KPMG report: IRA stock buyback, practical considerations for retirement plans and equity-based compensation arrangements
Interplay between employer arrangements and the exemptions and/or adjustments related to the new stock buyback excise tax
Considerations for retirement plans and equity-based compensation arrangements
President Biden on August 16, 2022, signed into law H.R. 5376 (commonly called the “Inflation Reduction Act of 2022” (IRA), which introduced new section 4501, imposing a 1% excise tax on publicly traded U.S. corporations that repurchase corporate stock after December 31, 2022.
The excise tax is based on the fair market value of stock repurchased during a taxable year. The amount taken into account with respect to repurchased stock is reduced by the fair market value of any stock issued by the covered corporation during the entirety of its taxable year, including the fair market value of any stock issued or provided to employees of a covered corporation (or employees of a specified affiliate of such covered corporation), whether or not such stock is issued pursuant to the exercise of an option. In addition, there is an exemption for when the stock repurchased (or an amount of stock equal to the value to the repurchased stock) is contributed to an employer-sponsored retirement plan, employee stock ownership plan (ESOP), or similar plan, and another exemption where the amount of stock repurchased in a taxable year does not exceed $1 million.
Read a January 2023 report [PDF 652 KB] prepared by KPMG LLP that discusses notable planning considerations as well as unanswered questions regarding the interplay between employer arrangements and the exemptions and/or adjustments related to the new stock buyback excise tax.
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