The Proposed Regulations are relevant not only to U.S. publicly traded corporations but also to foreign publicly traded corporations whose stock is purchased by an "applicable specified affiliate" (defined below) or whose repurchases of their own stock are funded, or deemed to be funded, by such an affiliate. In addition to typical stock buybacks, the Proposed Regulations may also apply the Excise Tax to other types of transactions, including certain reorganization transactions.

The noteworthy proposed rules and changes from the Notice can be summarized as followed:

• The expansion of the Funding Rule (defined below), as previously set forth in the Notice, to expressly reference indirect fundings, thus greatly increasing the number of routine intercompany transactions that may count as fundings for purposes of that rule.
• The replacement of the Per Se Funding Rule (defined below) provided under the Notice with a rebuttable presumption that a funding occurred pursuant to a plan to avoid the Excise Tax, but only where an applicable specified affiliate of an applicable foreign corporation funds certain lower-tier entities that conduct a repurchase of the applicable foreign corporation's stock.
• Stock issued to specified affiliates is disregarded for purposes of the Netting Rule (defined below) until such affiliate disposes of the stock and certain other requirements are met.
• When stock is issued by both the acquiring and target corporations as part of a reorganization, generally only one of the corporations can claim a benefit under the Netting Rule.
• Distributions of certain "non-qualifying property" in exchange for stock pursuant to a spin-off or split-ups are generally subject to the Excise Tax.
• No special rules or exceptions are applicable to SPACs, and as such (i) the Excise Tax is anticipated to apply to repurchases by SPACs, and (ii) the Excise Tax will not apply to repurchases by a SPAC that occur in connection with a complete liquidation of a SPAC (even where not all shareholders of the SPAC receive property from the SPAC in connection with its liquidation).
• The first required Excise Tax filings and payment obligations will generally begin in the first full calendar quarter after the publication of final regulations.
• The addition of a constructive specified affiliate acquisition rule.

Taxpayers that are publicly traded corporations, both foreign and domestic, should carefully review the Proposed Regulations and assess any potential liability they may have under the Excise Tax. Although the Proposed Regulations are not yet in force, they can generally be relied upon for transactions occurring, and tax years ending, prior to the publication of final regulations. Moreover, if promulgated as temporary or final regulations in their current form, they generally would have retroactive effect to taxable periods ending after December 27, 2022, the date the Notice was issued to the public. Taxpayers may also consider submitting comments on the Proposed Regulations, which are due by June 11, 2024 with respect to the general application rules of the Excise Tax.

For a more detailed analysis of the Proposed Regulations, see our client alert.