(d)(1) repurchase. See paragraph (b) (2)(xv)(A) of this section. For purposes of comput- ing Corporation US1’s section 4501(d) excise tax base, the fair market value of the 75 shares of stock of Corporation FZ subject to the section 4501(d)(1) repurchase is $600x. See paragraph (l) of this sec- tion. Accordingly, the section 4501(d)(1) repurchase by Corporation US1 increases its section 4501(d) excise tax base for the 2026 taxable year by $600x. (4) Example 4: Multiple covered fundings and a single covered purchase—(i) Facts. The facts are the same as in paragraph (p)(3)(i) of this section (Exam- ple 3), except that Corporation FZ also owns all the stock of Corporation FB, a foreign corporation. In addition, on April 15, 2024, Corporation FB makes a distribution with respect to its stock of $1,000x to Corporation FZ. Further, on October 15, 2024, Corporation US1 makes another distribution with respect to its stock of $400x to Corporation FZ. A principal purpose of the October 15, 2024, distribu- tion is also to fund a covered purchase. (ii) Analysis. Because a principal purpose of the distributions by Corporation US1 to Corporation FZ is to fund a covered purchase, each of the March 1, 2024, distribution of $600x and the October 15, 2024, distribution of $400x is a covered funding. See paragraph (e)(1) of this section. The repurchase by Corporation FZ of its stock is an AFC repurchase and therefore a covered purchase. See paragraph (b)(2) (vii) of this section. The entire amount of the cov- ered purchase, or $800x, is the allocable amount of the covered purchase. See paragraph (e)(5) of this section. Further, the allocable amount of the covered purchase is treated as made first from the covered fundings. With respect to the covered fundings, the March 1, 2024, distribution by Corporation US1 is treated as funding the allocable amount of the cov- ered purchase before the October 15, 2024, distri- bution by Corporation US1. See paragraphs (e)(6) and (e)(7)(iv) of this section. Accordingly, the entire amount of the March 1, 2024, distribution, or $600x, and $200x of the October 15, 2024, distribution is allocated to the allocable amount of the covered purchase. The amount of stock of Corporation FZ acquired in the covered purchase that is treated as acquired by Corporation US1 is equal to the amount of covered fundings allocated to the allocable amount of the covered purchase, or $800x (which represents the 100 shares of stock repurchased). See paragraph (e)(4) of this section. Corporation US1 is treated as acquiring stock of Corporation FZ in a section 4501(d)(1) repurchase on May 15, 2026. See paragraphs (b)(2)(xxii)(B) and (k)(4) of this sec- tion. Corporation US1 is a section 4501(d) covered corporation with respect to the section 4501(d)(1) repurchase. See paragraph (b)(2)(xv)(A) of this sec- tion. For purposes of computing Corporation US1’s section 4501(d) excise tax base, the fair market value of the 100 shares of stock of Corporation FZ subject to the section 4501(d)(1) repurchase is $800x. See paragraph (l) of this section. Accordingly, the section 4501(d)(1) repurchase by Corporation US1 increases its section 4501(d) excise tax base for the 2026 tax- able year by $800x. (5) Example 5: The rebuttable presumption— (i) Facts. Corporation FZ owns all the outstanding stock of Corporation US1, a domestic corporation. Corporation US1 owns all the outstanding stock of Corporation FD, a foreign corporation. On March 1, 2024, Corporation US1 makes a capital contribution of $600x to Corporation FD. On May 15, 2024, Cor- poration FD acquires 100 shares of the stock of Cor- poration FZ when the fair market value of each share is $8x. The facts and circumstances do not clearly establish that there was not a principal purpose of avoiding the section 4501(d) excise tax as described in paragraph (e)(1) of this section. (ii) Analysis. A principal purpose described in paragraph (e)(1) of this section is presumed to exist because Corporation FD is a downstream relevant entity and the capital contribution by Corporation US1 to Corporation FD occurs within two years of a covered purchase by Corporation FD. See paragraph (e)(2) of this section. Because the facts and circum- stances do not clearly establish that there was not a principal purpose with respect to the March 1, 2024, capital contribution of avoiding the section 4501(d) excise tax as described in paragraph (e)(1) of this section, the presumption is not rebutted. See para- graph (e)(2) of this section. Accordingly, the capi- tal contribution of $600x is a covered funding. See paragraph (e)(1) of this section. The acquisition by Bulletin No. 2024–20 1165 May 13, 2024 Corporation FD of the stock of Corporation FZ is an acquisition of stock of an applicable foreign corpora- tion by a relevant entity and therefore a covered pur- chase. See paragraph (b)(2)(vii) of this section. The entire amount of the covered purchase, or $800x, is the allocable amount of the covered purchase. See paragraph (e)(5) of this section. The entire amount of the covered funding, or $600x, is allocated to the allocable amount of the covered purchase because the amount of the covered funding is less than the amount of the covered purchase. See paragraph (e) (7)(iii) of this section. The amount of stock of Cor- poration FZ acquired in the covered purchase that is treated as acquired by Corporation US1 is equal to the amount of covered fundings allocated to the allocable amount of the covered purchase, or $600x (which represents 75 of the 100 shares of stock repurchased). See paragraph (e)(4) of this section. Corporation US1 is treated as acquiring stock of Corporation FZ in a section 4501(d)(1) repurchase on May 15, 2024. See paragraphs (b)(2)(xxii)(B) and (k)(4) of this section. Corporation US1 is a sec- tion 4501(d) covered corporation with respect to the section 4501(d)(1) repurchase. See paragraph (b)(2) (xv)(A) of this section. For purposes of computing Corporation US1’s section 4501(d) excise tax base, the fair market value of the 75 shares of stock of Corporation FZ subject to the section 4501(d)(1) repurchase is $600x. See paragraph (l) of this sec- tion. Accordingly, the section 4501(d)(1) repurchase by Corporation US1 increases its section 4501(d) excise tax base for the 2024 taxable year by $600x. Other covered fundings, if any, could be allocated to the remaining $200x of stock of Corporation FZ that Corporation FD acquired. (6) Example 6: Indirect funding subject to rebut- table presumption—(i) Facts. Corporation FZ owns all the outstanding stock of each of Corporation US1, a domestic corporation and Corporation FB, a for- eign corporation. Corporation US1 owns all the out- standing stock of Corporation FY, a foreign corpora- tion. Corporation FY owns all the outstanding stock of Corporation FD, a foreign corporation. On March 1, 2024, Corporation US1 makes a loan of $1,000x to Corporation FB. On March 15, 2024, Corporation FB makes a loan of $900x to Corporation FD. The facts and circumstances do not clearly establish that there was not a principal purpose of avoiding the sec- tion 4501(d) excise tax as described in paragraph (e) (1) of this section. On May 15, 2024, Corporation FD acquires 100 shares of the stock of Corporation FZ when the fair market value of each share is $8x. (ii) Analysis. A principal purpose described in paragraph (e)(1) of this section is presumed to exist because Corporation FD is a downstream relevant entity and the March 1, 2024, loan by Corporation US1 to Corporation FB occurs within two years of a covered purchase by Corporation FD. See paragraph (e)(2) of this section. Because the facts and circum- stances do not clearly establish that there was not a principal purpose of avoiding the section 4501(d) excise tax as described in paragraph (e)(1) of this section, the presumption is not rebutted. See para- graph (e)(2) of this section. Accordingly, the March 1, 2024, loan is a covered funding. See paragraph (e) (1) of this section. The acquisition by Corporation FD of the stock of Corporation FZ is an acquisition of stock of an applicable foreign corporation by a relevant entity and therefore a covered purchase. See paragraph (b)(2)(vii) of this section. The entire amount of the covered purchase, or $800x, is the allo- cable amount of the covered purchase. See paragraph (e)(5) of this section. $800x of the covered funding is allocated to the allocable amount of covered pur- chase because the allocable amount of the covered purchase is less than the amount of the covered funding. See paragraph (e)(7)(iii) of this section. The amount of stock of Corporation FZ acquired in the covered purchase that is treated as acquired by Cor- poration US1 is equal to the amount of covered fund- ings allocated to the allocable amount of the covered purchase, or $800x (which represents the 100 shares of stock repurchased). See paragraph (e)(4) of this section. Corporation US1 is treated as acquiring stock of Corporation FZ in a section 4501(d)(1) repurchase on May 15, 2024. See paragraphs (b)(2) (xxii)(B) and (k)(4) of this section. Corporation US1 is a section 4501(d) covered corporation with respect to the section 4501(d)(1) repurchase. See paragraph (b)(2)(xv)(A) of this section. For purposes of com- puting Corporation US1’s section 4501(d) excise tax base, the fair market value of the 100 shares of stock of Corporation FZ subject to the section 4501(d)(1) repurchase is $800x. See paragraph (l) of this sec- tion. Accordingly, the section 4501(d)(1) repurchase by Corporation US1 increases its section 4501(d) excise tax base for the 2024 taxable year by $800x. (7) Example 7: Indirect funding—(i) Facts. Cor- poration FZ owns all the outstanding stock of two foreign corporations, Corporation FB and Corpora- tion FE, and all the outstanding stock of two domes- tic corporations, Corporation US1 and Corporation US2. On March 1, 2024, Corporation US1 makes a loan of $700x to Corporation FZ. On April 1, 2024, Corporation FZ makes a loan to Corporation FB of $1,100x. On May 15, 2024, Corporation FE makes a loan of $900x to Corporation FB. On June 1, 2024, Corporation US2 makes a loan of $800x to Corpo- ration FZ. A principal purpose of each of the March 1, 2024, loan by Corporation US1 and the June 1, 2024, loan by Corporation US2 is to fund a covered purchase. On December 1, 2024, Corporation FB acquires 100 shares of stock of Corporation FZ when the fair market value of each share is $8x. (ii) Analysis. Because a principal purpose of each of the March 1, 2024, loan by Corporation US1 and the June 1, 2024, loan by Corporation US2 is to fund a covered purchase, each of those loans is a covered funding. See paragraph (e)(1) of this section. The acquisition by Corporation FB of stock of Corporation FZ is an acquisition of stock of an applicable foreign corporation by a relevant entity and therefore a covered purchase. See para- graph (b)(2)(vii) of this section. The entire amount of the covered purchase, or $800x, is the allocable amount of the covered purchase. See paragraph (e)(5) of this section. The March 1, 2024, loan by Corporation US1 and the June 1, 2024, loan by Cor- poration US2 are treated as funding the allocable amount of the covered purchase before the May 15, 2024, loan by Corporation FE. See paragraph (e)(5) of this section. Further, the March 1, 2024, loan by Corporation US1 is treated as funding the allocable amount of the covered purchase before the June 1, 2024, loan by Corporation US2. See paragraph (e)(7) (iv) of this section. Accordingly, the entire amount of the March 1, 2024, loan, or $700x, and $100x of the June 1, 2024, loan is allocated to the allocable amount of the covered purchase. The amount of stock of Corporation FZ acquired in the covered pur- chase that is treated as acquired by Corporation US1 is the amount of covered fundings by Corporation US1 allocated to the allocable amount of the covered purchase, or $700x (which represents the 87.5 shares of stock repurchased). The amount of stock of Cor- poration FZ acquired in the covered purchase that is treated as acquired by Corporation US2 is equal to the amount of covered fundings by Corporation US2 allocated to the allocable amount of the covered purchase, or $100x (which represents the 12.5 shares of stock repurchased). See paragraph (e)(4) of this section. Corporation US1 and Corporation US2 are each treated as acquiring stock of Corporation FZ in a section 4501(d)(1) repurchase on December 1, 2024. See paragraphs (b)(2)(xxii)(B) and (k)(4) of this section. Each of Corporation US1 and Corpo- ration US2 is a section 4501(d) covered corporation with respect to its portion of the section 4501(d)(1) repurchase. See paragraph (b)(2)(xv)(A) of this sec- tion. For purposes of computing Corporation US1’s section 4501(d) excise tax base, the fair market value of the 87.5 shares of stock of Corporation FZ sub- ject to the section 4501(d)(1) repurchase is $700x. For purposes of computing Corporation US2’s sec- tion 4501(d) excise tax base, the fair market value of the 12.5 shares of stock of Corporation FZ sub- ject to the section 4501(d)(1) repurchase is $100x. See paragraph (l) of this section. Accordingly, the section 4501(d)(1) repurchase by Corporation US1 increases its section 4501(d) excise tax base for the 2024 taxable year by $700x, and the section 4501(d) (1) repurchase by Corporation US2 increases its section 4501(d) excise tax base for the 2024 taxable year by $100x. (8) Example 8: A foreign partnership that is an applicable specified affiliate—(i) Facts. Partnership FP is a foreign partnership in which Corporation FZ, Corporation FB, a foreign corporation, and Corpora- tion US1, a domestic corporation, are partners. Cor- poration FZ owns 70 percent of the capital interests and profits interests of Partnership FP; Corporation FB owns 20 percent of the capital interests and prof- its interests of Partnership FP; and Corporation US1 owns 10 percent of the capital interests and profits interests of Partnership FP. On March 1, 2024, Part- nership FP purchases 100 shares of stock of Corpo- ration FZ when the fair market value of each share is $8x. (ii) Analysis. Corporation US1 is a domestic entity. See paragraph (b)(2)(x) of this section. Corpo- ration US1 is a direct partner with respect to Partner- ship FP for purposes of section 4501(d)(1) because Corporation US1 directly owns an interest in Part- nership FP and is not a de minimis domestic entity partner with respect to Partnership FP. See para- graphs (h)(2)(i) and (h)(5) of this section. Accord- ingly, Partnership FP is an applicable specified affili- ate of Corporation FZ because Corporation FZ owns more than 50 percent of the capital interests or profits interests of Partnership FP, and Corporation US1, a domestic entity, is a direct partner of Partnership FP. Partnership FP’s purchase of 100 shares of stock of Corporation FZ is a section 4501(d)(1) repurchase. See paragraph (b)(2)(xxii)(A) of this section. Part- May 13, 2024 1166 Bulletin No. 2024–20 nership FP is a section 4501(d) covered corporation with respect to the section 4501(d)(1) repurchase. See paragraph (b)(2)(xv)(A) of this section. For pur- poses of computing Partnership FP’s section 4501(d) excise tax base, the fair market value of the 100 shares of stock of Corporation FZ subject to the sec- tion 4501(d)(1) repurchase is $800x. See paragraph (l) of this section. Accordingly, the section 4501(d) (1) repurchase increases Partnership FP’s section 4501(d) excise tax base for the 2024 taxable year by $800x. (9) Example 9: A foreign partnership that is not an applicable specified affiliate—(i) Facts. The facts are the same as in paragraph (p)(8)(i) of this section (Example 8), except that Corporation FZ owns 76 percent of the capital interests and profits interests of Partnership FP; Corporation FB owns 20 percent of the capital interests and profits interests of Partner- ship FP; and Corporation US1 owns 4 percent of the capital interests and profits interests of Partnership F P. (ii) Analysis. Corporation US1 is not a direct or indirect partner with respect to Partnership FP for purposes of section 4501(d)(1) because Corpora- tion US1 qualifies as a de minimis domestic entity partner. See paragraph (h)(5) of this section. Part- nership FP is not an applicable specified affiliate of Corporation FZ because Partnership FP has no direct or indirect domestic entity partner. Accordingly, Partnership FP’s purchase of 100 shares of stock of Corporation FZ is not treated as a section 4501(d) (1) repurchase. (10) Example 10: A foreign partnership that is directly owned by foreign corporations and is an applicable specified affiliate—(i) Facts. Corporation FZ owns all the outstanding stock of Corporation US1, a domestic corporation. Corporation US1 owns all the outstanding stock of Corporation FB, a for- eign corporation. Partnership FP is a foreign partner- ship in which Corporation FB and Corporation FE, a foreign corporation, are partners. Corporation FB owns 80 percent of the capital interests and profits interests of Partnership FP, and Corporation FE owns 20 percent of the capital interests and profits interests of Partnership FP. (ii) Analysis. Corporation US1 is a domestic entity. See paragraph (b)(2)(x) of this section. Corpo- ration US1 owns an interest in Partnership FP indi- rectly through Corporation FB, a foreign corporation that Corporation US1 controls within the meaning of paragraph (h)(3) of this section. Corporation US1 does not qualify as a de minimis domestic entity partner with respect to Partnership FP. See paragraph (h)(5) of this section. Corporation US1 is thus an indirect partner with respect to Partnership FP for purposes of section 4501(d)(1). See paragraph (h)(2) (ii)(B) of this section. Accordingly, Partnership FP is an applicable specified affiliate of Corporation FZ because Corporation FZ indirectly owns more than 50 percent of the capital interests or profits interests of Partnership FP and Corporation US1, a domestic entity, is an indirect partner of Partnership FP. (q) Section 4501(d)(2) examples. The following examples illustrate the applica- tion of the rules in this section relating to section 4501(d)(2). For purposes of the fol- lowing examples, unless otherwise stated: Corporation FZ is a covered surrogate for- eign corporation; each domestic entity is an expatriated entity within the meaning of section 7874(a)(2)(A) with respect to Corporation FZ and is not a member of a U.S. consolidated group; there are not any expatriated entities with respect to Corpo- ration FZ other than as described in the facts; a reference to ownership refers to direct ownership; any repurchase or acqui- sition of stock is during a taxable year that includes at least a portion of the appli- cable period with respect to Corporation FZ under section 7874(d)(1); each entity has a calendar taxable year; each corpo- ration’s only outstanding stock is a single class of common stock; the functional cur- rency (within the meaning of section 985) of any entity is the U.S. dollar; no stock is transferred to any employee; for exam- ples that expressly provide that stock is transferred to any employee, such transfer is made in connection with the employ- ee’s performance of services in its capac- ity as an employee of the transferor, and the employee is treated as the beneficial owner of the stock for Federal income tax purposes on the date of the transfer; and the section 4501(d) statutory exceptions are inapplicable. (1) Example 1: The section 4501(d) netting rule with respect to an expatriated entity—(i) Facts. Cor- poration FZ owns all the outstanding stock of Cor- poration US1, a domestic corporation. Employee M is an employee of Corporation FZ, and Employee P is an employee of Corporation US1. On February 1, 2024, Corporation US1 purchases 100 shares of stock of Corporation FZ when the fair market value of each share is $8x. On May 15, 2024, Corporation FZ transfers to Employee M 50 shares of stock of Corporation FZ when the fair market value of each share is $5x. On November 1, 2024, Corporation US1 transfers to Employee P 30 shares of stock of Corporation US1 when the fair market value of each share is $9x. On December 15, 2024, Corporation FZ purchases 90 shares of its stock when the fair market value of each share is $12x. (ii) Analysis. Each of Corporation US1’s pur- chase of 100 shares of stock of Corporation FZ and Corporation FZ’s purchase of 90 shares of its stock is a section 4501(d)(2) repurchase. See paragraph (b) (2)(xxiii) of this section. Corporation US1 is a sec- tion 4501(d) covered corporation with respect to the section 4501(d)(2) repurchases. See paragraph (b) (2)(xv)(B) of this section. For purposes of comput- ing Corporation US1’s section 4501(d) excise tax base, the fair market value of the 100 shares of stock of Corporation FZ subject to the section 4501(d) (2) repurchase on February 1, 2024, is $800x, and the fair market value of the 90 shares of stock of Corporation FZ subject to the section 4501(d)(2) repurchase on December 15, 2024, is $1,080x. See paragraph (l) of this section. The section 4501(d)(2) repurchases thus increase Corporation US1’s section 4501(d) excise tax base for the 2024 taxable year by $1,880x ($800x + $1,080x). Corporation US1’s section 4501(d) excise tax base for its 2024 taxable year is not reduced by the fair market value of the stock of Corporation FZ transferred to Employee M or the fair market value of the stock of Corporation US1 transferred to Employee P because the section 4501(d) excise tax base with respect to Corporation US1 can only be reduced by the fair market value of stock of Corporation FZ issued or provided by Corporation US1 to employees of Corporation US1. See paragraph (n) of this section. Accordingly, Cor- poration US1’s section 4501(d) excise tax base with respect to these transactions for its 2024 taxable year is $1,880x. (2) Example 2: Section 4501(d)(2) repurchase from the covered surrogate foreign corporation or another specified affiliate of the covered surrogate for- eign corporation—(i) Facts. Corporation FZ owns all the outstanding stock of each of Corporation US1, a domestic corporation, Corporation FB, a foreign cor- poration, and Corporation FE, a foreign corporation. On February 1, 2024, Corporation US1 purchases 100 shares of stock of Corporation FZ from Corporation FB when the fair market value of each share is $8x. On December 15, 2024, Corporation FZ contributes 90 shares of its stock to Corporation FE when the fair market value of each share is $12x. (ii) Analysis. Each of Corporation US1’s pur- chase of 100 shares of stock of Corporation FZ and Corporation FZ’s transfer of 90 shares of its stock is a section 4501(d)(2) repurchase. See paragraph (b) (2)(xxiii) of this section. Corporation US1 is a sec- tion 4501(d) covered corporation with respect to the section 4501(d)(2) repurchases. See paragraph (b)(2) (xv)(B) of this section. For purposes of computing Corporation US1’s section 4501(d) excise tax base, the fair market value of the 100 shares of stock of Corporation FZ subject to the section 4501(d)(2) repurchase on February 1, 2024, is $800x, and the fair market value of the 90 shares of stock of Corporation FZ subject to the section 4501(d)(2) repurchase on December 15, 2024, is $1,080x. See paragraph (l) of this section. Accordingly, Corporation US1’s section 4501(d) excise tax base with respect to these transac- tions for its 2024 taxable year is $1,880x. (3) Example 3: Liability with respect to multiple expatriated entities—(i) Facts. Corporation FZ owns all the outstanding stock of each of Corporation US1, a domestic corporation, and Corporation US2, a domestic corporation. Employee M is an employee of Corporation US1, and Employee P is an employee of Corporation US2. On February 1, 2024, Corpora- tion US1 purchases 100 shares of stock of Corpora- tion FZ when the fair market value of each share is $8x. On May 15, 2024, Corporation US2 purchases 40 shares of stock of Corporation FZ when the fair market value of each share is $9x. On October 15, 2024, Corporation FZ repurchases 50 shares of its stock when the fair market value of each share is $7x. On November 1, 2024, Corporation US1 trans- fers to Employee M 30 shares of stock of Corpora- tion FZ when the fair market value of each share is $9x. On November 20, 2024, Corporation US2 trans- fers to Employee P 30 shares of stock of Corporation FZ when the fair market value of each share is $8x. Bulletin No. 2024–20 1167 May 13, 2024 Corporation US1 pays the entire amount of section 4501(d) excise tax that it owes with respect to all sec- tion 4501(d)(2) repurchases relating to Corporation FZ and its specified affiliates that occur during Cor- poration US1’s 2024 taxable year and fulfills its fil- ing obligations for its 2024 taxable year with respect to such section 4501(d)(2) repurchases. (ii) Analysis. Each of Corporation US1’s purchase of 100 shares of stock of Corporation FZ, Corporation US2’s purchase of 40 shares of stock of Corporation FZ, and Corporation FZ’s repurchase of 50 shares of its stock is a section 4501(d)(2) repurchase. See paragraphs (b)(2)(xxiii) and (d)(2)(i) of this section. Each of Corporation US1 and Corporation US2 is a section 4501(d) covered corporation with respect to the section 4501(d)(2) repurchases. See paragraph (b) (2)(xv)(B) of this section. For purposes of computing the section 4501(d) excise tax base for each of Cor- poration US1 and Corporation US2, the fair market value of the 100 shares subject to the section 4501(d) (2) repurchase on February 1, 2024, is $800x; the fair market value of the 40 shares of stock of Corporation FZ subject to the section 4501(d)(2) repurchase on May 15, 2024, is $360x; and the fair market value of the 50 shares of stock of Corporation FZ subject to the section 4501(d)(2) repurchase on October 15, 2024, is $350x. See paragraph (l) of this section. The section 4501(d)(2) repurchases thus increase each of Corporation US1’s and Corporation US2’s section 4501(d) excise tax base for the 2024 taxable year by $1,510x ($800x + $360x + $350x). 30 shares of Cor- poration FZ stock are treated as issued or provided to Employee M on November 1, 2024. See paragraph (n) of this section. Therefore, Corporation US1’s section 4501(d) excise tax base is reduced for its 2024 tax- able year by the fair market value of the 30 shares of stock of Corporation FZ transferred on November 1, 2024, or $270x ($9x per share x 30 shares = $270x). See paragraph (c)(3)(i)(C) of this section. Corporation US1’s section 4501(d) excise tax base for its 2024 taxable year is not reduced by the fair market value of the stock of Corporation FZ that Corporation US2 transferred to Employee P because the section 4501(d) excise tax base with respect to Corporation US1 can only be reduced by the fair market value of stock of Corporation FZ issued or provided by Corporation US1 to employees of Corporation US1. See para- graph (n) of this section. Accordingly, Corporation US1’s section 4501(d) excise tax base with respect to these transactions for its 2024 taxable year is $1,240x ($1,510x - $270x). Because Corporation US1 pays the entire amount of section 4501(d) excise tax that it owes with respect to all section 4501(d)(2) repur- chases that occur during Corporation US1’s 2024 tax- able year relating to Corporation FZ and its specified affiliates and fulfills its filing obligations for its 2024 taxable year with respect to such section 4501(d)(2) repurchases, Corporation US2 is not liable for sec- tion 4501(d) excise tax with respect to such section 4501(d)(2) repurchases. See paragraph (d)(2)(ii) of this section. (r) Applicability dates—(1) In general. Except as provided in paragraphs (e)(1) and (r)(3) of this section, the provisions of this section (other than paragraph (o) of this section) apply to transactions that occur after April 12, 2024. (2) Rules applicable before April 13, 2024. Except as provided in paragraphs (o)(2) and (r)(3) of this section, the rules in paragraph (o) of this section apply to transactions that occur after December 31, 2022, and on or before April 12, 2024. (3) Early application. A section 4501(d) covered corporation may choose to apply all the rules of this section (other than para- graphs (o), (r)(1), and (r)(2) of this section) to transactions occurring after December 31, 2022, subject to paragraph (e)(1) of this section. A section 4501(d) covered corpo- ration may choose to apply the rules of this section (other than paragraphs (o) and (r) (1) and (2) of this section) pursuant to the immediately preceding sentence only if the section 4501(d) covered corporation and all other section 4501(d) covered corporations with respect to the same applicable foreign corporation or covered surrogate foreign corporation, as applicable, consistently apply all the rules of this section (other than paragraphs (o) and (r)(1) and (2) of this section) as described in the immediately preceding sentence. Subpart B [Reserved] Douglas W. O’Donnell, Deputy Commissioner for Services and Enforcement. (Filed by the Office of the Federal Register April 9, 2024, 4:15 p.m., and published in the issue of the Federal Register for April 12, 2024, 89 FR 25980) Excise Tax on Repurchase of Corporate Stock – Procedure and Administration REG-118499-23 AGENCY: Internal Revenue Service (IRS), Treasury. ACTION: Notice of proposed rulemaking. SUMMARY: This document contains proposed regulations that would provide guidance regarding reporting and pay- ment of the new excise tax on repurchases of corporate stock made after December 31, 2022. The proposed regulations would affect certain publicly traded corporations that repurchase their stock or whose stock is acquired by certain specified affiliates. Another notice of proposed rulemaking on this topic is published elsewhere this issue of the Federal Register to propose rules on the general application of, and excep- tions to, this new excise tax. DATES: Written or electronic comments and requests for a public hearing must be received by May 13, 2024. ADDRESSES: Commenters are strongly encouraged to submit public comments electronically. Submit electronic submis- sions via the Federal eRulemaking Portal at https://www.regulations.gov (indicate IRS and REG-118499-23) by following the online instructions for submitting com- ments. Requests for a public hearing must be submitted as prescribed in the “Com- ments and Requests for a Public Hear- ing” section. Once submitted to the Federal eRulemaking Portal, comments cannot be edited or withdrawn. The Department of the Treasury (Treasury Department) and the IRS will publish for public availability any comment submitted electronically or on paper to the IRS’s public docket. Send paper submissions to: CC:PA:01:PR (REG-118499-23), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044. FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, Samuel G. Trammell at (202) 317-6975; concerning submissions of comments and requests for a public hear- ing, Vivian Hayes at (202) 317-6901 (not toll-free numbers) or by email at publi- chearings@irs.gov (preferred). SUPPLEMENTARY INFORMATION: Background I. Overview This notice of proposed rulemaking proposes regulations under section 4501 of the Internal Revenue Code (Code) that would provide rules on procedure and administration applicable to the report- May 13, 2024 1168 Bulletin No. 2024–20 ing and payment of the new excise tax on repurchases of corporate stock (stock repurchase excise tax) imposed by section 4501 for repurchases made after Decem- ber 31, 2022. As proposed in this notice of proposed rulemaking, the regulations are proposed to be added as subpart B of new 26 CFR part 58 (Stock Repurchase Excise Tax Regulations), which is proposed to be added to subchapter D of 26 CFR chapter I (Miscellaneous Excise Taxes). Proposed subpart A of part 58, contained in another notice of proposed rulemaking (REG-115710-22) published elsewhere in this issue of the Federal Register, would provide operative rules under section 4501. Proposed §58.4501-1 would provide an overview of the stock repurchase excise tax, generally applicable definitions, the scope of the regulations implementing the tax, and certain operating rules applicable to those regulations. Proposed §58.4501-2 would provide general rules regarding the application and computation of the stock repurchase excise tax. Proposed §58.4501-3 would provide rules regarding the application of the exceptions in section 4501(e) (other than the de minimis excep- tion described in section 4501(e)(3) and to which proposed §58.4501-2(b)(2) applies). Proposed §58.4501-4 would provide rules regarding the application of section 4501(c) (3). Proposed §§58.4501-5 and 58.4501-6 would provide examples and applicability dates. Proposed §58.4501-7 would provide rules specifically relating to the application of section 4501(d). II. Section 4501; Notice 2023-2 Section 4501 was added to a new chap- ter 37 of the Code by the enactment of section 10201 of Public Law 117-169, 136 Stat. 1818 (August 16, 2022), commonly referred to as the Inflation Reduction Act of 2022 (IRA). In general, section 4501 imposes the stock repurchase excise tax on each covered corporation (as defined in section 4501(b)) for repurchases made after December 31, 2022. See section 10201(d) of the IRA. The stock repur- chase excise tax is equal to 1 percent of the fair market value of any stock of the corporation that is repurchased (as defined in section 4501(c)(1)) by the corporation during the taxable year. Section 4501(a). The term “covered corporation” includes an entity treated as a covered corporation under section 4501(d)(1)(A) or (d)(2)(A). Section 4501(f) authorizes the Secre- tary of the Treasury or her delegate (Sec- retary) to prescribe regulations and other guidance as are necessary or appropriate to carry out, and to prevent the avoidance of, the purposes of section 4501. On January 17, 2023, the Treasury Department and the IRS published Notice 2023-2, 2023-3 I.R.B. 374, to provide initial guidance on the application of the stock repurchase excise tax. The notice describes certain operating rules for pur- poses of the stock repurchase excise tax that the Treasury Department and the IRS announced the intent to include in pro- posed regulations, along with anticipated rules for reporting and paying any liability for the stock repurchase excise tax. Section 4 of Notice 2023-2 describes the anticipated rules for reporting and paying any liability for the stock repur- chase excise tax. As described in Notice 2023-2, those anticipated rules would pro- vide that (1) the stock repurchase excise tax must be reported on IRS Form 720, Quarterly Federal Excise Tax Return, (2) taxpayers must attach an additional form to the Form 720 reflecting the computa- tion of the stock repurchase excise tax, (3) the stock repurchase excise tax must be reported once per taxable year on the Form 720 that is due for the first full quar- ter after the close of the taxpayer’s taxable year, (4) the deadline for payment of the stock repurchase excise tax is the same as the filing deadline, and (5) no extensions are permitted for reporting or paying the stock repurchase excise tax owed. Consistent with Notice 2023-2, and as explained in the Explanation of Provi- sions, these proposed regulations would prescribe the manner and method of reporting and paying the stock repurchase excise tax by adding rules on procedure and administration in proposed subpart B of the proposed Stock Repurchase Excise Tax Regulations (26 CFR part 58) under sections 6001, 6011, 6060, 6061, 6065, 6071, 6091, 6107, 6109, 6151, 6694, 6695, and 6696 of the Code. The Treasury Department and the IRS have added items relevant to the stock repurchase excise tax to tax return forms other than Form 720, to assist in the identification of transactions subject to the stock repurchase excise tax. See Form 1120, U.S. Corporation Income Tax Return and Form 1065, U.S. Return of Partnership Income. The Trea- sury Department and the IRS continue to evaluate amending or developing other forms, including for information reporting with respect to foreign owners of domes- tic business entities and domestic owners of foreign business entities, to assist in the identification of transactions subject to the stock repurchase excise tax. Explanation of Provisions I. Requirement for Return and Recordkeeping Under proposed §58.6011-1(a), a stock repurchase excise tax return would be required to be filed by any covered cor- poration, or any person treated as a cov- ered corporation, that makes a repurchase (as defined in section 4501(c)(1)), or that is treated as making a repurchase under section 4501(c)(2)(A), (d)(1)(B), or (d) (2)(B), after December 31, 2022. Any covered corporation or person treated as a covered corporation, that makes a repur- chase, or that is treated as making a repur- chase, would be required to keep complete and detailed records sufficient to establish accurately the amount of repurchases, adjustments, or exceptions required to be shown on its stock repurchase excise tax return. See proposed §58.6001-1(a). Under the proposed regulations, any cov- ered corporation that makes a repurchase must comply with these requirements, even if every repurchase is eligible for a statutory exception (for example, in the case of repurchases by a regulated invest- ment company or a real estate investment trust) or is offset by issuances. Under proposed §58.6011-1(b), the stock repurchase excise tax return would include the Form 720, on which the stock repurchase excise tax liability would be reported, and an attached Form 7208, Excise Tax on Repurchase of Corporate Stock, on which the stock repurchase excise tax would be calculated. Proposed §58.6001-1(b) provides that the IRS may require any covered corporation or person treated as a covered corporation, to make such returns, render such statements, or keep such specific records as to enable the IRS to determine whether the covered Bulletin No. 2024–20 1169 May 13, 2024 corporation or person treated as a covered corporation is liable for the stock repur- chase excise tax. The records that would be required to be maintained would need to be available for inspection by the IRS and retained for so long as their con- tents may become material. See proposed §58.6001-1(c). Under proposed §58.6061-1(a), the person required to file the stock repur- chase excise tax return would be required to sign that return in accordance with the applicable forms and their corresponding instructions, and the signature would be prima facie evidence that the individual is authorized to sign the stock repurchase excise tax return. In addition, proposed §58.6065-1(a) would provide that any person signing a stock repurchase excise tax return is required to include a written declaration that the return is made under penalties of perjury when required by the return or the forms or their corresponding instructions. II. Time and Place for Filing Return and Paying Tax With respect to a covered corporation or person treated as a covered corporation, with a taxable year ending after December 31, 2022, and on or before the date of pub- lication of final regulations in the Federal Register, proposed §58.6071-1(c) would require the stock repurchase excise tax return for such taxable year to be filed by the due date of the Form 720 for the first full calendar quarter after the date of pub- lication of final regulations in the Federal Register. For example, if a covered corporation had a taxable year ending December 31, 2023, and if the date of publication of final regulations in the Federal Register were September 16, 2024, the covered corpo- ration would be required to file the stock repurchase excise tax return for its 2023 taxable year by January 31, 2025 (the due date of the Form 720 for the calendar quarter ending December 31, 2024). Proposed §58.6071-1(a) generally would require the stock repurchase excise tax return to be filed by the due date of the Form 720 for the first full calendar quar- ter after the taxable year of the covered corporation or person treated as a cov- ered corporation ends. This rule would be applicable for taxable years ending after the date of publication of final regulations in the Federal Register. For example, if a covered corporation had a taxable year ending December 31, 2024, and if the date of publication of final regulations in the Federal Register were September 16, 2024, the covered corporation would be required to file the stock repurchase excise tax return for its 2024 taxable year by April 30, 2025 (the due date of the Form 720 for the calendar quarter ending March 31, 2025). Proposed §58.6091-1(a) and (b) would require the stock repurchase excise tax to be filed at the place specified in the instructions applicable to Form 720 or, if the return is hand-carried, with any person assigned the responsibility to receive hand-carried returns in the local IRS office that serves the principal place of business, princi- pal office, or agency of the taxpayer. In exceptional cases, proposed §58.6091- 1(c) would provide that the Commissioner of Internal Revenue (Commissioner) would be able to permit the filing of the stock repurchase excise tax return in any local IRS office. Full payment of the stock repurchase excise tax liability would be required to accompany the filed stock repurchase excise tax return. See proposed §58.6151-1(a). A covered corporation or a person treated as a covered corporation that is required to file a stock repurchase excise tax return or pay the stock repurchase excise tax but does not timely file such return or pay such tax may be subject to additions to tax under section 6651 and §301.6651-1. III. Tax Return Preparers Proposed §58.6107-1(a) would require a person who is a signing tax return pre- parer (as defined in §301.7701-15(b)(1) of the Procedure and Administration Reg- ulations) of any stock repurchase excise tax return or claim for refund of the stock repurchase excise tax to furnish a com- pleted copy of the return or claim for refund to the taxpayer and retain a com- pleted copy or record in the manner stated in §1.6107-1 of the Income Tax Regula- tions (26 CFR Part 1). Proposed §58.6109-1(a) would require each stock repurchase excise tax return or claim for refund of the stock repurchase excise tax prepared by one or more signing tax return preparers to include the identi- fying number of the preparer required by §1.6695-1(b) to sign the return or claim for refund in the manner stated in §1.6109-2. In addition, proposed §58.6060-1(a) would require a person that engages or employs one or more signing tax return preparers to prepare a stock repurchase excise tax return or claim for refund of the stock repurchase excise tax (other than for the person itself) to satisfy the record- keeping and inspection requirements in §1.6060-1. These proposed regulations also would provide certain rules relating to penalties that may be assessed against tax return preparers under sections 6694, 6695, and 6696. Under proposed §58.6694-1(b) and (c), a person who is a tax return preparer of any stock repurchase excise tax return or claim for refund of the stock repurchase excise tax would be subject to penalties under section 6694(a) for an understate- ment of liability due to an unreasonable position or under section 6694(b) for an understatement of liability due to willful or reckless conduct. Under proposed §58.6695-1(a), a per- son who is a tax return preparer of any stock repurchase excise tax return or claim for refund of the stock repurchase excise tax would be subject to penalties for: (1) a failure to furnish a copy of the tax return or claim for refund to the taxpayer under section 6695(a); (2) a failure to sign the return under section 6695(b); (3) a failure to furnish an identifying number under section 6695(c); (4) a failure to retain a copy or list under section 6695(d); (5) a failure to file a correct information return under section 6695(e); or (6) endorsing or negotiating any check issued to the tax- payer under section 6695(f). Lastly, proposed §58.6696-1(a) would require a claim for credit or refund of a penalty assessed against a tax return pre- parer under section 6694 or 6695 (or the corresponding regulations) to be made in the manner set forth in §1.6696-1. Proposed Applicability Date Proposed §58.6001-1 would be applica- ble to repurchases, adjustments, or excep- tions required to be shown in any stock May 13, 2024 1170 Bulletin No. 2024–20 repurchase excise tax return required to be filed after the date of publication of final regulations in the Federal Register. Pro- posed §§58.6011-1, 58.6060-1, 58.6061-1, 58.6065-1, 58.6071-1, 58.6091-1, 58.6107- 1, 58.6109-1, 58.6151-1, 58.6694-1, 58.6695-1, and 58.6696-1 would be appli- cable to stock repurchase excise tax returns and claims for refund required to be filed after the date of publication of final regula- tions in the Federal Register. Statement of Availability for IRS Documents Any IRS Revenue Procedure, Rev- enue Ruling, Notice, or other guidance cited in this preamble is published in the Internal Revenue Bulletin (or Cumulative Bulletin) and is available from the Super- intendent of Documents, U.S. Govern- ment Publishing Office, Washington, DC 20402, or by visiting the IRS website at https://www.irs.gov. Special Analyses I. Regulatory Planning and Review— Economic Analysis Pursuant to the Memorandum of Agreement, Review of Treasury Regula- tions under Executive Order 12866 (June 9, 2023), tax regulatory actions issued by the IRS are not subject to the requirements of section 6 of Executive Order 12866, as amended. Therefore, a regulatory impact assessment is not required. II. Paperwork Reduction Act The Paperwork Reduction Act of 1995 (44 U.S.C. 3501–3520) (PRA) requires that a Federal agency obtain the approval of Office of Management and Budget (OMB) before collecting information from the public, whether such collection of information is mandatory, voluntary, or required to obtain or retain a benefit. The collections of information in these proposed regulations contain report- ing and recordkeeping requirements in §§58.6001-1 and 58.6011-1 necessary for the IRS to accurately determine the stock repurchase excise tax due. The col- lection of information is required by law to comply with the provisions of section 4501 of the Code as enacted by section 10201 of the IRA. A Federal agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of infor- mation displays a valid control number. The recordkeeping requirements men- tioned within these proposed regulations are considered general tax records under section 6001. These records are required for the IRS to validate that taxpayers have met the regulatory requirements. For PRA purposes, general tax records are already approved by OMB under 1545-0123 for business filers and 1545-0074 for individ- ual filers. The reporting requirements, including the written penalty of perjury statement, will be covered within Form 7208 and its instructions. The IRS is seeking OMB approval and requesting a new OMB con- trol number for Form 7208 in accordance with the procedures outlined in 5 CFR 1320.10. These proposed regulations mention reporting, third-party disclosures, and recordkeeping requirements for tax pre- parers. These proposed regulations are not changing the requirements contained within §1.6107-1, which is included in 1545-1231. III. Regulatory Flexibility Act Pursuant to the Regulatory Flexibil- ity Act (5 U.S.C. chapter 6), it is hereby certified that these proposed regulations will not have a significant economic impact on a substantial number of small entities. This certification is based on the fact that these proposed regulations pro- vide specific administrative, procedural, and recordkeeping rules that would apply only to certain tax return preparers and to publicly traded corporations, which tends to consist of larger businesses. Specifically, based on data available to the IRS, for tax year 2021, 4,366 corpo- rations reported publicly traded common stock. Of those corporations, 2,407 (over 55 percent) reported gross receipts over $100 million, and 3,272 (approximately 75 percent) reported gross receipts over $10 million. Meanwhile, for tax year 2021, the IRS received 7,464,790 Corpo- ration Income Tax Returns and 4,710,457 U.S. Returns of Partnership Income. IRS Publication 6292, Fiscal Year Projec- tions for the United States: 2022-2029, Fall 2022, Table 2. Of these corporation and partnership returns for tax year 2021, 11,685,207 reported total assets below $10 million. Thus, the number of corpo- rations affected by these proposed regula- tions that reported total assets below $10 million is less than one hundredth of one percent of the total number of businesses that reported total assets below $10 mil- lion for tax year 2021. Therefore, these proposed regulations will not create addi- tional obligations for, or impose an eco- nomic impact on, a substantial number of small entities. Accordingly, the Secretary certifies that the proposed regulations will not have a significant economic impact on a substantial number of small entities and a regulatory flexibility analysis under the Regulatory Flexibility Act is not required. IV. Section 7805(f) Pursuant to section 7805(f) of the Code, this notice of proposed rulemaking has been submitted to the Chief Counsel for the Office of Advocacy of the Small Business Administration for comment on its impact on small business. V. Unfunded Mandates Reform Act Section 202 of the Unfunded Mandates Reform Act of 1995 requires that agencies assess anticipated costs and benefits and take certain other actions before issuing a final rule that includes any Federal man- date that may result in expenditures in any one year by a State, local, or Tribal gov- ernment, in the aggregate, or by the pri- vate sector, of $100 million in 1995 dol- lars, updated annually for inflation. These proposed regulations do not include any Federal mandate that may result in expen- ditures by State, local, or Tribal govern- ments, or by the private sector in excess of that threshold. VI. Executive Order 13132: Federalism Executive Order 13132 (Federalism) prohibits an agency (to the extent practi- cable and permitted by law) from promul- gating any regulation that has federalism implications, unless the agency meets the consultation and funding requirements of section 6 of the Executive order, if Bulletin No. 2024–20 1171 May 13, 2024 the rule either imposes substantial, direct compliance costs on State and local gov- ernments, and is not required by statute, or preempts State law. This proposed rule does not have federalism implications and does not impose substantial direct compli- ance costs on State and local governments or preempt State law within the meaning of the Executive order. Comments and Requests for a Public Hearing Before the proposed regulations are adopted as final regulations, consideration will be given to any comments that are submitted timely to the IRS as prescribed in this preamble under the ADDRESSES heading. The Treasury Department and the IRS request comments on all aspects of the proposed regulations and on forms related to the proposed regulations. All commenters are strongly encouraged to submit comments electronically. The Treasury Department and the IRS will publish for public availability any com- ment submitted electronically or on paper to the IRS’s public docket on https://www. regulations.gov. A public hearing will be scheduled if requested in writing by any person who timely submits electronic or written com- ments. Requests for a public hearing are encouraged to be made electronically. If a public hearing is scheduled, a notice of the date and time for the public hearing will be published in the Federal Register. A telephonic option will remain available for those who prefer to attend or testify at a public hearing by telephone. Any tele- phonic hearing will be made accessible to people with disabilities. Drafting Information The principal author of these regula- tions is Samuel G. Trammell of the Office of Associate Chief Counsel (Corporate). However, other personnel from the Trea- sury Department and the IRS participated in their development. List of Subjects in 26 CFR Part 58 Excise taxes, Stock repurchase excise tax, Reporting and recordkeeping require- ments. Proposed Amendments to the Regulations Accordingly, the Treasury Department and the IRS propose to amend 26 CFR part 58, as proposed to be added elsewhere in this issue of the Federal Register, as fol- lows: PART 58—STOCK REPURCHASE EXCISE TAX Paragraph 1. The authority citation for part 58 is revised to read as follows: Authority: 26 U.S.C. 4501(f) and 7805. Section 58.6001-1 also issued under 26 U.S.C. 6001; Section 58.6011-1 also issued under 26 U.S.C. 6011(a); Section 58.6060-1 also issued under 26 U.S.C. 6060(a); Section 58.6061-1 also issued under 26 U.S.C. 6061(a); Section 58.6065-1 also issued under 26 U.S.C. 6065; Section 58.6071-1 also issued under 26 U.S.C. 6071(a); Section 58.6091-1 also issued under 26 U.S.C. 6091(a); Section 58.6107-1 also issued under 26 U.S.C. 6107; Section 58.6109-1 also issued under 26 U.S.C. 6109(a); Section 58.6151-1 also issued under 26 U.S.C. 6151; Section 58.6694-1 also issued under 26 U.S.C. 6694; Section 58.6695-1 also issued under 26 U.S.C. 6695; Section 58.6696-1 also issued under 26 U.S.C. 6696. Par 2. Add subpart B to read as fol- lows: Subpart B—Procedure and Administration Sec. 58.6001-1 Notice or regulations requiring records, statements, and special returns. 58.6011-1 General requirement of return, statement, or list. 58.6060-1 Reporting requirements for tax return preparers. 58.6061-1 Signing of returns and other documents. 58.6065-1 Verification of returns. 58.6071-1 Time for filing returns. 58.6091-1 Place for filing tax returns under chapter 37 of the Internal Revenue Code. 58.6107-1 Tax return preparer must furnish copy of return or claim for refund to taxpayer and must retain a copy or record. 58.6109-1 Tax return preparers fur- nishing identifying numbers for returns or claims for refund. 58.6151-1 Time and place for paying of tax shown on returns. 58.6694-1 Section 6694 penalties. 58.6695-1 Other assessable penalties with respect to the preparation of tax returns or claims for refund for other per- sons. 58.6696-1 Claims for credit or refund by tax return preparers. Subpart B—Procedure and Administration §58.6001-1 Notice or regulations requiring records, statements, and special returns. (a) In general. Any covered corpo- ration (as defined in section 4501(b) of the Internal Revenue Code (Code)), or any person treated as a covered corpo- ration (as described in section 4501(d) (1)(A) or (d)(2)(A)), that makes a repur- chase (as defined in section 4501(c)(1)), or that is treated as making a repurchase under section 4501(c)(2)(A), (d)(1)(B), or (d)(2)(B), must keep such complete and detailed records as are sufficient to estab- lish accurately the amount of repurchases, adjustments, or exceptions required to be shown by the covered corporation or per- son treated as a covered corporation in any stock repurchase excise tax return (as defined in §58.6011-1(b)). (b) Notice by IRS requiring returns, statements, or the keeping of records. The Internal Revenue Service (IRS) may require any covered corporation or person treated as a covered corporation, by notice served upon such corporation or person, to make such returns, render such state- ments, or keep such specific records as will enable the IRS to determine whether May 13, 2024 1172 Bulletin No. 2024–20 or not such corporation or person is liable for tax under chapter 37 of the Code. (c) Retention of records. The records required by this section must be kept at all times available for inspection by the IRS and must be retained for so long as the con- tents thereof may become material in the administration of any internal revenue law. (d) Applicability date. This section applies to repurchases, adjustments, or exceptions required to be shown in any stock repurchase excise tax return required to be filed after [DATE OF PUB- LICATION OF FINAL REGULATIONS IN THE FEDERAL REGISTER], and during taxable years ending after [DATE OF PUBLICATION OF FINAL REGU- LATIONS IN THE FEDERAL REGIS- TER]. §58.6011-1 General requirement of return, statement, or list. (a) In general. Any covered corpora- tion (as defined in the Internal Revenue Code (Code), section 4501 (section 4501), subsection (b)), or any person treated as a covered corporation (as described in section 4501(d)(1)(A) or (d)(2)(A)), that makes a repurchase (as defined in section 4501(c)(1)), or that is treated as making a repurchase under section 4501(c)(2) (A), (d)(1)(B), or (d)(2)(B), after Decem- ber 31, 2022, must file a stock repurchase excise tax return. (b) Stock Repurchase Excise Tax Return. For purposes of this part, the term stock repurchase excise tax return means a Form 720, Quarterly Federal Excise Tax Return, with an attached Form 7208, Excise Tax on Repurchase of Corporate Stock, or any other forms, schedules, or statements prescribed by the Commis- sioner for the purpose of making a return to report the tax under chapter 37 of the Code. (c) Special rules for multiple section 4501(d) covered corporations with respect to a covered surrogate foreign corpora- tion. For special rules applicable for per- sons treated as a covered corporation (as described in section 4501(d)(2)(A)) with respect to a covered surrogate foreign cor- poration (as defined in section 4501(d)(3) (B)), see §58.4501-7(d)(2). (d) Applicability date. This section applies to stock repurchase excise tax returns required to be filed after [DATE OF PUBLICATION OF FINAL REGU- LATIONS IN THE FEDERAL REGIS- TER], and during taxable years ending after [DATE OF PUBLICATION OF FINAL REGULATIONS IN THE FED- ERAL REGISTER]. §58.6060-1 Reporting requirements for tax return preparers. (a) In general. A person that engages or employs one or more signing tax return preparers (as defined in §301.7701-15(b) (1) of this chapter) to prepare a stock repurchase excise tax return (as defined in §58.6011-1(b)) or claim for refund of tax under chapter 37 of the Internal Reve- nue Code, other than for the person, at any time during a return period, must satisfy the recordkeeping and inspection require- ments in the manner stated in §1.6060-1 of this chapter. (b) Applicability date. This section applies to stock repurchase excise tax returns and claims for refund required to be filed after [DATE OF PUBLICATION OF FINAL REGULATIONS IN THE FEDERAL REGISTER], and during tax- able years ending after [DATE OF PUB- LICATION OF FINAL REGULATIONS IN THE FEDERAL REGISTER]. §58.6061-1 Signing of returns and other documents. (a) In general. Any stock repurchase excise tax return (as defined in §58.6011- 1(b)), statement, or other document required to be made with respect to the tax imposed by chapter 37 of the Inter- nal Revenue Code (chapter 37) must be signed by the person required to file the return, statement, or other document, or by the persons required or duly authorized to sign in accordance with the regulations, forms, or instructions prescribed with respect to such return, statement, or doc- ument. An individual’s signature on such a return, statement, or other document is prima facie evidence that the individual is authorized to sign the return, statement, or other document. (b) Applicability date. This section applies to stock repurchase excise tax returns, statements, or other documents that are required to be made with respect to the tax imposed by chapter 37 and required to be filed after [DATE OF PUB- LICATION OF FINAL REGULATIONS IN THE FEDERAL REGISTER], and during taxable years ending after [DATE OF PUBLICATION OF FINAL REGU- LATIONS IN THE FEDERAL REGIS- TER]. §58.6065-1 Verification of returns. (a) In general. If either a stock repur- chase excise tax return (as defined in §58.6011-1(b)), statement, or other doc- ument made with respect to any tax imposed by chapter 37 of the Internal Revenue Code (chapter 37), or the related form and instructions, requires that such return, statement, or other document con- tain or be verified by a written declara- tion that it is made under the penalties of perjury, then it must be so verified by the person or persons required to sign such return, statement, or other document. In addition, any other statement or document submitted under any provision of chapter 37, subtitle F, or regulations under this part with respect to any tax imposed by chapter 37 may be required to contain or be verified by a written declaration that it is made under the penalties of perjury. (b) Applicability date. This section applies to stock repurchase excise tax returns, statements, or other documents that are required to be made with respect to the tax imposed by chapter 37 and required to be filed after [DATE OF PUB- LICATION OF FINAL REGULATIONS IN THE FEDERAL REGISTER], and during taxable years ending after [DATE OF PUBLICATION OF FINAL REGU- LATIONS IN THE FEDERAL REGIS- TER]. §58.6071-1 Time for filing returns. (a) In general. Except as provided in paragraph (c) of this section, a stock repurchase excise tax return required by §58.6011-1(a) must be filed by the due date of the Form 720, Quarterly Federal Excise Tax Return, that is for the first full calendar quarter after the taxable year of the covered corporation, or person treated as a covered corporation (as described in the Internal Revenue Code (Code), section Bulletin No. 2024–20 1173 May 13, 2024 4501 (section 4501), paragraph (d)(1)(A) or (d)(2)(A)), ends. (b) Example. Corporation X is a cov- ered corporation with a taxable year that ends on December 31. During its 2024 taxable year, Corporation X makes a repurchase within the meaning of section 4501(c)(1). Because Corporation X’s tax- able year ends in the fourth quarter of the calendar year, Corporation X must file a stock repurchase excise tax return report- ing liability for the tax imposed by chap- ter 37 of the Code by the due date for a first-quarter Form 720 (that is, April 30, 2025). (c) Taxable years ending before date of publication of final regulations. With respect to a covered corporation, or per- son treated as a covered corporation, with a taxable year ending after Decem- ber 31, 2022, and on or before [EFFEC- TIVE DATE OF FINAL RULE], the stock repurchase excise tax return required by §58.6011-1(a) for such taxable year must be filed by the due date of the Form 720 for the first full calendar quarter after [DATE OF PUBLICATION OF FINAL REGULATIONS IN THE FEDERAL REGISTER]. If a covered corporation, or person treated as a covered corporation, has more than one taxable year ending after December 31, 2022, and on or before [EFFECTIVE DATE OF FINAL RULE], the covered corporation, or person treated as a covered corporation, should file a single Form 720 with two separate Forms 7208 (one for each taxable year) attached. (d) Example. Corporation Y is a cov- ered corporation with a taxable year end- ing December 31, 2023. During its 2023 taxable year, Corporation Y makes a repurchase within the meaning of section 4501(c)(1). If the date the Treasury deci- sion adopting these rules as final regula- tions is published in the Federal Register were October 16, 2024, Corporation Y would be required to file the stock repur- chase excise tax return for its 2023 taxable year by the due date for a fourth-quarter Form 720 (that is, January 31, 2025). (e) Applicability date. This section applies to stock repurchase excise tax returns required to be filed after [DATE OF PUBLICATION OF FINAL REGU- LATIONS IN THE FEDERAL REGIS- TER], and during taxable years ending after [DATE OF PUBLICATION OF FINAL REGULATIONS IN THE FED- ERAL REGISTER]. §58.6091-1 Place for filing tax returns under chapter 37 of the Internal Revenue Code. (a) In general. Except as provided in paragraphs (b) and (c) of this section, stock repurchase excise tax returns required by §58.6011-1(a) must be filed in accordance with the instructions applicable to such returns. (b) Hand-carried returns. Notwith- standing paragraph (a) of this section, stock repurchase excise tax returns that are filed by hand carrying must be filed with any person assigned the responsi- bility to receive hand-carried returns in the local Internal Revenue Service (IRS) office that serves the principal place of business, principal office, or agency of the taxpayer. (c) Exceptional cases. Notwithstanding paragraph (a) of this section, the Commis- sioner may permit the filing of any stock repurchase excise tax return in any local IRS office. (d) Applicability date. This section applies to stock repurchase excise tax returns required to be filed after [DATE OF PUBLICATION OF FINAL REGU- LATIONS IN THE FEDERAL REGIS- TER], and during taxable years ending after [DATE OF PUBLICATION OF FINAL REGULATIONS IN THE FED- ERAL REGISTER]. §58.6107-1 Tax return preparer must furnish copy of return or claim for refund to taxpayer and must retain a copy or record. (a) In general. A person who is a sign- ing tax return preparer (as defined in §301.7701-15(b)(1) of this chapter) of any stock repurchase excise tax return required by §58.6011-1(a) or claim for refund of tax under chapter 37 of the Internal Revenue Code must furnish a completed copy of the stock repurchase excise tax return or claim for refund to the taxpayer and retain a completed copy or record in the manner stated in §1.6107-1 of this chapter. (b) Applicability date. This section applies to stock repurchase excise tax returns and claims for refund required to be filed after [DATE OF PUBLICATION OF FINAL REGULATIONS IN THE FEDERAL REGISTER], and during tax- able years ending after [DATE OF PUB- LICATION OF FINAL REGULATIONS IN THE FEDERAL REGISTER]. §58.6109-1 Tax return preparers furnishing identifying numbers for returns or claims for refund. (a) In general. Each stock repurchase excise tax return required by §58.6011- 1(a) or claim for refund of tax under chap- ter 37 of the Internal Revenue Code pre- pared by one or more signing tax return preparers (as defined in §301.7701-15(b) (1) of this chapter) must include the iden- tifying number of the preparer required by §1.6695-1(b) of this chapter to sign the stock repurchase excise tax return or claim for refund in the manner stated in §1.6109-2 of this chapter. (b) Applicability date. This section applies to stock repurchase excise tax returns and claims for refund required to be filed after [DATE OF PUBLICATION OF FINAL REGULATIONS IN THE FEDERAL REGISTER], and during tax- able years ending after [DATE OF PUB- LICATION OF FINAL REGULATIONS IN THE FEDERAL REGISTER]. §58.6151-1 Time and place for paying of tax shown on returns. (a) In general. The tax shown on any stock repurchase excise tax return required by §58.6011-1(a) must, without assessment or notice and demand, be paid to the Internal Revenue Service at the time and place for filing such stock repurchase excise tax return. For provisions relating to the time and place for filing the stock repurchase excise tax return required under §58.6011-1(a), see §§58.6071-1 and 58.6091-1. (b) Applicability date. This section applies to payments of stock repurchase excise tax required to be paid after [DATE OF PUBLICATION OF FINAL REGU- LATIONS IN THE FEDERAL REGIS- TER], and during taxable years ending after [DATE OF PUBLICATION OF FINAL REGULATIONS IN THE FED- ERAL REGISTER]. May 13, 2024 1174 Bulletin No. 2024–20 §58.6694-1 Section 6694 penalties. (a) Penalties applicable to tax return preparer. For general definitions regard- ing penalties under section 6694 of the Internal Revenue Code (section 6694) applicable to preparers of tax returns or claims for refund of tax under chapter 37 of the Code, see §1.6694-1 of this chapter. (b) Penalties for understatement due to an unreasonable position. A person who is a tax return preparer of any return or claim for refund of tax under chapter 37 may be subject to penalties under section 6694(a) in the manner stated in §1.6694-2 of this chapter. (c) Penalties for understatement due to willful, reckless, or intentional con- duct. A person who is a tax return preparer of any return or claim for refund of tax under chapter 37 may be subject to pen- alties under section 6694(b) in the manner stated in §1.6694-3 of this chapter. (d) Extension of period of collection when tax return preparer pays 15 percent of a penalty for understatement of taxpay- er’s liability and certain other procedural matters. The rules under §1.6694-4 of this chapter, relating to the extension of period of collection when a tax return preparer who prepared a return or claim for refund for tax pays 15 percent of a penalty for understatement of taxpayer’s liability and procedural matters relating to the investi- gation, assessment, and collection of the penalties under sections 6694(a) and (b), apply to a tax return preparer who pre- pared a return or claim for refund for tax under chapter 37 of the Code. (e) Applicability date. This section applies to returns and claims for refund filed, and advice provided, after [DATE OF PUBLICATION OF FINAL REGU- LATIONS IN THE FEDERAL REGIS- TER], and during taxable years ending after [DATE OF PUBLICATION OF FINAL REGULATIONS IN THE FED- ERAL REGISTER]. §58.6695-1 Other assessable penalties with respect to the preparation of tax returns or claims for refund for other persons. (a) In general. A person who is a tax return preparer of any return or claim for refund of tax under chapter 37 of the Internal Revenue Code (Code) may be subject to penalties for failure to furnish a copy to the taxpayer under section 6695(a) of the Code, failure to sign the return under section 6695(b), failure to furnish an identifying number under sec- tion 6695(c), failure to retain a copy or list under section 6695(d), failure to file a correct information return under sec- tion 6695(e), and endorsement or nego- tiation of a check under section 6695(f), in the manner stated in §1.6695-1 of this chapter. (b) Applicability date. This section applies to returns and claims for refund filed after [DATE OF PUBLICATION OF FINAL REGULATIONS IN THE FED- ERAL REGISTER], and during taxable years ending after [DATE OF PUBLICA- TION OF FINAL REGULATIONS IN THE FEDERAL REGISTER]. §58.6696-1 Claims for credit or refund by tax return preparers. (a) In general. The rules under §1.6696-1 of this chapter apply to claims for credit or refund by a tax return pre- parer who prepared a return or claim for credit or refund for tax under chapter 37 of the Internal Revenue Code. (b) Applicability date. This section applies to returns and claims for credit or refund filed, and advice provided, after [DATE OF PUBLICATION OF FINAL REGULATIONS IN THE FEDERAL REGISTER], and during taxable years ending after [DATE OF PUBLICATION OF FINAL REGULATIONS IN THE FEDERAL REGISTER]. Douglas W. O’Donnell, Deputy Commissioner for Services and Enforcement. (Filed by the Office of the Federal Register April 9, 2024, 4:15 p.m., and published in the issue of the Federal Register for April 12, 2024, 89 FR 25829) Bulletin No. 2024–20 i May 13, 2024 Definition of Terms Revenue rulings and revenue procedures (hereinafter referred to as “rulings”) that have an effect on previous rulings use the following defined terms to describe the effect: Amplified describes a situation where no change is being made in a prior pub- lished position, but the prior position is being extended to apply to a variation of the fact situation set forth therein. Thus, if an earlier ruling held that a principle applied to A, and the new ruling holds that the same principle also applies to B, the earlier ruling is amplified. (Compare with modified, below). Clarified is used in those instances where the language in a prior ruling is being made clear because the language has caused, or may cause, some confu- sion. It is not used where a position in a prior ruling is being changed. Distinguished describes a situation where a ruling mentions a previously pub- lished ruling and points out an essential difference between them. Modified is used where the substance of a previously published position is being changed. Thus, if a prior ruling held that a principle applied to A but not to B, and the new ruling holds that it applies to both A and B, the prior ruling is modified because it corrects a published position. (Compare with amplified and clarified, above). Obsoleted describes a previously pub- lished ruling that is not considered deter- minative with respect to future transactions. This term is most commonly used in a ruling that lists previously published rulings that are obsoleted because of changes in laws or regulations. A ruling may also be obsoleted because the substance has been included in regulations subsequently adopted. Revoked describes situations where the position in the previously published ruling is not correct and the correct position is being stated in a new ruling. Superseded describes a situation where the new ruling does nothing more than restate the substance and situation of a previously published ruling (or rulings). Thus, the term is used to republish under the 1986 Code and regulations the same position published under the 1939 Code and regulations. The term is also used when it is desired to republish in a single ruling a series of situations, names, etc., that were previously published over a period of time in separate rulings. If the new ruling does more than restate the sub- stance of a prior ruling, a combination of terms is used. For example, modified and superseded describes a situation where the substance of a previously published ruling is being changed in part and is continued without change in part and it is desired to restate the valid portion of the previously published ruling in a new ruling that is self contained. In this case, the previously published ruling is first modified and then, as modified, is superseded. Supplemented is used in situations in which a list, such as a list of the names of countries, is published in a ruling and that list is expanded by adding further names in subsequent rulings. After the original ruling has been supplemented several times, a new ruling may be published that includes the list in the original ruling and the additions, and supersedes all prior rul- ings in the series. Suspended is used in rare situations to show that the previous published rul- ings will not be applied pending some future action such as the issuance of new or amended regulations, the outcome of cases in litigation, or the outcome of a Service study. Abbreviations The following abbreviations in current use and formerly used will appear in material published in the Bulletin. A—Individual. Acq.—Acquiescence. B—Individual. BE—Beneficiary. BK—Bank. B.T.A.—Board of Tax Appeals. C—Individual. C.B.—Cumulative Bulletin. CFR—Code of Federal Regulations. CI—City. COOP—Cooperative. Ct.D. —Court Decision. CY—County. D—Decedent. DC—Dummy Corporation. DE—Donee. Del. Order—Delegation Order. DISC—Domestic International Sales Corporation. DR—Donor. E—Estate. EE—Employee. E.O.—Executive Order. ER—Employer. ERISA—Employee Retirement Income Security Act. EX—Executor. F—Fiduciary. FC—Foreign Country. FICA—Federal Insurance Contributions Act. FISC—Foreign International Sales Company. FPH—Foreign Personal Holding Company. F.R.—Federal Register. FUTA—Federal Unemployment Tax Act. FX—Foreign corporation. G.C.M.—Chief Counsel’s Memorandum. GE—Grantee. GP—General Partner. GR—Grantor. IC—Insurance Company. I.R.B.—Internal Revenue Bulletin. LE—Lessee. LP—Limited Partner. LR—Lessor. M—Minor. Nonacq.—Nonacquiescence. O—Organization. P—Parent Corporation. PHC—Personal Holding Company. PO—Possession of the U.S. PR—Partner. PRS—Partnership. PTE—Prohibited Transaction Exemption. Pub. L.—Public Law. REIT—Real Estate Investment Trust. Rev. Proc.—Revenue Procedure. Rev. Rul.—Revenue Ruling. S—Subsidiary. S.P.R.—Statement of Procedural Rules. Stat.—Statutes at Large. T—Target Corporation. T.C.—Tax Court. T.D.—Treasury Decision. TFE—Transferee. TFR—Transferor. T.I.R.—Technical Information Release. TP—Taxpayer. TR—Trust. TT—Trustee. U.S.C.—United States Code. X—Corporation. Y—Corporation. Z—Corporation. May 13, 2024 ii Bulletin No. 2024–20 Numerical Finding List 1 Bulletin 2024–20 Announcements: 2024-1, 2024-02 I.R.B. 363 2024-3, 2024-02 I.R.B. 364 2024-5, 2024-05 I.R.B. 635 2024-6, 2024-05 I.R.B. 635 2024-4, 2024-06 I.R.B. 665 2024-7, 2024-07 I.R.B. 673 2024-8, 2024-07 I.R.B. 674 2024-9, 2024-07 I.R.B. 675 2024-12, 2024-08 I.R.B. 676 2024-11, 2024-08 I.R.B. 683 2024-13, 2024-10 I.R.B. 710 2024-10, 2024-11 I.R.B. 711 2024-14, 2024-12 I.R.B. 719 2024-15, 2024-15 I.R.B. 876 2024-16, 2024-16 I.R.B. 909 2024-17, 2024-16 I.R.B. 932 2024-19, 2024-17 I.R.B. 950 2024-20, 2024-19 I.R.B. 1069 Notices: 2024-1, 2024-02 I.R.B. 314 2024-2, 2024-02 I.R.B. 316 2024-3, 2024-02 I.R.B. 338 2024-4, 2024-02 I.R.B. 343 2024-5, 2024-02 I.R.B. 347 2024-6, 2024-02 I.R.B. 348 2024-7, 2024-02 I.R.B. 355 2024-8, 2024-02 I.R.B. 356 2024-9, 2024-02 I.R.B. 358 2024-11, 2024-02 I.R.B. 360 2024-10, 2024-03 I.R.B. 406 2024-12, 2024-05 I.R.B. 616 2024-13, 2024-05 I.R.B. 618 2024-16, 2024-05 I.R.B. 622 2024-18, 2024-05 I.R.B. 625 2024-19, 2024-05 I.R.B. 627 2024-21, 2024-06 I.R.B. 659 2024-22, 2024-06 I.R.B. 662 2024-20, 2024-07 I.R.B. 668 2024-23, 2024-07 I.R.B. 672 2024-24, 2024-10 I.R.B. 707 2024-25, 2024-12 I.R.B. 712 2024-26, 2024-12 I.R.B. 713 2024-27, 2024-12 I.R.B. 715 2024-28, 2024-13 I.R.B. 720 2024-29, 2024-14 I.R.B. 751 2024-31, 2024-15 I.R.B. 869 2024-30, 2024-16 I.R.B. 878 2024-32, 2024-16 I.R.B. 897 2024-33, 2024-18 I.R.B. 959 2024-34, 2024-18 I.R.B. 960 2024-35, 2024-19 I.R.B. 1051 Proposed Regulations: REG-118492-23, 2024-02 I.R.B. 366 REG-107423-23, 2024-03 I.R.B. 411 REG-121010-17, 2024-05 I.R.B. 636 REG-101552-24, 2024-13 I.R.B. 741 REG-117631-23, 2024-14 I.R.B. 754 REG-108761-22, 2024-16 I.R.B. 933 REG-117542-22, 2024-16 I.R.B. 942 REG-123379-22, 2024-16 I.R.B. 952 REG-115710-22, 2024-20 I.R.B. 1070 REG-118499-23, 2024-20 I.R.B. 1167 Revenue Procedures: 2024-1, 2024-01 I.R.B. 1 2024-2, 2024-01 I.R.B. 119 2024-3, 2024-01 I.R.B. 143 2024-4, 2024-01 I.R.B. 160 2024-5, 2024-01 I.R.B. 262 2024-7, 2024-01 I.R.B. 303 2024-8, 2024-04 I.R.B. 479 2024-9, 2024-05 I.R.B. 628 2024-12, 2024-09 I.R.B. 677 2024-13, 2024-09 I.R.B. 678 2024-14, 2024-09 I.R.B. 682 2024-15, 2024-12 I.R.B. 717 2024-11, 2024-13 I.R.B. 721 2024-17, 2024-15 I.R.B. 873 2024-18, 2024-15 I.R.B. 874 2024-19, 2024-16 I.R.B. 899 2024-20, 2024-19 I.R.B. 1053 2024-21, 2024-19 I.R.B. 1054 Revenue Rulings: 2024-1, 2024-02 I.R.B. 307 2024-2, 2024-02 I.R.B. 311 2024-3, 2024-06 I.R.B. 646 2024-5, 2024-07 I.R.B. 666 2024-4, 2024-10 I.R.B. 686 2024-6, 2024-10 I.R.B. 688 2024-7, 2024-14 I.R.B. 749 2024-8, 2024-16 I.R.B. 877 2024-9, 2024-19 I.R.B. 964 Treasury Decisions: 9984, 2024-03 I.R.B. 386 9985, 2024-05 I.R.B. 573 9986, 2024-05 I.R.B. 610 9987, 2024-06 I.R.B. 648 9988, 2024-15 I.R.B. 794 9989, 2024-15 I.R.B. 850 9990, 2024-19 I.R.B. 966 1 A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2023–27 through 2023–52 is in Internal Revenue Bulletin 2023–52, dated December 26, 2023. Bulletin No. 2024–20 iii May 13, 2024 Finding List of Current Actions on Previously Published Items 1 Bulletin 2024–20 1 A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2023–27 through 2023–52 is in Internal Revenue Bulletin 2023–52, dated December 26, 2023. Internal Revenue Service Washington, DC 20224 Official Business Penalty for Private Use, $300 INTERNAL REVENUE BULLETIN The Introduction at the beginning of this issue describes the purpose and content of this publication. The weekly Internal Revenue Bulletins are available at www.irs.gov/irb/. We Welcome Comments About the Internal Revenue Bulletin If you have comments concerning the format or production of the Internal Revenue Bulletin or suggestions for improving it, we would be pleased to hear from you. You can email us your suggestions or comments through the IRS Internet Home Page www.irs.gov) or write to the Internal Revenue Service, Publishing Division, IRB Publishing Program Desk, 1111 Constitution Ave. NW, IR-6230 Washington, DC 20224.
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