Late last month, the Treasury Department announced that it won't be limiting the scope of a new tax on corporate stock buybacks, despite lobbyists' efforts. In its initial guidance, the department laid out broad rules for applying the new stock repurchase tax and a new alternative minimum tax for certain large corporations.
Thanks to the department's decision not to grant lobbyists' requests for carveouts, experts expect the buyback tax to raise more funding for the federal government. The Congressional Joint Committee on Taxation estimates that the buyback tax will yield $74 billion in revenue over the next ten years.
"Treasury and the I.R.S. could have written these regulations narrowly to apply only to paradigmatic buybacks - corporations repurchasing their own common stock on the open market," said New York University law professor Daniel Hemel. "Unhappily for Wall Street - but happily from a revenue perspective - Treasury chose to define the scope of the tax much more broadly."
The only concession officials made was regarding the liquidation of special purpose acquisition group (SPACs). After they form, SPACs have two years to buy a company. If a SPAC fails to find a company to buy, it has to return investors' money, functionally buying back their shares. This type of stock repurchase will not be covered by the buyback tax.
Along with the stock tax, the department's guidance also outlined a higher alternative minimum tax on large corporations that use deductions to reduce their effective federal tax burden below 15%. The guidance states which companies will have to pay the new tax, and which won't.
"Critically, it also gives smaller corporations an easy method for demonstrating that the new alternative minimum tax does not apply to them," reads a press release from Treasury officials.
The department wrote that businesses can follow this initial guidance until more detailed rules are provided sometime early next year.
Both of the regulation changes were key funding sources for the Inflation Reduction Act, signed into law by President Joe Biden in August. The legislation is meant to bring down the price of prescriptions for Medicare recipients and to reduce premiums on some Affordable Care Act insurance plans. The law also includes $370 billion in tax credits and other spending measures to boost the adoption of low-emission technologies.