Potential refund opportunity of buyback excise tax

Taxpayers who paid the stock repurchase excise tax based on prior guidance provided in Notice 2023-2 and the proposed regulations under Internal Revenue Code (IRC) § 4501 may be entitled to a refund based on changes made in the recently issued IRC § 4501 final regulations.

On November 21, 2025, the US Department of the Treasury (Treasury) and the Internal Revenue Service (IRS) issued final regulations under IRC § 4501, which took effect on November 24 and significantly narrowed the applicability of the stock repurchase excise tax compared to prior guidance provided in Notice 2023‑2 and the April 9, 2024, proposed regulations (collectively, the prior guidance). As a result, many transactions that were previously treated by the prior guidance as “repurchases” subject to the 1% stock repurchase excise tax are now no longer taxable. Taxpayers who paid the excise tax based on the prior guidance may be eligible for a refund.

The final regulations eliminated the prior guidance’s broad “funding rule,” which treated a US affiliate that was considered to have “funded” a foreign publicly traded parent (or its foreign affiliates), including via distributions or capital contributions, as having engaged in a covered stock repurchase. The final regulations also significantly narrowed the proposed regulations’ expansive treatment of transactions as “economically similar” to a stock repurchase by specifically excluding leveraged buyouts and other take-private transactions, complete liquidations, and tax-free acquisitive reorganizations under IRC § 368 from being subject to the excise tax. Moreover, the final regulations narrowed what qualifies as “stock” for IRC § 4501 purposes, specifically excluding certain preferred stock described in IRC § 1504(a)(4) (e.g., “plain vanilla” non-voting, non-participating preferred stock) and certain mandatorily redeemable or puttable stock issued before August 16, 2022 (i.e., the date of enactment of IRC § 4501).

The changes in the final regulations have potentially sweeping implications for taxpayers who paid the IRC § 4501 stock repurchase excise tax based on the prior guidance. The narrower scope of the applicability of stock repurchase excise tax under the final regulations creates a substantial opportunity to seek a refund of stock repurchase excise tax previously paid under the now-obsolete prior guidance.

To seek a refund, taxpayers should file Form 720-X, Amended Quarterly Federal Excise Tax Return, for each quarter they filed an original Form 720 reporting and paid the stock repurchase excise tax and attach a Form 7208 (with “Amended” at the top of each form) to each quarterly Form 720-X. Both Form 720-X and amended Form 7208 should be completed, and the excise tax recomputed, based on the final regulations. Because Form 720-X will serve as the taxpayer’s refund claim, it is critical that Form 720-X contains a detailed explanation of the legal basis for the adjustments to the original Forms 720 and 7208 to meet regulatory requirements imposed by the Treasury on refund claims. See Treas. Reg. § 301.6402-2 (setting forth the basic requirements for refund claims).

Taxpayers considering this refund opportunity should be aware that the statute of limitations deadline for filing a refund claim expires three years from the time the original Form 720 was filed or two years from the date on which payment was made – whichever is later (unless the statute of limitations period was otherwise extended).