The Inflation Reduction Act, P.L. 117-169, was signed into law on Aug. 16, 2022. The act included a new Sec. 4501 that imposes an excise tax on certain repurchases of stock by publicly traded corporations.

In general, and before considering exceptions, the amount of the excise tax is equal to 1% of (1) the aggregate fair market value (FMV) of stock repurchased by a corporation, over (2) the aggregate FMV of stock issued by the corporation, in each case, during the tax year. The excise tax applies to repurchases of stock by corporations beginning after Dec. 31, 2022. The excise tax is not deductible for purposes of computing U.S. federal income tax (Sec. 275(a)(6)).

The Inflation Reduction Act did not include any legislative history that describes the underlying policy for the excise tax. Based on prior draft legislation proposing an identical excise tax, the apparent policy is to disincentivize publicly traded corporations from using available cash to repurchase stock (including any savings resulting from the lowering of the U.S. federal corporate income tax rate to 21%), which may increase earnings per share and benefit corporate executives who have stock-based compensation as well as other shareholders (see, e.g., Press Release for Proposed Stock Buyback Accountability Act (Sept. 10, 2021); President Biden Announces the Build Back Better Framework (Oct. 28, 2021) (“[I]ncludes a 1% surcharge on corporate stock buybacks, which corporate executives too often use to enrich themselves rather than investing [in] workers and growing their businesses”)).