Internal Revenue Bulletin 2025-51 (PDF rendition): IRS Announcements

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Bulletin No. 2025–51
December 15, 2025
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
ADMINISTRATIVE
REG-124791-11, page 852.
This document withdraws a notice of proposed rulemaking
regarding the eligibility of tax return preparers to obtain a
preparer tax identification number (PTIN).
EMPLOYEE PLANS
Notice 2025-73, page 845.
This notice sets forth updates on the corporate bond monthly
yield curve, the corresponding spot segment rates for Sep-
tember 2025 used under § 417(e)(3)(D), the 24-month aver-
age segment rates applicable for October 2025, and the
30-year Treasury rates, as reflected by the application of
§ 430(h)(2)(C)(iv).
Notice 2025-74, page 848.
This notice sets forth updates on the corporate bond
monthly yield curve, the corresponding spot segment rates
for October 2025 used under § 417(e)(3)(D), the 24-month
average segment rates applicable for November 2025, and
the 30-year Treasury rates, as reflected by the application of
§ 430(h)(2)(C)(iv).
ESTATE TAX
T.D. 10038, page 838.
This guidance contains a final rule relating to the imposition
of a user fee on authorized persons requesting the issuance
of IRS Letter 627, also referred to as an estate tax closing
letter. Pursuant to the guidelines in OMB Circular A-25, the
IRS has calculated its cost of providing the estate tax closing
letter to be $56. REG-107459-24
EXCISE TAX
T.D. 10037, page 788.
Section 10201 of Public Law 117-169, 136 Stat. 1818
(August 16, 2022), commonly referred to as the Inflation
Reduction Act of 2022, enacted section 4501 of the Internal
Revenue Code. Section 4501 imposes a one percent excise
tax on repurchases of stock of a publicly traded corpora-
tion. These final regulations under subpart A of part 58 con-
tain operative rules that provide further clarity regarding the
application of the excise tax to corporations that repurchase
their stock.
EXEMPT ORGANIZATIONS
Announcement 2025-27, page 851.
Revocation of IRC 501(c)(3) Organizations for failure to meet
the code section requirements. Contributions made to the
organizations by individual donors are no longer deductible
under IRC 170(b)(1)(A).
INCOME TAX
Notice 2025-72, page 840.
This notice describes proposed regulations that Treasury and
the IRS intend to issue under section 70352(c)(1)(C) of Public
Law 119-21, 139. Stat. 72 (July 4, 2025), commonly known
as the One, Big, Beautiful Bill Act (OBBBA), providing for the
allocation of foreign taxes of foreign corporations affected by
the repeal of section 898(c)(2). This notice also announces
that Treasury and the IRS intend to issue proposed regula-
tions under section 987 that would modify the election to
recognize pretransition section 987 gain or loss ratably over
the transition period pursuant to §1.987-10(e)(5)(ii)(A).
Finding Lists begin on page ii.

The IRS Mission
Provide America’s taxpayers top-quality service by helping
them understand and meet their tax responsibilities and
enforce the law with integrity and fairness to all.
Introduction
The Internal Revenue Bulletin is the authoritative instrument
of the Commissioner of Internal Revenue for announcing offi-
cial rulings and procedures of the Internal Revenue Service
and for publishing Treasury Decisions, Executive Orders, Tax
Conventions, legislation, court decisions, and other items of
general interest. It is published weekly.
It is the policy of the Service to publish in the Bulletin all sub-
stantive rulings necessary to promote a uniform application
of the tax laws, including all rulings that supersede, revoke,
modify, or amend any of those previously published in the
Bulletin. All published rulings apply retroactively unless other-
wise indicated. Procedures relating solely to matters of inter-
nal management are not published; however, statements of
internal practices and procedures that affect the rights and
duties of taxpayers are published.
Revenue rulings represent the conclusions of the Service
on the application of the law to the pivotal facts stated in
the revenue ruling. In those based on positions taken in rul-
ings to taxpayers or technical advice to Service field offices,
identifying details and information of a confidential nature are
deleted to prevent unwarranted invasions of privacy and to
comply with statutory requirements.
Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be
relied on, used, or cited as precedents by Service personnel in
the disposition of other cases. In applying published rulings and
procedures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be considered,
and Service personnel and others concerned are cautioned
against reaching the same conclusions in other cases unless
the facts and circumstances are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—1986 Code.
This part includes rulings and decisions based on provisions
of the Internal Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions and Other Related Items, and Subpart B,
Legislation and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative
Rulings. Bank Secrecy Act Administrative Rulings are issued
by the Department of the Treasury’s Office of the Assistant
Secretary (Enforcement).
Part IV.—Items of General Interest.
This part includes notices of proposed rulemakings, disbar-
ment and suspension lists, and announcements.
The last Bulletin for each month includes a cumulative index
for the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the last Bulletin of each semiannual period.
The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
December 15, 2025 Bulletin No. 2025–51

Part I
26 CFR §§58.4501-1, 58.4501-2, 58.4501-3,
58.4501-4, 58.4501-5, 58.4501-6, and 58.4501-7
T.D. 10037
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Parts 1 and 58
Excise Tax on Repurchase
of Corporate Stock
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations.
SUMMARY: This document contains
final regulations that provide guidance
regarding the application of the excise tax
on repurchases of corporate stock made
after December 31, 2022. The regulations
affect certain publicly traded corporations
that repurchase their stock or whose stock
is acquired by certain specified affiliates.
DATES: Effective date: The final regula-
tions are effective on November 24, 2025.
Applicability dates: For dates of appli-
cability, see §§1.1275-6(f)(12)(iii)(B),
58.4501-6, 58.4501-7(r), and 58.6011-1(d).
FOR FURTHER INFORMATION
CONTACT: Concerning §58.4501-7,
Brittany N. Dobi of the Office of Associ-
ate Chief Counsel (International) at (202)
317-5469 (not a toll-free number). For all
other issues, Kailee H. Hock of the Office
of Associate Chief Counsel (Corporate) at
(202) 317-3181 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Authority
This document contains final regula-
tions under sections 1275, 4501, and 6011
of the Internal Revenue Code (Code).
These regulations would amend 26 CFR
parts 1 (Income Tax Regulations) and 58
(Stock Repurchase Excise Tax Regula-
tions) by providing guidance regarding
the application of the excise tax on repur-
chases of corporate stock (stock repur-
chase excise tax) enacted as section 10201
of Public Law 117-169, 136 Stat. 1818
(August 16, 2022), commonly referred
to as the Inflation Reduction Act of 2022
(IRA). The additions and amendments to
the Income Tax Regulations and Stock
Repurchase Excise Tax Regulations are
issued pursuant to the express delega-
tions of authority to the Secretary of the
Treasury or the Secretary’s delegate (Sec-
retary) provided under sections 1275(d),
4501(f), and 7805(a) of the Code.
Section 1275(d) states that the Secre-
tary may prescribe regulations providing
that where, by reason of varying rates
of interest, put or call options, indefinite
maturities, contingent payments, assump-
tions of debt instruments, or other circum-
stances, the tax treatment under sections
1271 through 1275 or section 163(e) of
the Code does not carry out the purposes
of those sections, “such treatment shall be
modified to the extent appropriate to carry
out the purposes of” those sections.
Section 4501(f) states that “[t]he Sec-
retary shall prescribe such regulations and
other guidance as are necessary or appropri-
ate to carry out, and to prevent the avoidance
of, the purposes of [section 4501],” includ-
ing regulations or other guidance (i) to pre-
vent the abuse of the statutory exceptions
provided by section 4501(e), (ii) to address
special classes of stock and preferred stock,
and (iii) for the application of the special
rules for acquisitions of stock of certain for-
eign corporations under section 4501(d).
Section 7805(a) authorizes the Sec-
retary to “prescribe all needful rules and
regulations for the enforcement of [the
Code], including all rules and regulations
as may be necessary by reason of any
alteration of law in relation to internal
revenue.”
Background
I. Overview of Section 4501
A. In general
Section 4501 was added to a new chap-
ter 37 of the Code. Section 4501 imposes
on each covered corporation an excise tax
(that is, the stock repurchase excise tax)
on repurchases of corporate stock made
after December 31, 2022. Under section
4501(a), the stock repurchase excise tax
is equal to one percent of the fair market
value of any stock of the covered corpora-
tion that is repurchased by the corporation
during the taxable year. Section 4501(b)
defines the term “covered corporation” to
mean any domestic corporation the stock
of which is traded on an established secu-
rities market (within the meaning of sec-
tion 7704(b)(1) of the Code).
Section 4501(c)(1) provides that, for
purposes of section 4501, a “repurchase”
includes (1) a redemption within the
meaning of section 317(b) of the Code
with regard to the stock of a covered cor-
poration (section 317(b) redemption),
and (2) any transaction determined by the
Secretary to be economically similar to a
section 317(b) redemption (economically
similar transaction).
B. Specified affiliates
Section 4501(c)(2)(A) treats the acqui-
sition of stock of a covered corporation by
a specified affiliate of the covered corpo-
ration, from a person who is not the cov-
ered corporation or a specified affiliate of
the covered corporation, as a repurchase
of stock of the covered corporation by the
covered corporation. Section 4501(c)(2)
(B) defines the term “specified affiliate”
to mean, with regard to any corporation,
(i) any corporation more than 50 percent
of the stock of which is owned (by vote
or by value), directly or indirectly, by the
corporation, and (ii) any partnership more
than 50 percent of the capital interests or
profits interests of which is held, directly
or indirectly, by the corporation.
C. Adjustment to amount taken into
account under section 4501(a)
The stock repurchase excise tax is
applied to the fair market value of any
stock of the covered corporation repur-
chased by the covered corporation during
its taxable year. However, the “netting
rule” of section 4501(c)(3) provides that
the amount taken into account under sec-
December 15, 2025 788 Bulletin No. 2025–51

tion 4501(a) with respect to any stock
repurchased by a covered corporation is
reduced by the fair market value of any
stock issued by the covered corporation
during the taxable year, including the fair
market value of any stock issued or pro-
vided to employees of the covered corpo-
ration or employees of a specified affili-
ate of the covered corporation during the
taxable year (whether or not the stock
is issued or provided in response to the
exercise of an option to purchase the
stock).
D. Special rules for certain acquisitions
and repurchases of stock of certain
foreign corporations
Section 4501(d) provides special rules
for the imposition of the stock repurchase
excise tax on acquisitions of stock of appli-
cable foreign corporations and covered
surrogate foreign corporations. Under sec-
tion 4501(d)(3)(A), the term “applicable
foreign corporation” means any foreign
corporation the stock of which is traded
on an established securities market. Under
section 4501(d)(3)(B), the term “covered
surrogate foreign corporation” means any
surrogate foreign corporation (as deter-
mined under section 7874(a)(2)(B) of
the Code by substituting “September 20,
2021” for “March 4, 2003” each place it
appears) the stock of which is traded on
an established securities market, but only
with respect to taxable years that include
any portion of the applicable period with
respect to that corporation under section
7874(d)(1).
Section 4501(d)(1) applies in the case
of an acquisition of stock of an applicable
foreign corporation by a specified affil-
iate of the corporation (other than a for-
eign corporation or a foreign partnership
(unless the partnership has a domestic
entity as a direct or indirect partner)) from
a person that is not the applicable foreign
corporation or a specified affiliate of the
applicable foreign corporation. If section
4501(d)(1) applies, then for purposes of
determining the stock repurchase excise
tax: (i) the specified affiliate is treated as
a covered corporation with respect to the
acquisition; (ii) the acquisition is treated
as a repurchase of stock of a covered cor-
poration by the covered corporation; and
(iii) the adjustment under the netting rule
of section 4501(c)(3) is determined only
with respect to stock issued or provided by
the specified affiliate to employees of the
specified affiliate.
Section 4501(d)(2) applies in the case
of either a repurchase of stock of a cov-
ered surrogate foreign corporation by the
covered surrogate foreign corporation, or
an acquisition of stock of a covered sur-
rogate foreign corporation by a specified
affiliate of such corporation. If section
4501(d)(2) applies, then for purposes of
determining the stock repurchase excise
tax: (i) the expatriated entity (within the
meaning of section 7874(a)(2)(A)) with
respect to the covered surrogate foreign
corporation is treated as a covered cor-
poration with respect to the repurchase or
acquisition; (ii) the repurchase or acqui-
sition is treated as a repurchase of stock
of a covered corporation by the covered
corporation; and (iii) the adjustment under
section 4501(c)(3) is determined only
with respect to stock issued or provided
by the expatriated entity to employees of
the expatriated entity.
E. Statutory exceptions to the application
of section 4501(a)
Section 4501(e) lists six transactions
that are statutorily excepted, in whole
or in part, from the application of sec-
tion 4501(a) to a repurchase of a covered
corporation’s stock. These exceptions,
each of which is referred to as a “statutory
exception” in this preamble, are:
(1) To the extent that the repurchase is
part of a reorganization (within the mean-
ing of section 368(a) of the Code) and no
gain or loss is recognized on the repur-
chase by the shareholder under chapter 1
of the Code (chapter 1) by reason of the
reorganization (section 4501(e)(1));
(2) In any case in which the stock
repurchased, or an amount of stock equal
to the value of the stock repurchased, is
contributed to an employer-sponsored
retirement plan, employee stock owner-
ship plan (ESOP), or similar plan (section
4501(e)(2));
(3) In any case in which the total value
of the stock repurchased during the taxable
year does not exceed $1,000,000 (section
4501(e)(3)) (de minimis exception);
(4) Under regulations prescribed by the
Secretary, in cases in which the repurchase
is by a dealer in securities in the ordinary
course of business (section 4501(e)(4));
(5) By a regulated investment company
(RIC), as defined in section 851 of the
Code, or by a real estate investment trust
(REIT), as defined in section 856(a) of the
Code (section 4501(e)(5)); or
(6) To the extent that the repurchase is
treated as a dividend for purposes of the
Code (section 4501(e)(6)).
II. Prior Guidance
On January 17, 2023, the Department
of the Treasury (Treasury Department)
and the IRS published Notice 2023-2,
2023-3 I.R.B. 374, to provide initial guid-
ance regarding the application of the stock
repurchase excise tax. On July 24, 2023,
the Treasury Department and the IRS
published Announcement 2023-18, 2023-
30 I.R.B. 366, announcing that taxpayers
would not be required to report the stock
repurchase excise tax, or to make any pay-
ments of the tax, before the time specified
in forthcoming regulations.
On April 12, 2024, the Treasury
Department and the IRS published a
notice of proposed rulemaking (REG-
115710-22) in the Federal Register
(89 FR 25980) proposing to add a new
part 58 to 26 CFR chapter I and provid-
ing proposed regulations in subpart A
thereof that would implement the stock
repurchase excise tax for repurchases
made after December 31, 2022 (pro-
posed computational regulations). On
April 12, 2024, the Treasury Department
and the IRS also published a separate
notice of proposed rulemaking (REG-
118499-23) in the same issue of the
Federal Register (89 FR 25829) provid-
ing proposed regulations in subpart B
of proposed 26 CFR part 58 regarding
the reporting and payment of the stock
repurchase excise tax (proposed pro-
cedural regulations). After taking into
account comments received on the pro-
posed procedural regulations, the Trea-
sury Department and the IRS published
final regulations (TD 10002) in the Fed-
eral Register (89 FR 55045) on July
3, 2024 (final procedural regulations)
adopting the proposed procedural regu-
lations with modifications as subpart B
of 26 CFR part 58 (Stock Repurchase
Excise Tax Regulations).
Bulletin No. 2025–51 789 December 15, 2025

December 15, 2025 790 Bulletin No. 2025–51
A public hearing regarding the pro-
posed computational regulations was held
on August 27, 2024. As described in the
Summary of Comments and Explanation
of Revisions, this Treasury decision adopts
the proposed computational regulations,
with modifications in response to the
comments received at the public hearing
as well as additional written comments, as
subpart A of the Stock Repurchase Excise
Tax Regulations and amends the final pro-
cedural regulations under section 6011 in
subpart B of the Stock Repurchase Excise
Tax Regulations. This Treasury decision
also amends the Income Tax Regulations
under section 1275 by adopting proposed
§1.1275-6(f)(12)(iii) without substantive
modification.
Summary of Comments and
Explanation of Revisions
I. Application of the Stock Repurchase
Excise Tax to Various Types of Stock
Proposed §58.4501-1(b)(29)(i) gener-
ally would define “stock” as any instru-
ment issued by a corporation that is stock
or that is treated as stock for Federal tax
purposes at the time of issuance, regard-
less of whether the instrument is traded
on an established securities market.
However, proposed §58.4501-1(b)(29)
(ii) would exclude from the definition of
“stock” preferred stock that (i) qualifies
as additional tier 1 capital (within the
meaning of 12 CFR 3.20(c), 217.20(c),
or 324.20(c)), and (ii) does not qualify as
common equity tier 1 capital (within the
meaning of 12 CFR 3.20(b), 217.20(b),
or 324.20(b)) (additional tier 1 preferred
stock). The proposed computational reg-
ulations otherwise would apply the stock
repurchase excise tax to preferred stock
(including preferred stock issued prior
to the enactment date of the IRA) that is
treated as “stock” for Federal tax purposes
in the same manner as to common stock.
A. Preferred stock generally; section
1504(a)(4) preferred stock
Several commenters recommended
excluding redemptions of all preferred
stock from the application of the stock
repurchase excise tax. The commenters
contended that, although preferred stock is
treated as “stock” for Federal tax purposes,
applying the stock repurchase excise tax
to repurchases of such stock would con-
travene congressional intent that the tax
apply solely to repurchases of common
stock. Commenters further contended that
(i) because repurchases of preferred stock
(particularly “plain vanilla” preferred
stock described in section 1504(a)(4) of
the Code) are more akin to repaying debt,
repurchases of such stock do not implicate
the policy concerns underlying the stock
repurchase excise tax, and (ii) if redemp-
tions of preferred stock were subject to
the stock repurchase excise tax, publicly
traded corporations might be incentivized
to increase their leverage by issuing debt
in lieu of preferred stock. Commenters
also contended that the grant of author-
ity in section 4501(f) to address spe-
cial classes of stock and preferred stock
essentially directs (or, at the very least, is
a statement of congressional intent) that
the Secretary issue regulations excluding
preferred stock from the stock repurchase
excise tax.
The plain language of the definitions
and operative rules in section 4501 does
not differentiate between common stock
and preferred stock, and a repurchase of
preferred stock is a “redemption” within
the meaning of section 317(b). Addition-
ally, the grant of regulatory authority
in section 4501(f) is neither a mandate
to exclude all preferred stock from the
stock repurchase excise tax nor an indica-
tion that Congress intended the Treasury
Department and the IRS to provide such an
exclusion in regulations. If Congress had
intended to exclude all preferred stock,
it would have so provided in the statute.
Accordingly, these final regulations do not
exclude all preferred stock from the stock
repurchase excise tax.
However, the Treasury Department
and the IRS agree that preferred stock
described in section 1504(a)(4) is more
akin to debt. Accordingly, the Treasury
Department and the IRS do not view
repurchases of such stock as implicating
the policy concerns underlying the stock
repurchase excise tax. Consequently,
these final regulations provide that repur-
chases of preferred stock described in sec-
tion 1504(a)(4) are not subject to the stock
repurchase excise tax. See §58.4501-1(b)
(34)(iii) (excluding section 1504(a)(4)
stock from the definition of “stock” for
purposes of the stock repurchase excise
tax regulations). As discussed in the
remainder of this part I of the Summary of
Comments and Explanation of Revisions,
these final regulations also provide addi-
tional exceptions for special classes of
stock and for certain preferred stock under
the grant of authority in section 4501(f).
B. Mandatorily redeemable stock; stock
issued prior to enactment of the IRA
Several commenters recommended
that, if the final regulations do not gen-
erally exclude preferred stock from the
stock repurchase excise tax, the final reg-
ulations should provide (i) an additional
exception for mandatorily redeemable
preferred stock, or (ii) transition relief
for repurchases of preferred stock issued
prior to the date of enactment of the IRA
(that is, August 16, 2022). One com-
menter recommended excluding all man-
datorily redeemable preferred stock from
application of the stock repurchase excise
tax. Another commenter recommended
transition relief for all types of preferred
stock issued prior to the date of enact-
ment of the IRA. Still other commenters
recommended limiting transition relief to
(i) mandatorily redeemable stock (or at
least mandatorily redeemable preferred
stock), and (ii) stock subject by its terms
to unilateral put options of the holders,
if such stock was outstanding as of the
date of enactment of the IRA. According
to the commenters, the requested relief is
appropriate because (i) absent such relief,
previously established economic entitle-
ments will be undermined, (ii) covered
corporations are required to repurchase
mandatorily redeemable stock, and (iii)
mandatorily redeemable preferred stock
may resemble other instruments treated as
debt for tax purposes.
The Treasury Department and the IRS
agree that transition relief is appropriate
for certain types of stock issued prior to
the date of enactment of the IRA if the
covered corporation no longer has discre-
tion as to whether to repurchase such stock
after that date. Accordingly, these final
regulations incorporate transition relief
for mandatorily redeemable stock and for
stock subject by its terms to a unilateral
put option of the holder, if such stock was

Bulletin No. 2025–51 791 December 15, 2025
outstanding prior to August 16, 2022. See
§58.4501-2(e)(3)(iii).
C. Additional tier 1 preferred stock
As previously discussed in this part I
of the Summary of Comments and Expla-
nation of Revisions, proposed §58.4501-
1(b)(29)(ii) would exclude certain addi-
tional tier 1 preferred stock from the
definition of “stock” for purposes of the
stock repurchase excise tax. The proposed
computational regulations would define
“additional tier 1 preferred stock” to mean
preferred stock that qualifies as additional
tier 1 capital (within the meaning of 12
CFR 3.20(c), 217.20(c), or 324.20(c))
and does not qualify as common equity
tier 1 capital (within the meaning of 12
CFR 3.20(b), 217.20(b), or 324.20(b)).
Consequently, under the proposed compu-
tational regulations, additional tier 1 pre-
ferred stock described in those regulations
would not be subject to the stock repur-
chase excise tax, and the issuance of that
additional tier 1 preferred stock would not
be taken into account for purposes of the
netting rule.
1. Farm Credit System Stock; Savings
and Loan Holding Companies with
Significant Insurance Operations
Commenters recommended expanding
the definition of “additional tier 1 pre-
ferred stock” to include preferred stock
issued by cooperative banks, agricultural
credit associations, Federal land credit
associations, and production credit associ-
ations in the Farm Credit System, which
are collectively referred to as “system enti-
ties.” According to the commenters, sys-
tem entities are chartered under the Farm
Credit Act of 1971 (Public Law 92-181,
85 Stat. 583) and subject to regulation and
oversight by the Farm Credit Administra-
tion (FCA). For example, according to the
commenters, system entities are subject
to regulatory capital requirements pre-
scribed by the FCA and issue and redeem
preferred stock governed by 12 CFR
628.20(c) to meet these regulatory capital
requirements.
The commenters also noted that,
although the stock of cooperatives that are
system entities generally is not publicly
traded, the preferred stock of such entities
occasionally is traded over the counter
(OTC), and such trades are reported on the
Financial Industry Regulatory Authority
OTC Reporting Facility (ORF). The com-
menters further noted that the U.S. Securi-
ties and Exchange Commission (SEC) has
designated the ORF as a qualifying elec-
tronic quotation system for purposes of
the penny stock rules and as an automated
interdealer quotation system for purposes
of the definition of “penny stock” under
17 CFR 240.3a51-1. Accordingly, the
commenters noted that the ORF poten-
tially could qualify as an “established
securities market” as defined in proposed
§58.4501-1(b)(13).
Another commenter noted that the
capital adequacy rules for qualifying pre-
ferred stock as additional tier 1 capital
are functionally the same for bank hold-
ing companies as for savings and loan
holding companies with significant insur-
ance operations (savings and loan hold-
ing companies). Additional tier 1 capital
requirements for savings and loan hold-
ing companies are described in 12 CFR
217.608. The commenter requested that
preferred stock qualifying as additional
tier 1 capital issued by savings and loan
holding companies be included in the
definition of “additional tier 1 preferred
stock.”
According to the commenters, the pre-
ferred stock issued by system entities and
governed by 12 CFR 628.20(c), as well as
the preferred stock issued by savings and
loan holding companies and governed by
12 CFR 217.608, have the same require-
ments and restrictions as the additional
tier 1 preferred stock governed by 12 CFR
3.20(c), 217.20(c), and 324.20(c). Spe-
cifically, the system entity and the sav-
ings and loan holding company may not
redeem or repurchase the preferred stock
without prior approval from the FCA or
the Board of Governors of the Federal
Reserve System (Board), respectively.
Moreover, if such preferred stock is call-
able by its terms, (i) it may not be called
for at least five years, (ii) the system entity
or the savings and loan holding company
must receive prior approval from the FCA
or the Board, respectively, to exercise the
call option, and (iii) the system entity or
the savings and loan holding company
either must replace the instrument with
other tier 1 capital or demonstrate to the
FCA or the Board, respectively, that it will
continue to hold capital commensurate
with risk.
The Treasury Department and the
IRS agree with the commenters that the
requirements and restrictions for cer-
tain stock issued by system entities and
savings and loan holding companies are
similar to the requirements and restric-
tions for additional tier 1 preferred stock
governed by 12 CFR 3.20(c), 217.20(c),
and 324.20(c). Accordingly, these final
regulations provide an exception to the
stock repurchase excise tax for stock of
system entities that qualifies as additional
tier 1 preferred stock that is not common
equity tier 1 capital, as well as for stock
of savings and loan holding companies
that qualifies as additional tier 1 preferred
stock that is not common equity tier 1 cap-
ital. See §58.4501-1(b)(34)(ii).
2. Foreign Additional Tier 1 Preferred
Stock
Another commenter recommended
expanding the definition of “additional
tier 1 preferred stock” to include instru-
ments issued by foreign-parented banks
that issue additional tier 1 capital pursuant
to their own local rules implementing the
Basel III Accord. According to the com-
menter, the Basel III Accord established
numerous requirements that an instru-
ment must meet to qualify as additional
tier 1 capital, including that: (i) the issuer
must obtain supervisory approval prior
to repurchasing or redeeming the instru-
ment; (ii) the instrument may be callable
only after a minimum of five years; and
(iii) the issuer may not exercise a call
option unless it either (A) replaces the
called instrument with capital of the same
or better quality, or (B) demonstrates that
its capital position is well above the min-
imum capital requirements after the call
option is exercised. See Basel Commit-
tee on Banking Supervision, Basel III: A
Global Regulatory Framework for More
Resilient Banks and Banking Systems, at
16 (rev. June 2011). The commenter noted
that such requirements are reflected in the
framework for the rules and regulations
adopted by the United States with respect
to an instrument’s qualification as addi-
tional tier 1 capital under 12 CFR 3.20(c),
217.20(c), and 324.20(c).

December 15, 2025 792 Bulletin No. 2025–51
These final regulations do not
include an exception for additional tier
1 preferred stock of a foreign issuer. As
described in part VIII.B of this Summary
of Comments and Explanation of Revi-
sions, these final regulations do not adopt
the proposed funding rule. Moreover, the
commenter did not identify any regula-
tory reason why an applicable specified
affiliate would acquire additional tier 1
preferred stock of a foreign parent. By
contrast, it is common for a U.S. issuer
of additional tier 1 preferred stock to
repurchase or redeem its stock in order
to manage its compliance with U.S. reg-
ulatory rules. Accordingly, the reasons
for providing an exception for U.S. addi-
tional tier 1 preferred stock do not apply
to additional tier 1 preferred stock of a
foreign issuer.
II. Becoming or Ceasing to Be a Covered
Corporation
Under the proposed computational reg-
ulations, a corporation generally would be
treated as (i) becoming a covered corpora-
tion at the beginning of the date on which
its stock begins to be traded on an estab-
lished securities market (initiation date),
and (ii) ceasing to be a covered corpora-
tion at the end of the date on which all of
its stock ceases to be traded on an estab-
lished securities market (cessation date).
See proposed §§58.4501-1(b)(3) and (16)
and 58.4501-2(d)(1) and (d)(2)(i). Pro-
posed §58.4501-4(b)(2) would provide
that stock issued by a covered corporation
or provided by a specified affiliate before
the initiation date or after the cessation
date is not taken into account in comput-
ing the covered corporation’s stock repur-
chase excise tax base.
However, proposed §58.4501-2(d)
(2)(ii) would provide an exception for
certain repurchases after the cessation
date. Under this exception, if a corpora-
tion ceased to be a covered corporation
pursuant to a plan that included a repur-
chase, and if the cessation date preceded
the date of any repurchase undertaken
pursuant to the plan, the corporation
would continue to be a covered corpo-
ration with regard to each repurchase
pursuant to the plan until the end of the
date of the last repurchase pursuant to
the plan. For example, all repurchases
of target covered corporation stock in an
acquisitive reorganization pursuant to the
plan of reorganization would be subject
to the stock repurchase excise tax (if no
exception applied), even if all the target
covered corporation’s stock ceased to be
traded on an established securities mar-
ket prior to the last repurchase made pur-
suant to the plan of reorganization.
One commenter recommended nar-
rowly tailoring this exception to apply
only in situations in which (i) there is a
binding commitment to execute a series
of steps that include a cessation date and
a repurchase, (ii) the repurchase and ces-
sation of publicly traded status are part
of the same series of steps, and (iii) the
repurchase relates to the shares outstand-
ing at the time the covered corporation
entered into the plan. Commenters also
recommended expanding the exception
to include issuances that occur as a part
of a “take private” plan for purposes of
the netting rule. For example, one com-
menter noted that certain “take private”
transactions are structured to include
both issuances to new shareholders and
repurchases from other shareholders, and
that the timing of the issuances may not
always precede the date that a corporation
ceases to have stock that is traded on an
established securities market. The com-
menter recommended that, if a corpora-
tion continues to be treated as a covered
corporation after the cessation date, its
status as a covered corporation should be
respected for both repurchases and issu-
ances. A commenter also recommended
clarifying whether a corporation is treated
as a covered corporation until the date of
the final repurchase (i) only for purposes
of repurchases made pursuant to the plan,
or (ii) for all purposes.
These final regulations do not include
an exception for certain repurchases after
the cessation date because, as discussed
in parts III and IV.C of this Summary of
Comments and Explanation of Revisions,
the Treasury Department and the IRS
have concluded that section 4501 does
not apply to “take private” transactions
(including but not limited to acquisitive
reorganizations). See §58.4501-2(e)(3)
(ii) and (e)(5)(v). For the same reason,
these final regulations do not provide an
exception for issuances after the cessa-
tion date.
III. Target-Sourced Cash in Take-Private
Transactions
Under the proposed computational
regulations, unless an exception applies,
the target-corporation-funded portion of
the consideration in a leveraged buyout
or other “take private” transaction would
be treated as a repurchase for purposes of
computing the target corporation’s stock
repurchase excise tax base. See proposed
§58.4501-2(e)(2); see also Rev. Rul.
78-250, 1978-1 C.B. 83 (disregarding the
creation and merger of a transitory cor-
poration into an existing corporation and
treating the cashing out of the existing
corporation’s minority shareholders as a
redemption subject to section 302).
To determine the target-corpora-
tion-funded portion of the consideration
used to pay shareholders in such trans-
actions, one commenter recommended
against applying a tracing rule and,
instead, recommended a rule treating cash
on a target corporation’s balance sheet or
cash borrowed by the target corporation
as being used to satisfy the target corpo-
ration’s liabilities in order of seniority
(similar to the priority of claims on a cor-
poration’s assets in an insolvency or bank-
ruptcy under title 11 of the U.S. Code)
before being distributed to its sharehold-
ers. Under this approach, cash on the target
corporation’s balance sheet or borrowed at
the target corporation level would not be
treated as resulting in a repurchase to the
extent there were transaction expenses,
accrued cash amounts owed to employees,
or target corporation debt that was being
repaid, as any of these liabilities would be
senior to shareholders’ rights to payment.
In a prior comment received with
respect to Notice 2023-2, a stakeholder
also contended that taxable acquisitions
generally should not be subject to the
stock repurchase excise tax because, like
other M&A transactions, taxable acquisi-
tions generally do not bear the traditional
hallmarks of conventional, often oppor-
tunistic stock repurchase transactions
and programs that, in the stakeholder’s
view, were the intended target of the stock
repurchase excise tax. In other words, tax-
able acquisitions are not single-company
transactions that distribute corporate value
to shareholders in exchange for the sur-
render of corporate stock.

Bulletin No. 2025–51 793 December 15, 2025
The Treasury Department and the IRS
agree with the commenter that Congress
generally did not intend for the stock
repurchase excise tax to apply to transac-
tions, such as leveraged buyouts and other
“take private” transactions, that funda-
mentally restructure corporate ownership
or control through combinations of sepa-
rate business entities. Accordingly, these
final regulations provide that redemptions
by a covered corporation that occur as
part of a transaction in which the covered
corporation ceases to be a covered corpo-
ration are not treated as repurchases for
purposes of the stock repurchase excise
tax. See §58.4501-2(e)(3)(ii). Because the
Treasury Department and the IRS have
concluded that since section 4501 does
not apply to transactions that fundamen-
tally restructure corporate ownership or
control through combinations or separate
business entities, the Treasury Department
and the IRS have determined that it is not
necessary for these final regulations to
address how to determine the target-cor-
poration-funded portion of the consider-
ation in such transactions.
IV. Economically Similar Transactions
Consistent with section 4501(c)(1),
proposed §58.4501-2(e)(2) would define
a “repurchase” to mean solely (i) a sec-
tion 317(b) redemption (unless otherwise
excluded under proposed §58.4501-2(e)
(3)), or (ii) an economically similar trans-
action. Proposed §58.4501-2(e)(4) would
provide an exclusive list of transactions
that are economically similar transactions,
including: (i) an acquisitive reorganization
under section 368(a)(1)(A) (including by
reason of section 368(a)(2)(D) and (E)),
section 368(a)(1)(C), or section 368(a)(1)
(D) or (G) (if the reorganization satisfies
the requirements of section 354(b)(1) of
the Code) in which the target corporation
is a covered corporation; (ii) a reorganiza-
tion under section 368(a)(1)(E) (E reorga-
nization) in which the recapitalizing cor-
poration is a covered corporation; (iii) a
reorganization under section 368(a)(1)(F)
(F reorganization) in which the transferor
corporation is a covered corporation; (iv)
a split-off under section 355 of the Code
by a distributing corporation that is a
covered corporation; (v) a distribution to
which section 331 of the Code applies if
the distribution is part of a complete liqui-
dation of a covered corporation to which
both sections 331 and 332(a) of the Code
apply; and (vi) certain forfeitures and
clawbacks of stock of a covered corpora-
tion.
A. List of economically similar
transactions
Several commenters recommended
that any transactions added to the exclu-
sive list of economically similar transac-
tions in future guidance should be subject
to the stock repurchase excise tax only on
a prospective basis, in order to provide
clarity and certainty.
As stated in the preamble to the pro-
posed computational regulations, the
Treasury Department and the IRS antici-
pate that most transactions treated as eco-
nomically similar transactions in future
regulations would be treated as such only
on a prospective basis. See section 7805(b)
(1), which generally limits the retroactive
application of temporary, proposed, or
final regulations under the Code.
However, under section 7805(b)(3), the
Secretary may provide that any regulation
may take effect or apply retroactively to
prevent abuse. The Treasury Department
and the IRS decline to preemptively pro-
vide that future regulations will not retro-
actively treat any additional transactions
as economically similar transactions, as
such retroactive treatment may be neces-
sary in certain situations to prevent abuse.
Accordingly, these final regulations do not
adopt this recommendation.
B. Complete liquidations
Under proposed §58.4501-2(e)(5), a
distribution in complete liquidation of a
covered corporation to which either sec-
tion 331 or 332 (but not both) applies
would not be a repurchase and, thus,
would not be subject to the stock repur-
chase excise tax. However, under pro-
posed §58.4501-2(e)(4)(v)(A), if sections
331 and 332 both apply to a complete
liquidation, then (i) the distribution to
the 80-percent distributee (see section
332(b)(1)) would not be subject to the
stock repurchase excise tax, but (ii) each
distribution to which section 331 applies
(that is, the surrender of covered corpora-
tion stock by each minority shareholder)
would be subject to the stock repurchase
excise tax. Such a complete liquidation is
substantively similar to an upstream reor-
ganization of the liquidating subsidiary
into the 80-percent distributee in which
the minority shareholders receive only
non-qualifying property in exchange for
their stock in the liquidating subsidiary.
As discussed in parts IV.C.1 and 4 of
this Summary of Comments and Expla-
nation of Revisions, the Treasury Depart-
ment and IRS have concluded that section
4501 does not apply to upstream reorga-
nizations and other acquisitive reorgani-
zations. Accordingly, to provide consis-
tency, these final regulations also provide
that complete liquidations to which sec-
tions 331 and 332 both apply are not sub-
ject to the stock repurchase excise tax. See
§58.4501-2(e)(5)(i).
C. Acquisitive reorganizations
In the case of an acquisitive reorgani-
zation in which the target corporation is a
covered corporation, proposed §58.4501-
2(e)(4)(i) would treat the exchange by the
target corporation shareholders of their
target corporation stock pursuant to the
plan of reorganization as a repurchase by
the target corporation. Under proposed
§58.4501-2(c)(1)(i) and (e)(4)(i), the effect
of an acquisitive reorganization on a target
corporation’s stock repurchase excise tax
base would be computed by first includ-
ing in that tax base the fair market value
of all target corporation stock exchanged
in the transaction (regardless of the type
of consideration for which the stock is
exchanged) (gross repurchase amount).
Under proposed §58.4501-2(c)(1)(ii), the
gross repurchase amount then would be
reduced under the statutory exception in
section 4501(e)(1) (reorganization excep-
tion) by the fair market value of the target
corporation stock exchanged for property
permitted to be received by the target cor-
poration shareholders without recognition
of gain or loss under section 354 or 355
(that is, qualifying property). Thus, under
the foregoing approach, the target corpo-
ration generally would have been subject
to the stock repurchase excise tax only to
the extent of the fair market value of target
corporation stock exchanged for property
that is non-qualifying property.

December 15, 2025 794 Bulletin No. 2025–51
1. Acquisitive Reorganizations as
Economically Similar Transactions
Several commenters recommended
excluding acquisitive reorganizations from
the stock repurchase excise tax in whole
or in part. The commenters disagreed
with subjecting all exchanges of target
corporation stock as part of an acquisi-
tive reorganization to the stock repurchase
excise tax. According to the commenters,
a multi-step analysis is required to ensure
the properly tailored application of the
stock repurchase excise tax to merger and
acquisition (M&A) transactions: (i) first,
there must be a threshold determination
that a “repurchase” (as defined in section
4501(c)(1)) has occurred; (ii) second, the
repurchase must be determined to be part
of a section 368(a) reorganization; and
(iii) third, the reorganization exception
must be applied to determine the extent to
which the repurchase is excluded from the
stock repurchase excise tax.
One commenter asserted that, if Con-
gress had intended the exchange of tar-
get corporation stock in connection with
any type of reorganization under section
368(a) to be treated as a repurchase, Con-
gress could have provided explicit lan-
guage to that effect in the statute. In a prior
comment received with respect to Notice
2023-2, a stakeholder also contended that
acquisitive reorganizations should not
be subject to the stock repurchase excise
tax because acquisitive reorganizations
and other M&A transactions do not bear
the traditional hallmarks of conventional,
often opportunistic stock repurchase
transactions and programs that, in the
stakeholder’s view, were the intended tar-
get of the stock repurchase excise tax.
The Treasury Department and the IRS
agree with the commenters that Congress
generally did not intend for the stock repur-
chase excise tax to apply to transactions,
such as acquisitive reorganizations, that
fundamentally restructure corporate own-
ership or control through combinations of
separate business entities. In other words,
as noted by one commenter, reorganiza-
tions are not single-company transactions
that distribute corporate value to sharehold-
ers in exchange for the surrender of corpo-
rate stock. Moreover, as discussed in parts
III and IV.B of this Summary of Comments
and Explanation of Revisions, the Treasury
Department and the IRS have concluded
that section 4501 does not apply to a cov-
ered corporation that ceases to be a covered
corporation (for example, through a merger
or a liquidation for Federal income tax
purposes) as a result of the reorganization.
Accordingly, in the case of an acquisitive
reorganization in which the target corpo-
ration is a covered corporation prior to the
transaction, these final regulations do not
treat the exchange by the target corpora-
tion shareholders of their target corporation
stock pursuant to the plan of reorganization
as a repurchase by the target corporation.
See §58.4501-2(e)(5)(v).
2. Sourcing Approach to Acquisitive
Reorganizations
Several commenters recommended that,
if the final regulations do not wholly exempt
acquisitive reorganizations from the stock
repurchase excise tax, this tax should apply
solely to the extent that any non-quali-
fying property is sourced from the target
corporation (sourcing approach). Under
the proposed computational regulations, a
sourcing approach would apply to taxable
acquisitions involving partial redemptions
using cash sourced from the target corpo-
ration, but not to acquisitive reorganiza-
tions. According to the commenters, this
disparate treatment of taxable transactions
and acquisitive reorganizations is contrary
to the plain language of section 4501(c)
(1) and extending the sourcing approach
would strike a better balance between the
statutory language of section 4501 and the
types of single-entity corporate contrac-
tions to which, in the commenters’ view,
the excise tax was intended to apply.
Another commenter recommended
applying a sourcing approach to cash paid
to dissenting shareholders. Under this
approach, the stock repurchase excise tax
would apply to the extent cash sourced
from the target corporation was used to
satisfy dissenting shareholders’ claims.
By concluding that section 4501 does
not apply to acquisitive reorganizations,
these final regulations have addressed this
comment.
3. Reverse Triangular Mergers
One commenter recommended that, if
the foregoing recommendations regard-
ing acquisitive reorganizations are not
adopted, the stock repurchase excise tax
base should exclude any non-qualifying
property sourced from the acquiring cor-
poration and paid to target shareholders in
connection with a reorganization qualify-
ing under section 368(a)(1)(A) by means
of section 368(a)(2)(E) (reverse triangular
merger). According to the commenter, a
reverse triangular merger (like a reorga-
nization under section 368(a)(1)(B) (B
reorganization)) is a stock-based reorgani-
zation that does not involve an actual or a
deemed redemption within the meaning of
section 317(b). Another commenter rec-
ommended providing an overlap rule for
reverse triangular mergers that also qual-
ify as B reorganizations (because the con-
sideration provided includes only quali-
fying property). Under this overlap rule,
such transactions would be treated as B
reorganizations and would not be subject
to the stock repurchase excise tax.
By concluding that section 4501 does
not apply to acquisitive reorganizations,
these final regulations have addressed this
comment.
4. Upstream Reorganizations
One commenter requested clarifica-
tion as to whether an actual or deemed
upstream reorganization of a specified
affiliate into a covered corporation in a
transaction that qualifies under section
368(a)(1)(A) or (C) is a “repurchase” for
purposes of the stock repurchase excise
tax. See Rev. Rul. 69-617, 1969-2 C.B.
57. For Federal income tax purposes, the
transaction would be treated as if (i) the
specified affiliate’s assets were transferred
to the covered corporation in exchange for
covered corporation stock in an exchange
that qualifies for nonrecognition under
section 361(a), and then (ii) the specified
affiliate transferred the covered corpora-
tion stock back to the covered corporation
in exchange for the specified affiliate’s
stock (that is, the covered corporation is
treated as acquiring its own stock) in an
exchange that qualifies for nonrecogni-
tion treatment to the covered corporation
under section 354 and to the specified
affiliate under section 361(c).
Under the proposed computational reg-
ulations, the deemed exchange described
in clause (ii) of the prior sentence may

Bulletin No. 2025–51 795 December 15, 2025
implicate the stock repurchase excise tax,
because the acquiring covered corporation
is deemed to acquire its stock from the
specified affiliate in exchange for property
(that is, stock of the specified affiliate).
Additionally, the reorganization exception
would not apply, because that exception
is limited to situations where a covered
corporation is the target corporation. The
commenter recommended providing that
such transactions are not repurchases for
purposes of the stock repurchase excise
tax if the target corporation is not also a
covered corporation.
By concluding that section 4501 does
not apply to acquisitive reorganizations,
these final regulations have addressed this
comment.
D. Single-entity reorganizations
1. In General
Under proposed §58.4501-2(e)(4)
(ii) and (iii), respectively, E reorgani-
zations and F reorganizations would be
treated as economically similar transac-
tions in the same manner as other reor-
ganizations for purposes of the stock
repurchase excise tax. Accordingly, a
recapitalizing corporation in an E reor-
ganization or the transferor corporation
in an F reorganization would have a
repurchase to the extent of the fair mar-
ket value of the shares exchanged by its
shareholders in the transaction. However,
under proposed §58.4501-3(c)(2) and (3)
(applying the reorganization exception to
E reorganizations and F reorganizations,
respectively), the fair market value of the
repurchased shares exchanged for quali-
fying property (that is, property permit-
ted to be received by the shareholders
without recognition of gain or loss under
section 354) would reduce the corpora-
tion’s gross repurchase amount. As a
result, the corporation would be subject
to the stock repurchase excise tax only
to the extent of the fair market value of
its shares repurchased with non-qualify-
ing property (if any). Additionally, stock
issued by the recapitalizing corporation
in the E reorganization, or by the result-
ing corporation in the F reorganization,
would be disregarded for purposes of the
netting rule under the “no double benefit
rule.” See proposed §58.4501-4(f)(3).
A distribution of non-qualifying prop-
erty by the transferor corporation in an
F reorganization is treated as a separate
transaction (for example, under section
302) for Federal income tax purposes. See
§1.368-2(m)(3)(iii) (providing that any
distribution of money or other property
from either the transferor corporation or
the resulting corporation, including any
money or other property exchanged for
shares, in an F reorganization is treated as
an unrelated, separate transaction from the
reorganization). The proposed computa-
tional regulations would not have changed
the application of this rule for purposes of
the stock repurchase excise tax.
Several commenters contended that an
exchange of stock for qualifying property
in an E reorganization or an F reorgani-
zation should not be subject to the stock
repurchase excise tax. Stated differently,
commenters recommended that E reorga-
nizations and F reorganizations should not
give rise to a repurchase unless and to the
extent that shareholders receive non-quali-
fying property. One commenter contended
that stock issued by a covered corporation
is not “property” for purposes of section
317(b). Therefore, according to the com-
menter, the issuance of qualifying prop-
erty in exchange for stock in an E reor-
ganization or an F reorganization should
not be treated as an economically similar
transaction that results in a repurchase for
purposes of section 4501(a). A commenter
recommended analyzing the distribution
of non-qualifying property separately
under section 301 and/or section 302 of
the Code for purposes of the stock repur-
chase excise tax, consistent with general
principles of Federal income tax law. The
commenter also requested clarification
as to whether all E reorganizations and F
reorganizations are covered, or only those
in which an “exchange” occurs in form.
The Treasury Department and the IRS
agree with the commenters that the issu-
ance of qualifying property in exchange
for stock in an E reorganization or an
F reorganization should not be treated
as an economically similar transaction.
Accordingly, these final regulations pro-
vide that E reorganizations are treated
as repurchases for purposes of the stock
repurchase excise tax only if and to
the extent that (i) shareholders receive
non-qualifying property (that is, property
not permitted to be received by the share-
holders without recognition of gain or loss
under section 354), and (ii) the receipt of
such property is not treated as a distribu-
tion under section 301 (either by reason of
§1.301-1(j), 1.305-7(c)(2), or 1.368-2(e)
(5)). See §58.4501-2(e)(4)(i). As a result,
E reorganizations in which the recapital-
izing corporation’s shareholders receive
only qualifying property (i) are not treated
as repurchases for purposes of the de
minimis exception, and (ii) do not need to
be reported on the stock repurchase excise
tax return under §58.6011-1(a).
Because any distribution of money or
other property from either the transferor
corporation or the resulting corporation in
an F reorganization is treated as an unre-
lated, separate transaction (see §1.368-
2(m)(3)(iii)), and because such a distribu-
tion to the corporation’s shareholders in
exchange for their stock in the corporation
constitutes a section 317(b) redemption
(see §58.4501-5(b)(10) (Example 10)),
these final regulations do not include an
explicit rule treating F reorganizations in
which the transferor corporation’s share-
holders receive non-qualifying property
as economically similar transactions. See
§58.4501-2(e)(4). As is the case with
E reorganizations, F reorganizations in
which the transferor corporation’s share-
holders receive only qualifying prop-
erty (i) are not treated as repurchases for
purposes of the de minimis exception,
and (ii) do not need to be reported on the
stock repurchase excise tax return under
§58.6011-1(a).
2. Debt-for-Debt Exchanges
The proposed computational regula-
tions provided that the stock repurchase
excise tax would apply to E reorganiza-
tions only if there is an exchange by the
recapitalizing corporation shareholders
of their recapitalizing corporation stock.
See proposed §58.4501-2(e)(4)(ii); see
also proposed §§58.4501-1(a) (excise tax
is imposed on “any stock of the corpora-
tion that is repurchased”); 58.4501-1(b)
(29) (definition of “stock”); 58.4501-2(c)
(1) (determination of stock repurchase
excise tax base). Nevertheless, one com-
menter recommended clarifying that the
stock repurchase excise tax does not apply
to E reorganizations in which there is no

December 15, 2025 796 Bulletin No. 2025–51
exchange of recapitalizing corporation
stock (for example, in a recapitalization
solely with respect to debt securities).
Accordingly, although these final regu-
lations continue to provide that the stock
repurchase excise tax applies to E reor-
ganizations only if there is an exchange
by the recapitalizing corporation share-
holders of their recapitalizing corporation
stock (see §58.4501-2(e)(4)(i)), these final
regulations also include an example illus-
trating that such debt-for-debt exchanges
are not subject to the stock repurchase
excise tax. See §58.4501-5(b)(2) (Exam-
ple 2).
3. Preferred Stock with Dividends in
Arrears
Another commenter recommended
that, to the extent shares are repurchased
in an E reorganization in exchange for
qualifying property, the fair market value
of those repurchased shares should be a
reduction to the excise tax base, regard-
less of whether any shares (that is, qual-
ifying property) issued are treated as dis-
tributed under sections 301 and 305(b) of
the Code pursuant to section 305(c) and
§1.305-7(c)(1)(ii). (Section 305(c) con-
cerns certain transactions that are treated
as distributions, and §1.305-7(c)(1)(ii)
provides that a recapitalization is deemed
to result in a distribution to which section
305(c) and §1.305-7 apply if a shareholder
owning preferred stock with dividends in
arrears exchanges the stock for other stock
and, as a result, increases the sharehold-
er’s proportionate interest in the assets or
earnings and profits (E&P) of the corpo-
ration.) In other words, the commenter
recommended that the reorganization
exception apply to the entire repurchase in
connection with the E reorganization, and
not just to the part of the repurchase that is
not treated as a distribution under sections
301 and 305(b).
The Treasury Department and the IRS
agree that the fair market value of shares
exchanged in an E reorganization attrib-
utable to dividends in arrears should not
be subject to the stock repurchase excise
tax. As discussed in part IV.D.1 of this
Summary of Comments and Explanation
of Revisions, these final regulations treat
E reorganizations as repurchases for pur-
poses of the stock repurchase excise tax
only if and to the extent (i) shareholders
receive non-qualifying property, and (ii)
the receipt of such property is not treated
as a distribution under section 301 by
reason of §1.305-7(c)(2) or 1.368-2(e)
(5). Accordingly, these final regulations
have addressed this comment through
narrowing the scope of what constitutes a
repurchase, which has the added benefit of
eliminating the reporting burden for such
exchanges.
E. Split-offs
Proposed §58.4501-2(e)(4)(iv) would
provide that, in the case of a split-off qual-
ifying under section 355 (or so much of
section 356 of the Code as relates to sec-
tion 355) by a distributing corporation that
is a covered corporation, the exchange by
the distributing corporation shareholders
of their distributing corporation stock is
a repurchase by the distributing corpora-
tion. Thus, under the proposed computa-
tional regulations, a split-off that involves
the exchange of distributing corporation
stock solely for qualifying property would
be taken into account for purposes of
the de minimis exception and would be
required to be reported on the stock repur-
chase excise tax return. However, under
proposed §58.4501-3(c), the distributing
corporation would be able to reduce its
repurchase amount pursuant to the reor-
ganization exception (see part V.A of this
Summary of Comments and Explanation
of Revisions for a discussion of the reor-
ganization exception).
The Treasury Department and the IRS
have concluded that section 4501 applies
to the exchange by the distributing corpo-
ration shareholders of their distributing
corporation stock for the stock of a con-
trolled corporation in a split-off. Accord-
ingly, these final regulations continue to
treat the acquisition by a distributing cor-
poration that is a covered corporation of its
stock in a split-off as a repurchase by the
distributing corporation. See §58.4501-
2(e)(4)(ii).
V. Statutory Exceptions
A. Reorganization exception
With respect to the reorganization
exception, the proposed computational
regulations would adopt a consider-
ation-based approach to the requirement
in section 4501(e)(1) that no gain or loss
is recognized on the repurchase by the
shareholder under chapter 1 by reason of
the reorganization. The approach would
focus on whether the target corporation
shareholders receive property permitted
to be received without the recognition of
gain or loss under section 354 or 355 (that
is, qualifying property). See proposed
§58.4501-3(c). This approach would be
consistent with the interpretation of sim-
ilar requirements elsewhere in subchapter
C of chapter 1 of the Code (subchapter C).
See, for example, §§1.306-2(b)(2) (inter-
preting the exception to section 306(a) for
a disposition of section 306 stock in which
no gain or loss is recognized); 1.355-3(b)
(4)(i) (interpreting the requirement under
section 355(b)(2)(C) and (D) that an active
trade or business not be acquired direct
or indirectly within the five-year period
preceding the distribution in a transaction
in which gain or loss was recognized in
whole or in part).
A commenter recommended that the
determination of whether a shareholder
recognized gain or loss also should take
into account whether, and the extent to
which, a shareholder receiving non-qual-
ified property actually recognized gain
(that is, whether the amount realized by
the shareholder exceeds the sharehold-
er’s basis). According to the commenter,
this interpretation is closer to the lan-
guage of the statute than the proposed
consideration-based approach. However,
in prior comments provided with respect
to section 4501, a different stakeholder
expressed the view that the consider-
ation-based approach is superior from a
policy perspective.
The Treasury Department and the IRS
disagree with the commenter that the
determination of whether the reorgani-
zation exception applies should take into
account the basis and amount realized in
the transaction of each shareholder of a
covered corporation. Congress overlaid
the stock repurchase excise tax on top of
the provisions and principles of subchapter
C. As specifically applicable to the reor-
ganization exception, Congress defined
a “repurchase” in section 4501(c)(1) to
mean solely a section 317(b) redemption
(and any transaction determined by the

Bulletin No. 2025–51 797 December 15, 2025
Secretary to be economically similar to a
section 317(b) redemption), and then pro-
vided an exception in section 4501(e)(1)
to the extent that the repurchase is part of
a reorganization (within the meaning of
section 368(a)) and no gain or loss is rec-
ognized on the repurchase by the share-
holder under chapter 1 by reason of the
reorganization. The Treasury Department
and the IRS have determined that, consis-
tent with the interpretation of similar pro-
visions of subchapter C (and taking into
account the narrowed scope of economi-
cally similar transactions), the reorgani-
zation exception in these final regulations
applies only if section 355 prevents the
shareholder of a covered corporation from
recognizing gain or loss on the exchange
of the covered corporation’s stock (that is,
if the shareholder receives only qualifying
property). This interpretation gives effect
to the statutory language “by reason of
such reorganization.”
The consideration-based approach also
is consistent with the Treasury Depart-
ment’s and the IRS’s view that the reor-
ganization exception should be available
to the extent shareholders’ interests in
the covered corporation are preserved.
Moreover, basing the application of the
reorganization exception on whether
shareholders actually recognized gain as
an economic matter would be inconsis-
tent with the statutory structure of section
4501, because the general statutory defini-
tion of “repurchase” in section 4501(c)(1)
includes any section 317(b) redemption or
economically similar transaction regard-
less of whether the shareholder recognizes
gain or loss in an economic sense.
In addition, the Treasury Department
and the IRS continue to be of the view
that the consideration-based approach
not only implements the plain language
of the reorganization exception but also
provides a rule that is readily administra-
ble by taxpayers and the IRS. In contrast,
an approach that focuses on whether each
shareholder of a covered corporation actu-
ally recognized gain or loss would impose
an unreasonable administrative burden on
taxpayers and the IRS. Therefore, these
final regulations do not adopt the com-
menter’s recommendation.
Instead, consistent with the views
expressed by the other stakeholder, these
final regulations maintain an approach
based on the type of consideration pro-
vided in the reorganization, and, thus,
similar to the applicability of the “no rec-
ognition of gain or loss” rules in section
355. Relatedly, however, and as previ-
ously discussed in part IV of this Sum-
mary of Comments and Explanation of
Revisions, the reorganization exception
in these final regulations also reflects the
narrower scope of reorganizations that are
economically similar transactions for pur-
poses of section 4501.
B. Stock contribution exception
Section 4501(e)(2) provides an excep-
tion to the application of the stock repur-
chase excise tax “in any case in which
the stock repurchased is, or an amount
of stock equal to the value of the stock
repurchased is, contributed to an employ-
er-sponsored retirement plan, employee
stock ownership plan, or similar plan.”
One commenter recommended that, to
better reflect the reality of group employee
plans and align with congressional intent,
the final regulations should exempt a stock
repurchase from the stock repurchase
excise tax if the repurchase is related to
either (i) the granting of stock to employ-
ees as part of a long-term incentive plan,
or (ii) a cancellation of stock triggered by
a previous capital increase carried out as
part of an employee shareholder program.
The commenter also requested exempting
all repurchases made in connection with
employee stock plans if (i) such repur-
chases are made using trust assets by a
grantor trust established in connection
with unfunded deferred compensation
arrangements (commonly referred to as a
“rabbi trust”), and (ii) the shares continue
to be held by the rabbi trust for use in con-
nection with those employee stock plans.
These final regulations do not adopt the
commenter’s recommendations. The Trea-
sury Department and the IRS are of the
view that the stock contribution exception
should not be used to encourage executive
compensation arrangements. The defini-
tion of an “employer-sponsored retire-
ment plan” in proposed §58.4501-1(b)
(11) is limited to plans that are qualified
under section 401(a) of the Code (includ-
ing ESOPs). These final regulations do
not broaden this term to include executive
compensation arrangements.
C. RIC/REIT exception
To implement the exception for
repurchases by a RIC or a REIT in sec-
tion 4501(e)(5), proposed §58.4501-3(f)
would provide that a repurchase by a cov-
ered corporation that is a RIC or a REIT is
a reduction for purposes of computing the
covered corporation’s stock repurchase
excise tax base. These final regulations
retain this rule. See §58.4501-3(f).
A commenter recommended extending
the exception for RICs to all funds regis-
tered under the Investment Company Act
of 1940, 15 U.S.C. 80a-1 et. seq., includ-
ing funds that do not qualify as RICs for
Federal income tax purposes (non-RIC
funds). The commenter suggested that
Congress’s rationale for excepting RICs
from the stock repurchase excise tax also
applies to non-RIC funds, because the
organizational structure, operations, appli-
cable securities laws, and accounting stan-
dards are the same for those funds as for
funds that are RICs for Federal income tax
purposes. The commenter indicated that
the majority of non-RIC funds affected
by the stock repurchase excise tax fail
to qualify as RICs solely because their
investments in publicly traded partner-
ships exceed the limits in section 851(b)
(3). According to the commenter, those
investments do not distinguish these
funds from RICs in any way relevant to
the stock repurchase excise tax. The com-
menter also noted that most non-RIC
funds are required to redeem shares at the
demand of a shareholder, which means
that the stock repurchase excise tax will
not deter repurchases. Moreover, the com-
menter noted that because shares of non-
RIC funds are priced based on net asset
value, such funds are incapable of using
stock repurchases to artificially increase
their share value.
The Treasury Department and the IRS
agree that certain non-RIC funds are obli-
gated to redeem shares at the demand of a
shareholder and, therefore, are limited in
their ability to use stock repurchases for
other purposes, such as artificially increas-
ing share value. Accordingly, under the
grant of authority in section 4501(f), these
final regulations provide an exception
for certain non-RIC funds that parallels
the exception for RICs in §58.4501-3(f).
Under these final regulations, the excep-

December 15, 2025 798 Bulletin No. 2025–51
tion applies only to a covered corporation
that is described in section 851(a)(1)(A)
but that has not elected to be a RIC under
section 851(b) (non-RIC ’40 Act fund) and
that is either: (i) an “open-end company”
as defined in section 5(a) of the Invest-
ment Company Act of 1940 (15 U.S.C.
80a-5); or (ii) a “closed-end company” as
defined in section 5(a) of the Investment
Company Act of 1940, if the repurchase
occurs as part of a periodic repurchase
offer of the closed-end non-RIC ’40 Act
fund (sometimes referred to as an “inter-
val fund”) pursuant to SEC Rule 23c-3 (17
CFR 270.23c-3).
D. Dividend exception
To implement the “dividend exception”
of section 4501(e)(6), proposed §58.4501-
3(g)(1) generally would provide that the
fair market value of stock repurchased
by a covered corporation is a reduction
for purposes of computing the covered
corporation’s stock repurchase excise tax
base to the extent the repurchase is treated
as a distribution of a dividend under sec-
tion 301(c)(1) or 356(a)(2).
Proposed §58.4501-3(g)(2)(i) would
provide a rebuttable presumption that a
repurchase to which section 302 or 356(a)
applies is subject to section 302(a) or
356(a)(1), respectively (and, therefore,
is ineligible for the dividend exception).
Under proposed §58.4501-3(g)(2)(ii), a
covered corporation would be permitted
to rebut this presumption with regard to a
specific shareholder solely by establishing
with sufficient evidence (sufficient evi-
dence requirement) that the shareholder
treats the repurchase as a dividend on the
shareholder’s Federal income tax return.
Proposed §58.4501-3(g)(2)(iii) would
provide that, to satisfy the sufficient evi-
dence requirement, the covered corpo-
ration must obtain the shareholder’s cer-
tification, in accordance with proposed
§58.4501-3(g)(3), that the repurchase
either (i) constitutes a redemption treated
as a distribution to which section 301
applies, or (ii) has the effect of the distri-
bution of a dividend under section 356(a)
(2). The covered corporation also would
be required to (i) treat the repurchase con-
sistent with the shareholder certification,
(ii) have no knowledge of facts indicating
that the shareholder certification is incor-
rect, and (iii) demonstrate sufficient E&P
to treat as a dividend either the redemption
under section 302 or the receipt of money
or other property under section 356.
Several commenters recommended
adopting a sufficient evidence requirement
that does not require shareholder certifi-
cation (at least in certain circumstances).
According to commenters, covered cor-
porations may be unable to compel their
shareholders to provide a certification in
accordance with proposed §58.4501-3(g)
(3), and obtaining certification from for-
eign shareholders that do not file U.S.
tax returns and otherwise have no U.S.
tax nexus may be difficult. Accordingly,
one commenter recommended requiring
shareholder certification only if the cov-
ered corporation lacks sufficient evidence
to determine that a repurchase should be
treated as a dividend.
Several commenters also recommended
adopting a sufficient evidence require-
ment that does not require shareholders to
treat the repurchase as a dividend on their
Federal income tax return, because some
shareholders are not required to file a Fed-
eral income tax return. One commenter
recommended modifying the sufficient
evidence requirement to permit U.S. com-
panies to provide IRS Form 1042-S, For-
eign Person’s U.S. Source Income Subject
to Withholding, to show payment of a
dividend to foreign shareholders in lieu of
obtaining certifications from those share-
holders.
The Treasury Department and the IRS
agree with the commenters that the suf-
ficient evidence requirement should be
modified to facilitate administrability and
reduce taxpayer burden. Accordingly,
under these final regulations, the sufficient
evidence requirement no longer requires
shareholders to treat a repurchase as a div-
idend on their Federal income tax return.
Instead, a covered corporation may rebut
the presumption of no dividend equiva-
lence in §58.4501-3(g)(2)(i) with regard
to a specific shareholder by establishing
with sufficient evidence that the covered
corporation and the shareholder treat
the repurchase as a dividend for Federal
income tax purposes. See §58.4501-3(g)
(2)(ii).
Moreover, the sufficient evidence
requirement no longer requires a share-
holder certification, although the final
regulations continue to allow covered
corporations to satisfy this requirement
by obtaining a shareholder certification.
Instead, the sufficient evidence require-
ment may be satisfied if the covered cor-
poration: (i) establishes, based on informa-
tion known to the covered corporation (for
example, through legal documentation of
share ownership, publicly available infor-
mation, the pro rata nature of the repur-
chase, or the shareholder certification safe
harbor), that the repurchase either (A) is a
redemption that is treated as a distribution
to which section 301 applies by reason of
section 302(d), or (B) has the effect of the
distribution of a dividend under section
356(a)(2); (ii) has no knowledge of facts
indicating that the treatment described
in clause (i) of this sentence is incorrect;
(iii) treats the repurchase consistent with
such treatment, including by withhold-
ing the applicable amounts if required;
and (iv) demonstrates sufficient E&P to
treat as a dividend either the redemption
under section 302 or the receipt of money
or other property under section 356. See
§58.4501-3(g)(3).
Like the aforementioned documenta-
tion requirement in §58.4501-3(c)(4) for
the reorganization exception, §58.4501-
3(g)(4) requires a covered corporation to
retain the evidence described in §58.4501-
3(g)(3), make that evidence available for
inspection to the IRS if any of the evi-
dence becomes material in the administra-
tion of any internal revenue law, and retain
records of all information necessary to
document and substantiate such evidence.
The Treasury Department and the IRS
continue to be of the view that reliance
solely on the Form 1042-S does not pro-
vide sufficient evidence that a shareholder
treats a repurchase as a dividend. The
Form 1042-S is based on the presump-
tion that share repurchases are dividends
subject to withholding tax. Consequently,
reliance solely on the Form 1042-S for
purposes of substantiating the dividend
exception could overstate the amount of
repurchases that qualify for this exception.
VI. Netting Rule
A. Overview
Proposed §58.4501-4 would provide
rules implementing the netting rule. In

Bulletin No. 2025–51 799 December 15, 2025
general, under proposed §58.4501-4(b)
(1), the stock repurchase excise tax base
with regard to a taxable year of a cov-
ered corporation would be reduced by
the aggregate fair market value of stock
of the covered corporation: (i) issued by
the covered corporation during its taxable
year in connection with the performance
of services for the covered corporation by
employees or other service providers of
the covered corporation; (ii) provided by
a specified affiliate of the covered corpo-
ration in connection with the performance
of services for the specified affiliate by an
employee of the specified affiliate during
the covered corporation’s taxable year;
or (iii) issued by the covered corporation
during the covered corporation’s taxable
year not in connection with the perfor-
mance of services.
Proposed §58.4501-4(c) would pro-
vide additional rules regarding stock
issued or provided to an employee of a
covered corporation or specified affiliate
as compensation for services performed
as an employee, including transfers of
stock in connection with the performance
of services described in section 83 of the
Code (such as pursuant to a nonqualified
stock option or pursuant to a stock option
described in section 421 of the Code).
Proposed §58.4501-4(f)(3) contains
the “no double benefit rule” under which
stock issued by a covered corporation as
part of a transaction qualifying as a reor-
ganization under section 368(a) or a dis-
tribution under section 355 would be dis-
regarded for purposes of the netting rule
if: (i) the stock is qualifying property; (ii)
the stock is used by another covered cor-
poration (second covered corporation) to
repurchase stock of the second covered
corporation in an acquisitive reorganiza-
tion, an E reorganization, an F reorganiza-
tion, or a split-off; and (iii) the repurchase
described in clause (ii) of this sentence is
not included in the second covered corpo-
ration’s stock repurchase excise tax base
because that repurchase is a qualifying
property repurchase.
B. No double benefit rule; issuances in E
reorganizations, F reorganizations, and
section 355 transactions
Commenters agreed with the proposed
exclusion of stock issued by a recapital-
izing corporation in an E reorganization
or a resulting corporation in an F reor-
ganization for purposes of the netting
rule. See proposed §58.4501-4(f)(3). One
commenter agreed with the end result
under the proposed regulations but rec-
ommended that, because a corporation’s
own stock is not “property” for purposes
of section 317(b), a special rule should be
added to disregard such issuances for pur-
poses of the netting rule.
Another commenter queried whether
the “no double benefit rule” would apply
to an E reorganization. As noted previ-
ously, this rule applies to disregard the
issuance of stock by a covered corpora-
tion if, among other conditions, the stock
is “used by another covered corporation
(second covered corporation) to repur-
chase stock of the second covered corpo-
ration.” However, the commenter noted
that there is no second corporation in an E
reorganization.
These final regulations do not include
the “no double benefit rule,” because that
rule is no longer necessary in light of other
changes under these final regulations. For
example, as discussed in part IV.D.1 of
this Summary of Comments and Explana-
tion of Revisions, these final regulations
(i) treat E reorganizations as repurchases
only if and to the extent that non-qualify-
ing property is distributed by the recapi-
talizing corporation to its shareholders in
exchange for their stock, and (ii) treat a
distribution of non-qualifying property by
the transferor corporation in an F reorga-
nization as a separate transaction. More-
over, as discussed in part IV.C.1 of this
Summary of Comments and Explanation
of Revisions, the exchange by target cor-
poration shareholders of their target cor-
poration stock pursuant to the plan of reor-
ganization in an acquisitive reorganization
is not a repurchase by the target corpora-
tion under these final regulations.
Additionally, these final regulations
adopt the comment recommending the
addition of a special rule providing that
stock issued by the recapitalizing corpo-
ration in an E reorganization or the result-
ing corporation in an F reorganization is
not taken into account for purposes of the
netting rule. See §58.4501-4(f)(3). These
final regulations also provide that stock
issued by a covered corporation that is a
controlled corporation in a distribution
qualifying under section 355 (or so much
of section 356 as relates to section 355)
is disregarded for purposes of the netting
rule. See §58.4501-4(f)(9).
C. Issuances in acquisitive
reorganizations
One commenter recommended against
treating qualifying property issued by the
acquiring corporation in connection with
an acquisitive reorganization as being
issued in a redemption or as resulting in
an increase in the target corporation’s
stock repurchase excise tax base. Instead,
the commenter recommended allowing a
reduction by the acquiring corporation for
purposes of its stock repurchase excise tax
base.
Because these final regulations elim-
inate the “no double benefit rule,” the
acquiring corporation is no longer pro-
hibited from reducing its stock repurchase
excise tax base under the netting rule for
its stock issued in an acquisitive reorga-
nization.
D. Instruments not in the legal form of
stock
The proposed computational regula-
tions would provide an anti-avoidance
rule to address the issuance or provision of
instruments of a covered corporation that
are treated as stock for Federal tax pur-
poses but are not in the legal form of stock
(non-stock instruments). For example, a
taxpayer seeking to avoid the application
of the stock repurchase excise tax might
issue deep-in-the-money call options
(which the taxpayer treats as stock for
Federal tax purposes) to accommodation
parties with the mutual understanding that
such options never would be exercised.
Under proposed §58.4501-4(f)(13),
the issuance or provision of a non-stock
instrument (including certain deep-in-the-
money options) would be disregarded for
purposes of the netting rule unless and
until the instrument is repurchased, and
the amount of the issuance for purposes
of the netting rule would be limited to the
lesser of the fair market value of the instru-
ment at the time of issuance or repurchase.
To prevent taxpayers from taking incon-
sistent positions with respect to compa-
rable non-stock instruments, proposed

December 15, 2025 800 Bulletin No. 2025–51
§58.4501-4(f)(13)(ii)(D) would provide
that a taxpayer that fails to timely report
a repurchase of a non-stock instrument
may not take into account any issuances
for purposes of the netting rule for compa-
rable non-stock instruments repurchased
within the five taxable years ending on the
last day of the repurchase year, unless the
failure to timely report the earlier repur-
chase was due to reasonable cause.
Consistent with the general application
of the stock repurchase excise tax to all
instruments treated as stock for Federal
tax purposes, the proposed computational
regulations would not exclude the acqui-
sition of non-stock instruments from the
definition of a “repurchase.”
Several commenters recommended
removing the special netting rule for non-
stock instruments so that all instruments
of a covered corporation treated as stock
for Federal tax purposes, regardless of
legal form, are treated alike for purposes
of the stock repurchase excise tax. One
commenter noted that the value of stock
issued to closely related parties (which
would be the most likely to accommodate
non-economic abusive behavior) already
is excluded for the purpose of the netting
rule. See proposed §58.4501-4(f)(13)(ii)
(A). Another commenter noted that tax-
payers would be unlikely to engage in
transactions involving accommodation
parties, because those transactions would
be subject to substance-based challenges
by the IRS and would face other legal
and non-tax impediments discouraging
non-economic activity. A commenter
also contended that the proposed rule
may encourage taxpayers to strategically
choose the legal form of equity issuances
to obtain preferable treatment with regard
to the stock repurchase excise tax, thereby
engaging in non-economic activity strictly
for Federal tax benefits.
The commenters also suggested alter-
natives if the special netting rule for non-
stock instruments is retained. One com-
menter suggested that, if the rule is not
removed, it should be expanded to apply
to equity instruments that are limited and
preferred as to dividends and do not par-
ticipate in corporate growth, or at least
expanded to incorporate preferred equity
that is mandatorily redeemable or redeem-
able at a specified time. Other commenters
suggested applying the rule only to spe-
cific cases in which the non-stock instru-
ment is issued to an accommodation party
and subject to a binding repurchase agree-
ment.
These final regulations adopt the com-
menters’ view that non-stock instruments
generally should be treated the same as
stock for purposes of the netting rule,
except in certain potentially abusive trans-
actions. Under these final regulations, the
issuance or provision of non-stock instru-
ments generally is regarded at the time
of issuance. However, to address certain
potentially abusive transactions, these
final regulations retain a limited version
of the proposed special netting rule that
applies only to non-stock instruments that
are (i) not a non-stock instrument the offer
and sale of which was registered with the
SEC, and (ii) issued to a person that owns
(or, under the attribution rules of section
318 of the Code, is considered to own) at
least 10 percent of the stock of the covered
corporation, either by vote or value, but
only if the covered corporation has knowl-
edge of facts that would indicate such
ownership, including through legal doc-
umentation of share ownership, publicly
available information, or any other means
at the time of issuance by the covered cor-
poration or at the time of the provision by
the specified affiliate of the covered cor-
poration. See §58.4501-4(f)(13).
The changes to the special netting rule
for non-stock instruments under these
final regulations are intended to avoid
the potential application of the rule to
situations that are not abusive, while still
applying to situations in which taxpayers
seek to avoid the application of the stock
repurchase excise tax. Consistent with
this intent, these final regulations would
not subject public offerings of non-stock
instruments to the special netting rule. In
addition, in light of commenters’ sugges-
tion that abusive transactions are likely
to involve accommodation parties, these
final regulations limit the application of
the rule to situations in which there is a
direct or indirect ownership relationship
between the covered corporation and
the holder of the non-stock instrument.
Finally, these final regulations remove the
proposed consistency requirement and the
proposed fair market value rule in order to
simplify the application of the rule. Taken
together, these changes are intended to
exclude non-tax motivated issuances of
non-stock instruments, thereby facilitat-
ing administrability and reducing taxpayer
burden in the application of the special
netting rule for non-stock instruments.
E. Stock issued or provided to non-
employee service providers of a specified
affiliate
Under the proposed computational
regulations, a covered corporation’s
stock repurchase excise tax base would
be reduced by the aggregate fair market
value of stock of the covered corporation
provided by a specified affiliate of the cov-
ered corporation in connection with the
performance of services for the specified
affiliate by an employee of the specified
affiliate during the covered corporation’s
taxable year. See proposed §58.4501-4(b)
(1)(ii). Under proposed §58.4501-4(f)(2)
(iv), stock of a covered corporation issued
by the covered corporation in connection
with the performance of services for a
specified affiliate would not be treated as
“issued” for purposes of the netting rule.
However, a transfer of stock of a covered
corporation described in §1.83-6(d) by
a specified affiliate to an employee (but
not a non-employee service provider) of
the specified affiliate would be treated as
“provided” by the specified affiliate under
proposed §58.4501-4(b)(1)(ii).
Commenters recommended applying
the netting rule when a covered corpora-
tion issues its stock to any service provider
(employee or non-employee) of a spec-
ified affiliate of the covered corporation
in connection with services performed for
the specified affiliate. Similarly, comment-
ers recommended that the result should
be the same when the specified affiliate
provides stock of a covered corporation
to its employee or non-employee service
provider as compensation for services ren-
dered (or when such transfer is deemed to
occur under §1.83-6(d)).
The Treasury Department and the IRS
agree with the commenters that the net-
ting rule should apply to stock provided
by a specified affiliate to a non-employee
service provider (other than the covered
corporation or a specified affiliate of the
covered corporation) in connection with
the performance of services for the speci-
fied affiliate. Accordingly, these final reg-

Bulletin No. 2025–51 801 December 15, 2025
ulations provide that the stock repurchase
excise tax base with regard to a taxable
year of a covered corporation is reduced
by the aggregate fair market value of stock
of the covered corporation provided by a
specified affiliate of the covered corpora-
tion in connection with the performance
of services for the specified affiliate by an
employee or other service provider of the
specified affiliate during the covered cor-
poration’s taxable year. See §58.4501-4(b)
(1)(ii) and (f)(2)(iv).
VII. Constructive Specified Affiliate
Acquisitions
Under proposed §58.4501-2(f)(3), an
acquisition by a covered corporation of
a corporation or partnership that owns
stock in the covered corporation gener-
ally would be treated as a repurchase of
covered corporation stock (constructive
specified affiliate acquisition rule). More
specifically, shares of stock of a covered
corporation would be treated as repur-
chased by the covered corporation to the
extent that: (i) the target corporation or
partnership becomes a specified affiliate
of the covered corporation; and (ii) at
the time the target corporation or part-
nership becomes a specified affiliate, it
owns stock of the covered corporation (A)
representing more than one percent of the
fair market value of the assets of the target
corporation or partnership (constructive
acquisition de minimis threshold), and
(B) that was acquired after December 31,
2022. Shares of covered corporation stock
previously treated as repurchased under
the constructive specified affiliate acquisi-
tion rule would not be subject to the rule
a second time (no double detriment rule).
Several commenters asserted that the
constructive specified affiliate acquisition
rule is overly broad. For example, rather
than just address transactions in which the
covered corporation and a potential speci-
fied affiliate are acting in concert to facil-
itate avoidance of the stock repurchase
excise tax, this rule would encompass
non-abusive transactions in which (i) the
potential specified affiliate’s acquisition of
covered corporation stock is entirely unre-
lated to the transaction in which it becomes
a specified affiliate, (ii) the covered corpo-
ration does not know in advance that its
stock is owned by the potential specified
affiliate, and/or (iii) the potential speci-
fied affiliate owns only a small amount
of covered corporation stock. As a result,
according to commenters, this rule effec-
tively could add unexpected transaction
costs to ordinary M&A transactions.
Accordingly, commenters recom-
mended limiting the application of this
rule. For example, one commenter rec-
ommended applying this rule only in sit-
uations in which either (i) the potential
specified affiliate’s acquisition of covered
corporation stock occurs pursuant to a
binding agreement, or (ii) the covered cor-
poration stock held by the potential spec-
ified affiliate exceeds a certain threshold.
Additionally, commenters recommended
increasing the constructive acquisition
de minimis threshold from one percent
to five percent. (One commenter further
recommended changing this threshold
from one percent of the fair market value
of the assets of the target corporation or
partnership to five percent of the covered
corporation’s stock; another commenter
recommended clarifying the meaning of
“fair market value of the assets.”) A com-
menter also recommended broadening the
no double detriment rule and providing
additional examples to illustrate its appli-
cation.
The Treasury Department and the IRS
agree with the commenters that the con-
structive specified affiliate acquisition rule
is overly broad. Accordingly, these final
regulations do not adopt the constructive
specified affiliate acquisition rule.
VIII. Section 4501(d)–Acquisition of
Stock of Certain Foreign Corporations
A. In general
Proposed §58.4501-7 would provide
rules that relate to the application of sec-
tion 4501(d) to the acquisition of stock
of certain foreign corporations (section
4501(d) proposed regulations). The sec-
tion 4501(d) proposed regulations gener-
ally would apply based on related rules in
proposed §§58.4501-2 through 58.4501-4,
with modifications as appropriate to reflect
differences in the operation of section
4501(d). See part I.D of the Background.
Among other differences, section 4501(d)
provides special rules for the imposi-
tion of the stock repurchase excise tax
on specified affiliates treated as covered
corporations under section 4501(d)(1)(A)
and expatriated entities treated as covered
corporations under section 4501(d)(2)(A)
(each, a section 4501(d) covered corpora-
tion under the section 4501(d) proposed
regulations). In addition, the netting rule
applies only to stock issued or provided by
the specified affiliate or expatriated entity,
as applicable, to its employees under sec-
tion 4501(d)(1)(C) and (d)(2)(C), respec-
tively.
B. Funding rule
1. Proposed Funding Rule
The proposed funding rule would pro-
vide that an applicable specified affiliate
of an applicable foreign corporation is
treated as acquiring stock of the applica-
ble foreign corporation to the extent the
applicable specified affiliate funds by any
means (including through distributions,
debt, or capital contributions), directly or
indirectly, an AFC repurchase (as defined
in proposed §58.4501-7(b)(2)(i)) or an
acquisition of stock of an applicable for-
eign corporation by a relevant entity (as
defined in proposed §58.4501-7(b)(2)
(xiv)) (such repurchase or acquisition, a
covered purchase) with a principal pur-
pose of avoiding the section 4501(d)
excise tax. See proposed §58.4501-7(e)
(1). If a principal purpose of a funding
is to fund, directly or indirectly, a cov-
ered purchase, then with respect to that
funding, there is a principal purpose of
avoiding the section 4501(d) excise tax.
A principal purpose described in proposed
§58.4501-7(e)(1) would be presumed to
exist if the applicable specified affiliate
funds by any means, directly or indirectly,
a downstream relevant entity (as defined
in proposed §58.4501-7(b)(2)(xi)), and
the funding occurs within two years of a
covered purchase by or on behalf of the
downstream relevant entity.
2. Comments to Withdraw or Revise the
Proposed Funding Rule
Several commenters requested that the
proposed funding rule be withdrawn or
revised for various reasons, including the
following: (i) the rule could be burden-
some to comply with, given its potential

December 15, 2025 802 Bulletin No. 2025–51
to apply to common business transactions
(such as when an applicable foreign corpo-
ration has a pattern of redeeming its own
stock, which was established before Con-
gress enacted the stock repurchase excise
tax, and an applicable specified affiliate
makes regular dividend distributions to
the applicable foreign corporation); (ii) it
is unclear (A) when to determine whether
the applicable specified affiliate has a
principal purpose of funding a covered
purchase, and (B) whose purpose to avoid
the stock repurchase excise tax is relevant;
(iii) there is insufficient clarity (and exam-
ples) surrounding the application of the
rule; and (iv) the priority rule for covered
fundings provided in proposed §58.4501-
7(e)(6) does not take into account that the
foreign group may have a variety of fund-
ing sources.
Some commenters either supported
the proposed funding rule or agreed that
the Treasury Department and the IRS
have the authority to promulgate the rule.
Other commenters supported a narrower
application of the proposed funding rule
and suggested applying it to acquisitions
of stock of an applicable foreign corpora-
tion by a downstream relevant entity when
the acquisition is funded by an applicable
specified affiliate as well as other transac-
tions structured to avoid section 4501(d).
Commenters also noted that it is uncom-
mon for an applicable specified affiliate,
and by extension a downstream relevant
entity, to acquire the stock of an applica-
ble foreign corporation.
Taking into account all comments,
these final regulations do not adopt the
proposed funding rule.
C. Section 4501(d) netting rule
1. Overview
Section 4501(d)(1)(C) and (d)(2)(C)
provide that the adjustment in section
4501(c)(3) is determined only with respect
to stock issued or provided by the section
4501(d) covered corporation to employees
of the section 4501(d) covered corporation
(section 4501(d) netting rule). Proposed
§58.4501-7(n) would clarify that the sec-
tion 4501(d) netting rule applies only to
stock of the applicable foreign corporation
or covered surrogate foreign corporation,
as applicable, that is issued or provided
by a section 4501(d) covered corporation
to an employee in connection with the
employee’s performance of services in the
employee’s capacity as an employee of
the section 4501(d) covered corporation.
Consequently, the section 4501(d) pro-
posed regulations would provide that the
section 4501(d) netting rule applies only
with respect to stock issued or provided by
the section 4501(d) covered corporation to
its own employees in connection with the
performance of services.
2. Stock Issued or Provided to Non-
employee Service Providers
Commenters requested clarification
that the section 4501(d) netting rule
applies to stock issued or provided by a
specified affiliate to a non-employee ser-
vice provider (other than the covered
corporation or a specified affiliate of the
covered corporation) in connection with
services provided for the specified affili-
ate. These final regulations do not adopt
this comment. The Treasury Department
and the IRS are of the view that the sec-
tion 4501(d) netting rule does not apply
to non-employee service providers. Sec-
tion 4501(d)(1)(C) explicitly states that
the adjustment under section 4501(c)(3)
is determined only with respect to stock
issued or provided by a specified affiliate
to employees of the specified affiliate.
Accordingly, the section 4501(d) netting
rule precludes the reduction of the section
4501(d) excise tax base when the section
4501(d) covered corporation issues or
provides shares to someone other than
employees of the section 4501(d) covered
corporation.
3. Other Comments Related to the Section
4501(d) Netting Rule
Commenters recommended that the
section 4501(d) netting rule apply to
treat all members of a consolidated group
as one corporation, rather than the pro-
posed entity-by-entity approach. Other
commenters recommended extending
the section 4501(d) netting rule to cover
employees of all specified affiliates (that
is, all employees in the affiliated group,
rather than the employees of an applicable
specified affiliate), because, in the com-
menters’ view, this rule is otherwise dis-
criminatory against inbound companies.
A commenter also recommended exempt-
ing from the section 4501(d) excise tax
stock repurchases that are (i) related to
either (A) stock grants to employees as
part of a long-term incentive plan, or (B)
a cancellation of stock triggered by a pre-
vious capital increase carried out as part
of an employee shareholder program, or
(ii) made in connection with employee
stock plans using trusts’ assets established
in connection with unfunded deferred
compensation arrangements (that is, rabbi
trusts) where (A) such shares are held for
use in connection with employee stock
plans, and (B) such trusts and associated
plans were established prior to the effec-
tive date of the final regulations. Some
commenters also suggested changes to
the section 4501(d) netting rule if the pro-
posed funding rule applies.
These final regulations do not adopt
these comments. The Treasury Depart-
ment and the IRS have determined that
the recommendations related to consol-
idated groups and additional exclusions
from the section 4501(d) netting rule are
inconsistent with the plain language of
section 4501(d), and it is not appropriate
to expand the section 4501(d) netting rule
beyond its statutory scope. Moreover, as
discussed in part VIII.B.2 of this Sum-
mary of Comments and Explanation of
Revisions, these final regulations do not
adopt the proposed funding rule.
D. Foreign partnerships as applicable
specified affiliates
Under section 4501(d)(1), if a foreign
partnership that is a specified affiliate of an
applicable foreign corporation has a direct
or indirect partner that is a domestic entity,
then the foreign partnership is an applica-
ble specified affiliate of the applicable for-
eign corporation. Proposed §58.4501-7(h)
would provide rules for determining if a
foreign partnership is an applicable speci-
fied affiliate, including treating a domestic
entity as an indirect partner with respect to
a foreign partnership if the domestic entity
owns an interest in the foreign partnership
through: (i) one or more foreign partner-
ships; (ii) one or more foreign corpora-
tions controlled by one or more domestic
entities (domestic control requirement); or
(iii) an ownership chain with one or more

Bulletin No. 2025–51 803 December 15, 2025
entities described in the preceding clauses
(i) and (ii). See proposed §58.4501-7(h)
(2)(ii). The section 4501(d) proposed reg-
ulations also would provide a de minimis
rule pursuant to which a foreign partner-
ship with one or more direct or indirect
domestic entity partners would not be
considered an applicable specified affili-
ate if the domestic entities hold, directly
or indirectly, in aggregate, less than five
percent of the capital and profits interests
in the foreign partnership. See proposed
§58.4501-7(h)(5).
One commenter suggested that the
proposed de minimis rule produces a
cliff effect that may result in a relatively
minimal U.S. nexus through a domestic
partner causing such a foreign partner-
ship to be treated in the same manner
as a domestic corporation. The com-
menter recommended applying the stock
repurchase excise tax proportionately to
domestic partners of a foreign partner-
ship (that is, based on the domestic part-
ner’s interest in the foreign partnership),
rather than with respect to the entire for-
eign partnership.
These final regulations do not adopt
this recommendation, because section
4501(d) equates a foreign partnership hav-
ing a domestic entity as a direct or indirect
partner with a domestic corporation and
does not apply the stock repurchase excise
tax proportionately to domestic partners
of a foreign partnership.
With respect to the de minimis rule, the
commenter acknowledged its appropriate-
ness but recommended raising the thresh-
old such that the rule (i) would apply only
to situations in which the domestic part-
ner has a material interest in, and material
influence on, the operations of a foreign
partnership, and (ii) is administrable. The
commenter recommended applying the
section 4501(d) excise tax to a foreign
partnership if the foreign partnership’s
direct or indirect domestic partners, and
related parties of such domestic partners,
hold, directly or indirectly, in aggregate,
80 percent or more of the capital and prof-
its interests in the foreign partnership. In
the alternative, the commenter recom-
mended that the de minimis threshold be
increased to 25 percent for the domestic
partner itself or increased to 50 percent to
reflect actual control by the domestic part-
ner and to be consistent with the percent-
age used to determine specified affiliate
status more generally under section 4501.
These final regulations do not adopt
the foregoing recommendations. Section
4501(d) does not require the domestic
entity partner to have a material interest
in, or material influence on, the operations
of a foreign partnership. Moreover, the de
minimis rule addresses compliance bur-
dens regarding the determination of when
direct or indirect ownership by domestic
entity partners causes a foreign partner-
ship to be an applicable specified affiliate.
However, in response to the comment,
these final regulations raise the de mini-
mis threshold so that a foreign partnership
with one or more direct or indirect domes-
tic entity partners is not considered an
applicable specified affiliate if the domes-
tic entities hold, directly or indirectly,
in aggregate, less than 10 percent of the
capital and profits interests in the foreign
partnership.
The commenter further requested clar-
ification on how a foreign partnership
applicable specified affiliate that makes a
covered purchase pays the section 4501(d)
excise tax. The commenter stated that the
section 4501(d) proposed regulations do
not specify which entity is responsible
for paying the section 4501(d) excise tax
when the tax arises because of a covered
purchase by a foreign partnership applica-
ble specified affiliate. Although acknowl-
edging that the foreign partnership itself
is the payor of the excise tax because it
is the entity whose section 4501(d) excise
tax basis is increased as a result of the
covered funding, the commenter stated
that this requirement imposes signifi-
cant administrative compliance burdens.
These asserted burdens include: (i) track-
ing direct and indirect domestic entity
partners to determine whether domestic
ownership falls outside of the de mini-
mis threshold; (ii) requiring a foreign
partnership to file a section 4501 excise
tax return and pay the section 4501(d)
excise tax liability even though such for-
eign partnership would not otherwise be
required to file U.S. tax returns or report
operations for Federal tax purposes; and
(iii) requiring the foreign partnership to
set aside funds at the partnership level to
pay the section 4501(d) excise tax liabil-
ity and determine how to allocate that lia-
bility among its partners.
The Treasury Department and the IRS
have determined that the statute is clear
that a foreign partnership applicable spec-
ified affiliate is the entity responsible for
paying the section 4501(d) excise tax when
the tax arises because that foreign partner-
ship acquires the stock of the applicable
foreign corporation. In respect of filing
the stock repurchase excise tax return and
paying the section 4501(d) excise tax lia-
bility, see §§58.6011-1(a) (requirement to
file stock repurchase excise tax return) and
58.6151-1(a) (time and place for paying
tax shown on stock repurchase excise tax
return). See also the discussion of filing
issues in respect of foreign partnership appli-
cable specified affiliates in the preamble to
the proposed computational regulations.
E. Other modifications to the section
4501(d) proposed regulations
As noted in part VIII.A. of this Sum-
mary of Comments and Explanation of
Revisions, the section 4501(d) proposed
regulations generally apply based on
related rules in proposed §§58.4501-2
through 58.4501-4, with modifications
as appropriate to reflect differences in the
operation of section 4501(d). Accordingly,
these final regulations modify the section
4501(d) proposed regulations to reflect
modifications to the related rules in pro-
posed §§58.4501-2 through 58.4501-4, as
appropriate.
IX. Other Comments
One commenter recommended that
these final regulations distinguish between
“illegitimate” repurchases (in the com-
menter’s view, repurchases that bene-
fit executives rather than investors) and
“legitimate” repurchases. The Treasury
Department and the IRS are of the view
that the statute does not draw a distinction
between repurchases that benefit execu-
tives versus those that benefit investors.
Accordingly, these final regulations do not
adopt this comment. However, as reflected
in this Summary of Comments and Expla-
nation of Revisions, these final regulations
streamline the stock repurchase excise tax
regulations while preserving clear, bright-
line rules for determining which repur-
chases are subject to the stock repurchase
excise tax.

December 15, 2025 804 Bulletin No. 2025–51
X. Applicability Dates
A. In general
These final regulations generally
provide that §§58.4501-1 through
58.4501-5 apply to (i) repurchases of
stock of a covered corporation occur-
ring after December 31, 2022, and (ii)
issuances and provisions of stock of a
covered corporation occurring during
taxable years ending after December
31, 2022. See §58.4501-6(a). However,
§58.4501-6(b)(1) provides that certain
rules in §§58.4501-2 through 58.4501-4
that were not described in Notice 2023-2
apply to (i) repurchases of stock of a
covered corporation occurring after
April 12, 2024 (the date of publication
of the proposed computational regula-
tions in the Federal Register), and (ii)
issuances and provisions of stock of a
covered corporation occurring after
April 12, 2024. Nevertheless, §58.4501-
6(b)(2) provides that so long as a cov-
ered corporation consistently applies
the provisions of §§58.4501-1 through
58.4501-5, the covered corporation may
choose to apply these final regulations
with respect to the provisions described
in §58.4501-6(b)(1) to (i) repurchases of
stock of the covered corporation occur-
ring on or before April 12, 2024, and
after December 31, 2022, and (ii) issu-
ances and provisions of stock of the cov-
ered corporation occurring on or before
April 12, 2024, and during taxable years
ending after December 31, 2022.
Except with respect to the rules under
§58.4501-7(p)(2) and (3), the rules of
§58.4501-7 apply to transactions that
occur after April 12, 2024. See §58.4501-
7(p)(1). Section 58.4501-7(p)(2) pro-
vides a transition rule for the foreign
partnership de minimis rule, allowing a
section 4501(d) covered corporation to
apply §58.4501-7(g)(5) by replacing the
phrase “10 percent” with “five percent”
for transactions that occur after April 12,
2024, but before November 24, 2025.
Alternatively, a section 4501(d) covered
corporation may apply the final rules of
§58.4501-7 for transactions that occur
after December 31, 2022, provided that
the section 4501(d) covered corporation
applies all those rules consistently. See
§58.4501-7(p)(3).
B. Effect on prior returns
If a covered corporation previously
filed a Form 7208, Excise Tax on Repur-
chase of Corporate Stock, applying
Notice 2023-2 or the proposed computa-
tional regulations and would like to file
a refund claim after the effective date of
these final regulations, the covered corpo-
ration should file a Form 720-X, Amended
Quarterly Federal Excise Tax Return, for
the quarter (or previously amended quar-
ter, if applicable) in which the covered
corporation filed the original Form 720,
Quarterly Federal Excise Tax Return, and
attach a corrected Form 7208 (with the
word “Amended” added to the top of the
corrected Form 7208). If a taxpayer other
than the original filer would like to file a
refund claim, the taxpayer should file a
claim on Form 8849, Claim for Refund
of Excise Taxes, and attach Schedule 6,
Other Claims, and a corrected Form 7208.
If a covered corporation is filing a
Form 720-X for the third quarter of 2024,
and if the covered corporation previously
attached two Forms 7208 (one for a tax
year ending in 2023, and one for a tax
year ending in 2024) to the Form 720 for
that quarter, the covered corporation must
attach two corrected Forms 7208 (with the
word “Amended” added to the top of each
corrected Form 7208) to the Form 720-X
for that quarter.
Special Analyses
I. Regulatory Planning and Review
The Office of Information and Reg-
ulatory Analysis (OIRA) of the Office
of Management and Budget (OMB) has
determined that these final regulations
are not significant and are not subject to
review under section 6(b) of Executive
Order 12866. Therefore, a regulatory
impact analysis is not required.
II. Paperwork Reduction Act
The Paperwork Reduction Act of 1995
(44 U.S.C. 3501-3520) (PRA) generally
requires that a Federal agency obtain the
approval of the OMB before collecting
information from the public, whether that
collection of information is mandatory,
voluntary, or required to obtain or retain
a benefit. An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
unless it displays a valid control number
assigned by the OMB.
The collections of information in these
regulations contain reporting, third-party
disclosure, and recordkeeping require-
ments in §§58.4501-3(g) and 58.4501-7(l)
(6). This information is necessary for the
IRS to accurately determine the stock
repurchase excise tax due and is required
by law to comply with the provisions of
section 4501 of the Code as enacted by
section 10201 of the Inflation Reduction
Act of 2022. The likely respondents are
corporations and partnerships. The bur-
dens associated with these information
collections are included in Form 7208 and
its instructions and approved with OMB
control number 1545-2323 in accor-
dance with PRA procedures under 5 CFR
1320.10.
Books or records relating to a collec-
tion of information must be retained as
long as their contents may become mate-
rial in the administration of any internal
revenue law. Generally, tax returns and
tax return information are confidential, as
required by section 6103.
III. Regulatory Flexibility Act
Pursuant to the Regulatory Flexibil-
ity Act (5 U.S.C. chapter 6), it is hereby
certified that these regulations do not
have a significant economic impact on a
substantial number of small entities. This
certification is based on the fact that these
regulations only apply to publicly traded
corporations, which tend to consist of
larger businesses. Specifically, based on
the most recent data available to the IRS
for tax year 2023, approximately 3,800
corporations reported publicly traded
common stock. Of those corporations,
approximately 3,210 (over 84 percent)
reported total assets over $100 million,
and approximately 3,750 (over 98 percent)
reported total assets over $10 million.
Meanwhile, for tax year 2023, the IRS
received 8,269,075 Corporation Income
Tax Returns. IRS Publication 6292, Fis-
cal Year Projections for the United States:
2024-2031, Fall 2024, Table 2. Of these
corporation returns, 8,009,010 reported
total assets below $10 million. Thus, the

Bulletin No. 2025–51 805 December 15, 2025
number of corporations affected by these
regulations that reported total assets below
$10 million is less than one thousandth of
one percent of the total number of cor-
porations that reported total assets below
$10 million. Therefore, these regulations
do not create additional obligations for, or
impose an economic impact on, a substan-
tial number of small entities. Accordingly,
a regulatory flexibility analysis under the
Regulatory Flexibility Act is not required.
IV. Section 7805(f)
Pursuant to section 7805(f) of the
Code, the notice of proposed rulemaking
was submitted to the Chief Counsel for the
Office of Advocacy of the Small Business
Administration for comment on its impact
on small business, and no comments were
received.
V. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates
Reform Act of 1995 requires that agencies
assess anticipated costs and benefits and
take certain other actions before issuing a
final rule that includes any Federal man-
date that may result in expenditures in any
one year by a State, local, or Tribal gov-
ernment, in the aggregate, or by the pri-
vate sector, of $100 million in 1995 dol-
lars, updated annually for inflation. These
regulations do not include any Federal
mandate that may result in expenditures
by State, local, or Tribal governments,
or by the private sector in excess of that
threshold.
VI. Executive Order 13132: Federalism
Executive Order 13132 (Federalism)
prohibits an agency from publishing any
rule that has federalism implications if
the rule either imposes substantial, direct
compliance costs on State and local gov-
ernments, and is not required by statute,
or preempts State law, unless the agency
meets the consultation and funding
requirements of section 6 of the Execu-
tive order. These regulations do not have
federalism implications and do not impose
substantial direct compliance costs on
State and local governments or preempt
State law within the meaning of the Exec-
utive order.
VII. Congressional Review Act
Pursuant to the Congressional Review
Act (5 U.S.C. 801 et seq.), the Office of
Information and Regulatory Affairs des-
ignated this rule as not a major rule, as
defined by 5 U.S.C. 804(2).
Statement of Availability of IRS
Documents
Any IRS Revenue Procedure, Rev-
enue Ruling, Notice, or other guidance
cited in this document is published in the
Internal Revenue Bulletin (or Cumulative
Bulletin) and is available from the Super-
intendent of Documents, U.S. Govern-
ment Publishing Office, Washington, DC
20402, or by visiting the IRS website at
https://www.irs.gov.
Drafting Information
The principal authors of these regu-
lations are Kailee H. Hock of the Office
of Associate Chief Counsel (Corporate),
Naomi Lehr and Robert C. Weedman of
the Office of Associate Chief Counsel
(Employee Benefits, Exempt Organiza-
tions, and Employment Taxes), Lucas
J. Eberhart of the Office of Associate
Chief Counsel (Financial Institutions
and Products), and Brittany N. Dobi of
the Office of Associate Chief Counsel
(International). However, other person-
nel from the Treasury Department and
the IRS participated in their develop-
ment.
List of Subjects
26 CFR Part 1
Income taxes, Reporting and record-
keeping requirements.
26 CFR Part 58
Excise taxes, Stocks, Reporting and
recordkeeping requirements.
Adoption of Amendments to the
Regulations
Accordingly, the Treasury Department
and the IRS amend 26 CFR parts 1 and 58
as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.1275-6 is amended
by adding paragraph (f)(12)(iii) to read as
follows:
§1.1275-6 Integration of qualifying
debt instruments.
* * * * *
(f) * * *
(12) * * *
(iii) Excise tax on repurchase of corpo-
rate stock—(A) Application. If a taxpayer
enters into an integrated transaction (for
example, a convertible debt instrument inte-
grated with one or more §1.1275-6 hedges
consisting of an option on the taxpayer’s
own stock), then, solely for purposes of sec-
tion 4501 of the Code and the stock repur-
chase excise tax regulations (as defined in
§58.4501-1(b)(37) of this chapter), the tax-
payer must apply the rules that would apply
on a separate basis to the components of the
integrated transaction, rather than the rules
that otherwise would apply to the integrated
transaction under this section.
(B) Applicability date. Notwithstand-
ing paragraph (j) of this section, paragraph
(f)(12)(iii)(A) of this section applies to an
integrated transaction outstanding after
December 31, 2022 (regardless of when
such integrated transaction was entered
into by the taxpayer).
* * * * *
PART 58—STOCK REPURCHASE
EXCISE TAX
Par. 3. The authority citation for part
58 continues to read in part as follows:
Authority: 26 U.S.C. 4501(f) and 7805.
* * * * *
Par. 4. Subpart A is added to read as
follows:
Subpart A—Excise Tax on Stock
Repurchases
Sec.
58.4501-0 Table of contents.
58.4501-1 Excise tax on stock repur-
chases.

December 15, 2025 806 Bulletin No. 2025–51
58.4501-2 General rules regarding excise
tax on stock repurchases.
58.4501-3 Exceptions.
58.4501-4 Application of netting rule.
58.4501-5 Examples.
58.4501-6 Applicability dates.
58.4501-7 Special rules for acquisitions
or repurchases of stock of certain foreign
corporations.
Subpart A—Excise Tax on Stock
Repurchases
§58.4501-0 Table of contents.
This section lists the major captions that
appear in §§58.4501-1 through 58.4501-7.
§58.4501-1 Excise tax on stock
repurchases.
(a) Excise tax imposed.
(b) Definitions.
(1) Acquisitive reorganization.
(2) Applicable percentage.
(3) Cessation date.
(4) Clawback.
(5) Code.
(6) Controlled corporation.
(7) Covered corporation.
(8) Covered holder.
(9) Covered non-stock instrument.
(10) De minimis exception.
(11) Distributing corporation.
(12) E reorganization.
(13) Economically similar transaction.
(14) Employee.
(15) Employer-sponsored retirement
plan.
(16) Established securities market.
(17) F reorganization.
(18) Forfeiture.
(19) Gross repurchase amount.
(20) Initiation date.
(21) IRS.
(22) Netting rule.
(23) Non-RIC ’40 Act fund.
(24) Non-stock instrument.
(25) Recapitalizing corporation.
(26) REIT.
(27) Reorganization exception.
(28) Repurchase.
(29) RIC.
(30) SEC.
(31) Section 317(b) redemption.
(32) Specified affiliate.
(33) Split-off.
(34) Stock.
(35) Stock repurchase excise tax.
(36) Stock repurchase excise tax base.
(37) Stock repurchase excise tax reg-
ulations.
(38) Taxable year.
(39) Treasury stock.
(c) No application for any purposes of
chapter 1 of the Code.
(d) Status as a domestic or foreign cor-
poration.
(e) F reorganizations.
§58.4501-2 General rules regarding
excise tax on stock repurchases.
(a) Scope.
(b) Computation of excise tax liability.
(1) Imposition of tax.
(2) De minimis exception.
(c) Stock repurchase excise tax base.
(1) In general.
(2) Taxable year determination.
(3) Repurchases before January 1,
2023.
(d) Duration of covered corporation sta-
tus.
(1) Initiation date.
(2) Cessation date.
(3) Inbound and outbound F reorgani-
zations.
(e) Repurchase.
(1) Overview.
(2) Scope of repurchase.
(3) Certain section 317(b) redemptions
that are not repurchases.
(4) Economically similar transactions.
(5) Transactions that are not repur-
chases.
(f) Specified affiliates.
(1) Acquisitions of stock of a covered
corporation by a specified affiliate treated
as a repurchase.
(2) Determination of specified affiliate
status.
(g) Date of repurchase.
(1) General rule.
(2) Regular-way sale.
(h) Fair market value of repurchased
stock.
(1) In general.
(2) Stock traded on an established
securities market.
(3) Stock not traded on an established
securities market.
(4) Market price of stock denominated
in non-U.S. currency.
§58.4501-3 Exceptions.
(a) Scope.
(b) Reduction of covered corporation’s
stock repurchase excise tax base.
(1) In general.
(2) Coordination of exceptions.
(c) Reorganization exception.
(d) Stock contributions to an employ-
er-sponsored retirement plan.
(1) Reductions in computing covered
corporation’s stock repurchase excise tax
base.
(2) Classes of stock contributed to an
employer-sponsored retirement plan.
(3) Same class of stock repurchased
and contributed.
(4) Different class of stock repurchased
and contributed.
(5) Timing of contributions.
(6) Contributions before January 1, 2023.
(e) Repurchases or acquisitions by a
dealer in securities in the ordinary course
of business.
(1) In general.
(2) Applicability.
(f) Repurchases by a RIC or a REIT.
(g) Repurchase treated as a dividend.
(1) In general.
(2) Rebuttable presumption of no divi-
dend equivalence.
(3) Sufficient evidence requirement.
(4) Documentation of sufficient evi-
dence.
(h) Repurchases by a non-RIC ’40 Act
fund.
§58.4501-4 Application of netting rule.
(a) Scope.
(b) Issuances and provisions of stock
that are a reduction in computing the stock
repurchase excise tax base.
(1) General rule.
(2) Stock issued or provided outside
period of covered corporation status.
(3) Issuances or provisions before Jan-
uary 1, 2023.
(c) Stock issued or provided in connec-
tion with the performance of services.
(1) In general.
(2) Sale of shares to cover exercise
price and withholding.
(d) Date of issuance.
(1) In general.
(2) Stock issued or provided in connec-
tion with the performance of services.

Bulletin No. 2025–51 807 December 15, 2025
(e) Fair market value of issued or pro-
vided stock.
(1) In general.
(2) Stock traded on an established
securities market.
(3) Stock not traded on an established
securities market.
(4) Market price of stock denominated
in non-U.S. currency.
(5) Stock issued or provided in connec-
tion with the performance of services.
(f) Issuances that are disregarded for
purposes of applying the netting rule.
(1) Distributions by a covered corpora-
tion of its own stock.
(2) Issuances to a specified affiliate.
(3) Issuances in an E reorganization or
an F reorganization.
(4) Deemed issuances under section
304(a)(1).
(5) Deemed issuance of a fractional
share.
(6) Issuance by a covered corporation
that is a dealer in securities.
(7) Issuance by the target corporation
in a reverse triangular merger.
(8) Issuance as part of a section 1036(a)
exchange.
(9) Issuance as part of a distribution
under section 355.
(10) Stock contributions to an employ-
er-sponsored retirement plan.
(11) Net exercises and share withhold-
ing.
(12) Settlement other than in stock.
(13) Instrument not in the legal form of
stock.
§58.4501-5 Examples.
(a) Scope.
(b) In general.
(1) Example 1: Redemption of pre-
ferred stock not subject to an exception.
(2) Example 2: Debt-for-debt exchange.
(3) Example 3: Valuation of repurchase.
(4) Example 4: Acquisition partially
funded by the target corporation.
(5) Example 5: Pro rata stock split.
(6) Example 6: Acquisition of a target
corporation in an acquisitive reorganiza-
tion.
(7) Example 7: E reorganization.
(8) Example 8: E reorganization with
non-qualifying property.
(9) Example 9: Cash paid in lieu of
fractional shares.
(10) Example 10: F reorganization.
(11) Example 11: Section 355 split-off.
(12) Example 12: Section 355 split-off
as part of a D reorganization.
(13) Example 13: Section 355 spin-off.
(14) Example 14: Section 355 spin-off
as part of a D reorganization.
(15) Example 15: Repurchase pursuant
to an accelerated share repurchase agree-
ment.
(16) Example 16: Distribution in com-
plete liquidation of a covered corporation.
(17) Example 17: Complete liquidation
of a covered corporation to which sec-
tions 331 and 332(a) both apply.
(18) Example 18: Acquisition by disre-
garded entity.
(19) Example 19: Multiple repurchases
and contributions of same class of stock.
(20) Example 20: Multiple repurchases
and contributions of different classes of
stock.
(21) Example 21: Treatment of contri-
butions after the taxable year.
(22) Example 22: Becoming a covered
corporation.
(23) Example 23: Actual pro rata
redemption in partial liquidation.
(24) Example 24: Constructive redemp-
tion in partial liquidation.
(25) Example 25: Non-pro rata redemp-
tion in partial liquidation.
(26) Example 26: Physical settlement
of call option contract.
(27) Example 27: Net cash settlement
of call option contract.
(28) Example 28: Physical settlement
of put option contract.
(29) Example 29: Net cash settlement
of put option contract.
(30) Example 30: Indirect ownership.
(31) Example 31: Restricted stock pro-
vided to a service provider.
(32) Example 32: Restricted stock pro-
vided to a service provider with section
83(b) election.
(33) Example 33: Forfeiture of
restricted stock provided to a service pro-
vider with section 83(b) election.
(34) Example 34: Vested stock pro-
vided to a service provider with share
withholding.
(35) Example 35: Stock option net
exercise.
(36) Example 36: Net share settlement
not in connection with performance of
services.
(37) Example 37: Broker-assisted net
exercise.
(38) Example 38: Stock provided by a
specified affiliate to an employee.
(39) Example 39: Stock provided by a
specified affiliate to a non-employee.
(40) Example 40: Corporation treated
as a domestic corporation under section
7874(b).
§58.4501-6 Applicability dates.
(a) In general.
(b) Exceptions.
(1) Applicability date for certain rules.
(2) Early application.
(c) Special rules for acquisitions or
repurchases of stock of certain foreign
corporations.
§58.4501-7 Special rules for acquisitions
or repurchases of stock of certain foreign
corporations.
(a) Scope.
(b) Definitions.
(1) Application of definitions in
§58.4501-1(b).
(2) Section 4501(d) definitions.
(c) Computation of section 4501(d)
excise tax liability for a section 4501(d)
covered corporation.
(1) Imposition of tax.
(2) Section 4501(d) de minimis excep-
tion.
(3) Section 4501(d) excise tax base.
(4) Section 4501(d)(1) repurchases or
section 4501(d)(2) repurchases before
January 1, 2023.
(d) Section 4501(d)(2) coordination
rules.
(1) Coordination rule for section
4501(d)(1) repurchases and section
4501(d)(2) repurchases.
(2) Coordination rule for multiple sec-
tion 4501(d) covered corporations.
(e) Status as applicable foreign corpo-
ration or covered surrogate foreign corpo-
ration.
(1) Initiation date.
(2) Cessation date.
(3) Rules regarding F reorganizations.
(f) Status as an applicable specified
affiliate or a specified affiliate of a covered
surrogate foreign corporation.
(1) Timing of determination.

December 15, 2025 808 Bulletin No. 2025–51
(2) Determination of indirect owner-
ship.
(g) Foreign partnerships that are appli-
cable specified affiliates.
(1) In general.
(2) Direct or indirect partner.
(3) Control of a foreign corporation.
(4) Indirect interests held through
applicable foreign corporations.
(5) De minimis domestic entity (direct
or indirect) partner.
(h) CSFC repurchase.
(1) Overview.
(2) Scope of CSFC repurchases.
(3) Certain section 317(b) redemptions
that are not CSFC repurchases.
(4) Section 4501(d) economically sim-
ilar transactions.
(5) Transactions that are not CSFC
repurchases.
(i) [Reserved]
(j) Date of section 4501(d)(1) repur-
chase or section 4501(d)(2) repurchase.
(1) General rule.
(2) Regular-way sale.
(k) Fair market value of stock of an
applicable foreign corporation or a cov-
ered surrogate foreign corporation that is
repurchased or acquired.
(1) In general.
(2) Stock traded on an established
securities market.
(3) Stock not traded on an established
securities market.
(4) Market price of stock denominated
in non-U.S. currency.
(l) Section 4501(d) exceptions.
(1) In general.
(2) Section 4501(d) reorganization
exception.
(3) Stock contributions to an employ-
er-sponsored retirement plan.
(4) Repurchases or acquisitions by a
dealer in securities in the ordinary course
of business.
(5) Repurchases by a RIC or REIT.
(6) CSFC repurchase treated as a div-
idend.
(7) Repurchases by a non-RIC ’40 Act
fund.
(m) Application of section 4501(d) net-
ting rule.
(1) In general.
(2) Stock issued or provided outside
period of applicable foreign corporation
or covered surrogate foreign corporation
status.
(3) Issuances or provisions before Jan-
uary 1, 2023.
(4) Stock Issued or provided in connec-
tion with the performance of services.
(5) Date of issuance or provision for
section 4501(d) netting rule.
(6) Fair market value of stock of an
applicable foreign corporation or a cov-
ered surrogate foreign corporation that is
issued or provided to employees.
(7) Issuances that are disregarded for
purposes of applying the section 4501(d)
netting rule.
(n) Section 4501(d)(1) examples.
(1) Example 1: Section 4501(d) netting
rule with respect to a single applicable
specified affiliate.
(2) Example 2: Section 4501(d) netting
rule with respect to multiple applicable
specified affiliates.
(3) Example 3: Foreign partnership
that is an applicable specified affiliate.
(4) Example 4: Foreign partnership
that is not an applicable specified affiliate.
(5) Example 5: Foreign partnership that
is directly owned by foreign corporations
and is an applicable specified affiliate.
(o) Section 4501(d)(2) examples.
(1) Example 1: Section 4501(d) netting
rule with respect to an expatriated entity.
(2) Example 2: Section 4501(d)(2)
repurchase from the covered surrogate
foreign corporation or another specified
affiliate of the covered surrogate foreign
corporation.
(3) Example 3: Liability with respect to
multiple expatriated entities.
(p) Applicability dates.
(1) In general.
(2) Transition rule for foreign partner-
ship de minimis rule.
(3) Early application.
§58.4501-1 Excise tax on stock
repurchases.
(a) Excise tax imposed. Section
4501(a) of the Code imposes a stock
repurchase excise tax on each covered
corporation equal to the applicable per-
centage of the fair market value of any
stock of the corporation that is repur-
chased by the corporation during the tax-
able year. This section and §58.4501-2
provide generally applicable definitions
and operating rules regarding the appli-
cation of the stock repurchase excise tax
and the computation of the stock repur-
chase excise tax liability of a covered
corporation. Section 58.4501-3 provides
rules regarding the application of the
exceptions in section 4501(e) (other than
the de minimis exception described in
section 4501(e)(3), which is addressed
in §58.4501-2(b)(2)) and related excep-
tions. Section 58.4501-4 provides rules
regarding the application of section
4501(c)(3). Section 58.4501-5 provides
examples that illustrate the application
of section 4501 and the stock repurchase
excise tax regulations. Section 58.4501-6
provides applicability dates for the stock
repurchase excise tax regulations (other
than §58.4501-7). For special rules and
examples regarding the application of
section 4501(d) to acquisitions or repur-
chases of stock of certain foreign corpo-
rations, see §58.4501-7.
(b) Definitions. The following defini-
tions apply for purposes of this section
and §§58.4501-2 through 58.4501-6, and,
to the extent provided in §58.4501-7(b),
for purposes of §58.4501-7:
(1) Acquisitive reorganization. The
term acquisitive reorganization means a
transaction that qualifies as a reorganiza-
tion under—
(i) Section 368(a)(1)(A) of the Code,
including by reason of section 368(a)(2)
(D) or (a)(2)(E);
(ii) Section 368(a)(1)(C);
(iii) Section 368(a)(1)(D), if the reor-
ganization satisfies the requirements of
section 354(b)(1) of the Code; or
(iv) Section 368(a)(1)(G), if the reor-
ganization satisfies the requirements of
section 354(b)(1).
(2) Applicable percentage. The term
applicable percentage means the percent-
age provided in section 4501(a).
(3) Cessation date. The term cessation
date means the date on which all stock of a
covered corporation ceases to be traded on
an established securities market.
(4) Clawback. The term clawback
means a surrender of stock pursuant to
a contractual provision that requires an
employee to return vested stock.
(5) Code. The term Code means the
Internal Revenue Code.
(6) Controlled corporation. The term
controlled corporation has the meaning
given the term in section 355(a)(1)(A) of
the Code.

Bulletin No. 2025–51 809 December 15, 2025
(7) Covered corporation. The term
covered corporation means any domestic
corporation (including within the meaning
of paragraph (d) of this section) the stock
of which is traded on an established secu-
rities market.
(8) Covered holder. The term covered
holder has the meaning given the term in
§58.4501-4(f)(13)(ii)(C).
(9) Covered non-stock instrument. The
term covered non-stock instrument has the
meaning given the term in §58.4501-4(f)
(13)(ii)(B).
(10) De minimis exception. The term de
minimis exception has the meaning given
the term in §58.4501-2(b)(2)(i).
(11) Distributing corporation. The
term distributing corporation has the
meaning given the term in section 355(a)
(1)(A).
(12) E reorganization. The term E
reorganization means a transaction that
qualifies as a reorganization under section
368(a)(1)(E).
(13) Economically similar transaction.
The term economically similar trans-
action means a transaction described in
§58.4501-2(e)(4).
(14) Employee. The term employee
means an employee as defined in sec-
tion 3401(c) of the Code and §31.3401(c)-1
of this chapter, or a former employee, of a
covered corporation or a specified affiliate
of the covered corporation (as appropri-
ate).
(15) Employer-sponsored retirement
plan—(i) In general. The term employ-
er-sponsored retirement plan means a
plan that includes a trust that is qualified
under section 401(a) of the Code and
maintained by a covered corporation or
a specified affiliate of the covered corpo-
ration.
(ii) ESOPs included. For the purposes
of these regulations, the term employ-
er-sponsored retirement plan includes an
employee stock ownership plan defined
in section 4975(e)(7) of the Code (ESOP)
that is maintained by a covered corpora-
tion or a specified affiliate of the covered
corporation.
(16) Established securities market. The
term established securities market has the
meaning given the term in §1.7704-1(b) of
this chapter.
(17) F reorganization. The term F
reorganization means a transaction that
qualifies as a reorganization under section
368(a)(1)(F).
(18) Forfeiture. The term forfeiture
means a surrender of stock to the issuing
corporation for no consideration.
(19) Gross repurchase amount. The term
gross repurchase amount has the meaning
given the term in §58.4501-2(c)(1)(i).
(20) Initiation date. The term initia-
tion date means the date on which stock
of a corporation begins to be traded on an
established securities market.
(21) IRS. The term IRS means the Inter-
nal Revenue Service.
(22) Netting rule. The term netting
rule has the meaning given the term in
§58.4501-4(a).
(23) Non-RIC ’40 Act fund. The term
non-RIC ’40 Act fund has the meaning
given the term in §58.4501-3(h).
(24) Non-stock instrument. The term
non-stock instrument has the meaning
given the term in §58.4501-4(f)(13)(ii)
(A).
(25) Recapitalizing corporation. The
term recapitalizing corporation means the
corporation recapitalizing its stock in an E
reorganization.
(26) REIT. The term REIT has the
meaning given the term real estate invest-
ment trust in section 856(a) of the Code.
(27) Reorganization exception. The
term reorganization exception means the
exception provided in §58.4501-3(c).
(28) Repurchase. The term repur-
chase has the meaning given the term in
§58.4501-2(e)(2).
(29) RIC. The term RIC has the mean-
ing given the term regulated investment
company in section 851 of the Code.
(30) SEC. The term SEC means the
U.S. Securities and Exchange Commis-
sion.
(31) Section 317(b) redemption. The
term section 317(b) redemption means a
redemption within the meaning of sec-
tion 317(b) of the Code with regard to the
stock of a covered corporation.
(32) Specified affiliate. The term spec-
ified affiliate means, with regard to any
corporation—
(i) Any corporation more than 50 per-
cent of the stock of which is owned (by
vote or by value), directly or indirectly, by
the corporation; and
(ii) Any partnership more than 50 per-
cent of the capital interests or profits inter-
ests of which is held, directly or indirectly,
by the corporation.
(33) Split-off. The term split-off means
a distribution qualifying under section 355
(or so much of section 356 of the Code
as relates to section 355) by a distributing
corporation pursuant to which the share-
holders of the distributing corporation
exchange stock of the distributing corpo-
ration for stock of the controlled corpo-
ration and, if applicable, other property
(including securities of the controlled cor-
poration) or money.
(34) Stock—(i) In general. Except as
provided in paragraph (b)(34)(ii) or (iii)
of this section, the term stock means any
instrument issued by a corporation that is
stock (including treasury stock) or that is
treated as stock for Federal tax purposes at
the time of issuance, regardless of whether
the instrument is traded on an established
securities market.
(ii) Additional tier 1 capital. The term
stock does not include preferred stock
that—
(A) Qualifies as additional tier 1 capi-
tal (within the meaning of 12 CFR 3.20(c),
217.20(c), 217.608(a)(2), 324.20(c), or
628.20(c)); and
(B) Does not qualify as common equity
tier 1 capital (within the meaning of 12
CFR 3.20(b), 217.20(b), 217.608(a)(3),
324.20(b), or 628.20(b)).
(iii) Section 1504(a)(4) stock. The term
stock does not include preferred stock
described in section 1504(a)(4) of the
Code.
(35) Stock repurchase excise tax. The
term stock repurchase excise tax means
the excise tax imposed by section 4501(a)
on each covered corporation equal to the
applicable percentage of the fair market
value of any stock of the corporation that
is repurchased by the corporation during
the taxable year.
(36) Stock repurchase excise tax base.
The term stock repurchase excise tax
base has the meaning given the term in
§58.4501-2(c)(1).
(37) Stock repurchase excise tax regu-
lations. The term stock repurchase excise
tax regulations means—
(i) Subparts A and B of this part; and
(ii) Section 1.1275-6(f)(12)(iii) of this
chapter (providing that the integration of
a qualifying debt instrument with a hedge
pursuant to §1.1275-6 of this chapter is not

December 15, 2025 810 Bulletin No. 2025–51
taken into account in determining whether
and when stock is repurchased or issued).
(38) Taxable year. The term taxable
year has the meaning given the term in
section 7701(a)(23) of the Code.
(39) Treasury stock. The term treasury
stock means treasury stock within the
meaning of section 317(b).
(c) No application for any purposes of
chapter 1 of the Code. The rules of this
part have no application for purposes of
chapter 1 of the Code.
(d) Status as a domestic or foreign cor-
poration. If a corporation is, or is treated
as, a domestic corporation for purposes
of the Code or for purposes that include
chapter 37 of the Code, then the corpo-
ration is a domestic corporation for pur-
poses of the stock repurchase excise tax
regulations. A corporation that is not a
domestic corporation for purposes of the
stock repurchase excise tax regulations is
a foreign corporation for such purposes.
(e) F reorganizations. For purposes
of the stock repurchase excise tax reg-
ulations, the transferor corporation and
the resulting corporation (each as defined
in §1.368-2(m)(1) of this chapter) in an
F reorganization are treated as the same
corporation.
§58.4501-2 General rules regarding
excise tax on stock repurchases.
(a) Scope. This section provides general
rules regarding the application of the stock
repurchase excise tax and the computation
of the stock repurchase excise tax liability
of a covered corporation. Paragraphs (b)
and (c) of this section provide rules for
computing a covered corporation’s stock
repurchase excise tax liability. Paragraph
(d) of this section provides rules for deter-
mining whether a corporation is a covered
corporation. Paragraph (e) of this section
provides rules for determining whether a
transaction is a repurchase. Paragraph (f)
of this section provides rules for acquisi-
tions of stock of a covered corporation by
a specified affiliate of the covered corpo-
ration. Paragraph (g) of this section pro-
vides rules for determining when stock is
repurchased. Paragraph (h) of this section
provides rules for determining the fair
market value of repurchased stock.
(b) Computation of excise tax liabil-
ity—(1) Imposition of tax. Except as pro-
vided in paragraph (b)(2) of this section
(regarding the de minimis exception), the
amount of stock repurchase excise tax
imposed by section 4501(a) on a covered
corporation for a taxable year equals the
product obtained by multiplying—
(i) The applicable percentage; by
(ii) The stock repurchase excise tax
base of the covered corporation for the
taxable year determined in accordance
with paragraph (c)(1) of this section.
(2) De minimis exception—(i) In gen-
eral. A covered corporation is not subject
to the stock repurchase excise tax with
regard to a taxable year if, during that tax-
able year, the aggregate fair market value
of the stock described in paragraphs (b)
(2)(i)(A) and (B) of this section does not
exceed $1,000,000 (de minimis excep-
tion):
(A) The stock of the covered corpo-
ration that is repurchased by the covered
corporation (as determined under para-
graph (e) of this section).
(B) The stock of the covered corpora-
tion that is acquired by a specified affiliate
of the covered corporation (as determined
under paragraph (f) of this section).
(ii) Determination. A determination of
whether the de minimis exception applies
with regard to a taxable year is made
before applying—
(A) Any exception under §58.4501-3;
and
(B) Any adjustments pursuant to the
netting rule under §58.4501-4.
(c) Stock repurchase excise tax base—
(1) In general. With regard to a covered
corporation, the term stock repurchase
excise tax base means the dollar amount
(not less than zero) that is obtained by—
(i) Determining (in accordance with
paragraphs (e) through (h) of this sec-
tion) the aggregate fair market value of
the stock of the covered corporation that
is repurchased by the covered corporation
or acquired by a specified affiliate of the
covered corporation during the covered
corporation’s taxable year (gross repur-
chase amount);
(ii) Reducing the gross repurchase
amount by the fair market value of the
stock of the covered corporation repur-
chased by the covered corporation or
acquired by a specified affiliate of the cov-
ered corporation during the covered cor-
poration’s taxable year to the extent the
repurchase or acquisition qualifies for an
exception in accordance with §58.4501-3;
and then
(iii) Further reducing the gross repur-
chase amount by the aggregate fair market
value of stock of the covered corporation
issued by the covered corporation or pro-
vided by a specified affiliate of the cov-
ered corporation during the covered cor-
poration’s taxable year under the netting
rule in accordance with §58.4501-4.
(2) Taxable year determination—(i) In
general. The determinations under para-
graph (c)(1)(i) of this section are made
separately for each covered corporation
and for each taxable year of the covered
corporation.
(ii) No carrybacks or carryforwards.
Reductions under paragraphs (c)(1)(ii)
and (iii) of this section in excess of the
gross repurchase amount may not be car-
ried forward or backward to preceding or
succeeding taxable years of the covered
corporation.
(3) Repurchases before January 1,
2023. Stock of a covered corporation
repurchased by the covered corporation
or acquired by a specified affiliate of the
covered corporation before January 1,
2023 (as determined under paragraphs (e)
through (g) of this section) is neither—
(i) Included in the stock repurchase
excise tax base of the covered corpora-
tion; nor
(ii) Taken into account in determining
the applicability of the de minimis excep-
tion.
(d) Duration of covered corporation
status—(1) Initiation date. A corporation
becomes a covered corporation at the
beginning of the corporation’s initiation
date (that is, the date on which stock of
the corporation begins to be traded on an
established securities market).
(2) Cessation date. A corporation
ceases to be a covered corporation at the
end of the corporation’s cessation date
(that is, the date on which all stock of
the corporation ceases to be traded on an
established securities market).
(3) Inbound and outbound F reorga-
nizations—(i) Inbound F reorganization.
In the case of a foreign corporation that
transfers its assets or that is treated as
transferring its assets to a domestic corpo-
ration in an F reorganization (as described
in §1.367(b)-2(f) of this chapter), the cor-

Bulletin No. 2025–51 811 December 15, 2025
poration is not treated as a domestic cor-
poration until the day after the reorgani-
zation.
(ii) Outbound F reorganization. In the
case of a domestic corporation that trans-
fers its assets or that is treated as trans-
ferring its assets to a foreign corporation
in an F reorganization (as described in
§1.367(a)-1(e) of this chapter), the corpo-
ration is not treated as a foreign corpora-
tion until the day after the reorganization.
(e) Repurchase—(1) Overview. This
paragraph (e) provides rules for determin-
ing whether a transaction is a repurchase.
Paragraph (e)(2) of this section provides
a general rule regarding the scope of the
term repurchase for purposes of the stock
repurchase excise tax. Paragraph (e)(3)
of this section provides an exclusive list
of transactions that are section 317(b)
redemptions but are not repurchases.
Paragraph (e)(4) of this section provides
an exclusive list of transactions that are
economically similar transactions. Para-
graph (e)(5) of this section provides a
non-exclusive list of transactions that are
not repurchases.
(2) Scope of repurchase. A repurchase
means solely—
(i) A section 317(b) redemption, except
as provided in paragraph (e)(3) of this sec-
tion; or
(ii) An economically similar transac-
tion described in paragraph (e)(4) of this
section.
(3) Certain section 317(b) redemptions
that are not repurchases. This paragraph
(e)(3) provides an exclusive list of section
317(b) redemptions that are not repur-
chases for purposes of the stock repur-
chase excise tax regulations.
(i) Section 304(a)(1) transactions—
(A) Rule regarding deemed distributions.
The deemed distribution by an acquiring
corporation (within the meaning of sec-
tion 304(a)(1) of the Code) that is a cov-
ered corporation in redemption of stock of
the acquiring corporation (resulting from
the application of section 304(a)(1) to an
acquisition of stock by such acquiring cor-
poration), regardless of whether section
302(a) or (d) of the Code applies to the
acquiring corporation’s deemed distribu-
tion in redemption of its stock.
(B) Rule regarding deemed issuances.
For the rule addressing the treatment of
any stock deemed to be issued by the
acquiring corporation as a result of the
application of section 304(a)(1), see
§58.4501-4(f)(4).
(ii) Leveraged buyouts and take-pri-
vate transactions. A redemption by a cov-
ered corporation that occurs as part of a
transaction in which the covered corpora-
tion ceases to be a covered corporation.
(iii) Stock issued prior to August 16,
2022. A redemption by a covered corpo-
ration of stock of the covered corporation
issued prior to August 16, 2022, if, at the
time such stock was issued and continuing
until the time of the redemption, the stock
was subject to—
(A) Mandatory redemption by the cov-
ered corporation; or
(B) A unilateral put option by the
holder of such stock.
(iv) Payment by a covered corporation
of cash in lieu of fractional shares. A pay-
ment by a covered corporation of cash in
lieu of a fractional share of the covered
corporation’s stock, if—
(A) The payment is carried out as part
of a transaction that qualifies as a reorga-
nization under section 368(a) of the Code
or a distribution to which section 355 of
the Code applies, or pursuant to the set-
tlement of an option or a similar financial
instrument (for example, a convertible
debt instrument or convertible preferred
share);
(B) The cash received by the share-
holder entitled to the fractional share is
not separately bargained-for consideration
(that is, the cash paid by the covered cor-
poration in lieu of the fractional share rep-
resents a mere rounding off of the shares
issued in the exchange or settlement);
(C) The payment is carried out solely
for administrative convenience (and,
therefore, solely for non-tax reasons); and
(D) The amount of cash paid to the
shareholder in lieu of a fractional share
does not exceed the fair market value of
one full share of the class of stock of the
covered corporation with respect to which
the payment of cash in lieu of a fractional
share is made.
(4) Economically similar transactions.
This paragraph (e)(4) provides an exclu-
sive list of transactions that are econom-
ically similar to section 317(b) redemp-
tions solely for purposes of the stock
repurchase excise tax (that is, economi-
cally similar transactions) and, therefore,
are taken into account as repurchases for
purposes of the stock repurchase excise
tax regulations.
(i) E reorganizations—(A) In general.
Except as provided in paragraph (e)(4)(i)
(B) of this section, in the case of an E reor-
ganization in which the recapitalizing cor-
poration is a covered corporation, solely
the recapitalizing corporation’s acquisi-
tion of its stock pursuant to the plan of
reorganization in exchange for property
that is not permitted to be received by the
recapitalizing corporation’s shareholders
under section 354 of the Code without the
recognition of gain.
(B) Exception. Paragraph (e)(4)(i)(A)
of this section does not apply to the extent
that—
(1) The distribution of such property is
treated as a distribution with respect to the
recapitalizing corporation’s stock under
§1.301-1(j) of this chapter; or
(2) The exchange is with respect to pre-
ferred stock with dividends in arrears that
is treated under §1.305-7(c)(2) or 1.368-
2(e)(5) of this chapter as a deemed distri-
bution to which sections 301 and 305(b)
(4) of the Code apply.
(ii) Split-offs. In the case of a split-
off by a distributing corporation that is a
covered corporation, the acquisition by
the distributing corporation of its stock in
exchange for property.
(iii) Certain forfeitures and clawbacks
of stock—(A) In general. In the case of a
forfeiture or clawback of stock of a cov-
ered corporation pursuant to a legal or
contractual obligation, the forfeiture to
or clawback by the covered corporation
or a specified affiliate of the covered cor-
poration (as appropriate) on the date of
forfeiture or clawback (as appropriate) if
the stock was treated as issued or provided
under §58.4501-4(b) and the forfeiture or
clawback of the stock (as appropriate) is
described in paragraph (e)(4)(iii)(B), (C),
or (D) of this section.
(B) Stock subject to post-closing price
adjustments. The stock was issued pur-
suant to an acquisition of a target entity
or its business, and the forfeiture of the
stock was in accordance with the terms of
the documents governing the transaction
(for example, to compensate the acquir-
ing corporation for breaches of represen-
tations or warranties made by the target
entity, or because the business of the target

December 15, 2025 812 Bulletin No. 2025–51
entity did not achieve certain performance
benchmarks agreed upon in the transac-
tion documents).
(C) Stock for which a section 83(b) elec-
tion was made. The stock was subject to
a substantial risk of forfeiture within the
meaning of section 83(a) of the Code on the
date the stock was issued or provided, the
service provider made a valid election under
section 83(b) with regard to the stock, and
the forfeiture resulted from the service pro-
vider failing to meet the vesting condition.
(D) Clawbacks. On the date the stock
was issued or provided, the stock was
subject to a clawback agreement, and a
clawback of the stock resulted from the
occurrence of an event specified in the
clawback agreement.
(5) Transactions that are not repur-
chases. This paragraph (e)(5) provides a
non-exclusive list of transactions each of
which is not a repurchase for purposes of
the stock repurchase excise tax regula-
tions.
(i) Complete liquidations. A distribu-
tion by a covered corporation—
(A) In complete liquidation of the cov-
ered corporation to which section 331 or
332(a) (or both) applies;
(B) Pursuant to a resolution or plan of
dissolution of the covered corporation that
is reported on an original (but not a sup-
plemented or an amended) IRS Form 966,
Corporate Dissolution or Liquidation (or
any successor form); or
(C) Pursuant to a deemed dissolution
of the covered corporation (for instance,
pursuant to a deemed liquidation under
§301.7701-3 of this chapter).
(ii) Distributions during taxable year of
complete liquidation or dissolution. A dis-
tribution by a covered corporation during
a taxable year of the covered corporation,
if the covered corporation—
(A) Completely liquidates during the
taxable year (that is, has a final distribu-
tion during the taxable year in a complete
liquidation to which section 331 or 332(a)
(or both) applies);
(B) Dissolves during the taxable year
pursuant to a resolution or plan of disso-
lution as reported on an original (but not
a supplemented or an amended) IRS Form
966, Corporate Dissolution or Liquida-
tion (or any successor form); or
(C) Is deemed to dissolve during the
taxable year (for instance, pursuant to a
deemed liquidation under §301.7701-3 of
this chapter).
(iii) Divisive transactions under sec-
tion 355 other than split-offs—(A) In gen-
eral. Subject to paragraph (e)(5)(iii)(B) of
this section, a distribution by a distribut-
ing corporation that is a covered corpora-
tion of stock of a controlled corporation
qualifying under section 355 that is not a
split-off.
(B) Exception regarding non-qualify-
ing property in spin-offs. A distribution by
a distributing corporation that is a covered
corporation of other property or money in
exchange for stock of the distributing cor-
poration is a repurchase by the distribut-
ing corporation if it occurs in pursuance of
a transaction qualifying under section 355
in which the distribution by the distribut-
ing corporation of stock of the controlled
corporation is with respect to stock of the
distributing corporation.
(iv) Non-redemptive distributions sub-
ject to section 301(c)(2) or (3). A distri-
bution to which section 301 applies by a
covered corporation to a distributee, if the
distribution—
(A) Is subject to section 301(c)(2) or
(3); and
(B) The distributee does not exchange
stock of the covered corporation (and
is not treated as exchanging stock of the
covered corporation for Federal income
tax purposes).
(v) Acquisitive reorganizations. In the
case of an acquisitive reorganization in
which the target corporation is a covered
corporation, the acquisition by the target
corporation of its stock pursuant to the
plan of reorganization in exchange for
property that is permitted to be received
by the target corporation’s shareholders
under section 354 or 356 of the Code.
(vi) Net cash settlement of an option
contract or other derivative financial
instrument—(A) In general. Subject to
paragraph (e)(5)(vi)(B) of this section, the
net cash settlement of an option contract
or other derivative financial instrument
with respect to stock of a covered corpo-
ration.
(B) Exception regarding net cash set-
tlement of an option contract or other
derivative financial instrument treated as
stock. The net cash settlement of an instru-
ment in the legal form of an option con-
tract or other derivative financial instru-
ment that is treated as stock of a covered
corporation for Federal tax purposes at the
time of issuance is a repurchase.
(vii) Repurchases from a specified affil-
iate. The acquisition by a covered corpo-
ration of its stock from a specified affiliate
of the covered corporation if the specified
affiliate’s acquisition of such stock of
the covered corporation was treated as a
repurchase under paragraph (f)(1) of this
section.
(f) Specified affiliates—(1) Acquisi-
tions of stock of a covered corporation
by a specified affiliate treated as a repur-
chase. If a specified affiliate of a covered
corporation acquires stock of the covered
corporation from a person that is not the
covered corporation or another specified
affiliate of the covered corporation, the
acquisition is treated as a repurchase of
the stock of the covered corporation by the
covered corporation.
(2) Determination of specified affili-
ate status—(i) Timing of determination.
A covered corporation must determine
whether another corporation or partner-
ship is a specified affiliate of the covered
corporation at the time the stock of the
covered corporation is acquired or pro-
vided by the other corporation or partner-
ship for purposes of computing the stock
repurchase excise tax with regard to the
covered corporation.
(ii) Indirect ownership. For purposes
of determining whether a corporation or a
partnership is a specified affiliate of a cov-
ered corporation, the covered corporation
is treated as indirectly owning stock in the
corporation or holding capital or profits
interests in the partnership in the percent-
age equal to the covered corporation’s
proportionate percentage of stock owned,
or capital or profits interests held, through
other entities.
(g) Date of repurchase—(1) General
rule. In general, stock of a covered cor-
poration is treated as repurchased by the
covered corporation or acquired by a
specified affiliate of the covered corpora-
tion on the date on which ownership of the
stock transfers to the covered corporation
or specified affiliate (as appropriate) for
Federal income tax purposes.
(2) Regular-way sale. A regular-way
sale of stock of a covered corporation (that
is, a transaction in which a trade order is
placed on the trade date, and settlement

Bulletin No. 2025–51 813 December 15, 2025
of the transaction, including payment and
delivery of the stock, occurs a standard-
ized period of time, as set by a regulator,
after the trade date) is treated as a repur-
chase by the covered corporation or an
acquisition by a specified affiliate of the
covered corporation on the trade date.
(h) Fair market value of repurchased
stock—(1) In general. The fair market
value of stock of a covered corporation
that is repurchased by the covered corpo-
ration or acquired by a specified affiliate
of the covered corporation is the market
price of the stock on the date the stock is
repurchased or acquired (as determined
under paragraph (g) of this section). That
is, if the price at which the repurchased or
acquired stock is purchased differs from
the market price of the stock on the date
the stock is repurchased or acquired, the
fair market value of the stock is the market
price on the date the stock is repurchased
or acquired.
(2) Stock traded on an established secu-
rities market—(i) In general. If stock of a
covered corporation that is repurchased
by the covered corporation or acquired by
a specified affiliate of the covered corpo-
ration is traded on an established securi-
ties market, the covered corporation must
determine the market price of the repur-
chased or acquired stock by applying one
of the methods provided in paragraph (h)
(2)(ii) of this section. For purposes of this
paragraph (h)(2), repurchased or acquired
stock of a covered corporation is treated as
traded on an established securities market
if any stock of the same class and issue of
stock is so traded, regardless of whether
the shares repurchased or acquired are so
traded.
(ii) Acceptable methods. The follow-
ing are acceptable methods for determin-
ing the market price of repurchased or
acquired stock of a covered corporation
traded on an established securities market:
(A) The daily volume-weighted aver-
age price as determined on the date the
stock is repurchased by the covered cor-
poration or acquired by a specified affili-
ate of the covered corporation.
(B) The closing price on the date the
stock is repurchased by the covered cor-
poration or acquired by a specified affili-
ate of the covered corporation.
(C) The average of the high and low
prices on the date the stock is repurchased
by the covered corporation or acquired by
a specified affiliate of the covered corpo-
ration.
(D) The trading price at the time the
stock is repurchased by the covered cor-
poration or acquired by a specified affili-
ate of the covered corporation.
(iii) Date of repurchase not a trading
day. For purposes of each method pro-
vided in paragraph (h)(2)(ii) of this sec-
tion, if the date the stock of a covered
corporation is repurchased by the covered
corporation or acquired by a specified
affiliate of the covered corporation is not
a trading day, the date on which the mar-
ket price is determined is the immediately
preceding trading day.
(iv) Consistency requirement—(A)
Solely one method permitted for deter-
mining market price of repurchased or
acquired stock. The market price of repur-
chased or acquired stock of a covered cor-
poration that is traded on an established
securities market must be determined by
consistently applying one (but not more
than one) of the methods provided in para-
graph (h)(2)(ii) of this section to all stock
of the covered corporation repurchased by
the covered corporation or acquired by a
specified affiliate of the covered corpora-
tion throughout the covered corporation’s
taxable year.
(B) Application to netting rule. The
method used by the covered corporation
under paragraph (h)(2)(iv)(A) of this
section must be consistently applied to
determine the market price of all stock
of the covered corporation issued or
provided throughout the covered corpo-
ration’s taxable year for purposes of the
netting rule under §58.4501-4 except
with respect to the determination of the
fair market value of stock of a covered
corporation that the covered corporation
issues, or that a specified affiliate of the
covered corporation provides, in connec-
tion with the performance of services.
See §58.4501-4(e).
(v) Stock traded on multiple
exchanges—(A) In general. A covered
corporation the stock of which is traded
on multiple established securities markets
must determine the market price of the
stock of the covered corporation by ref-
erence to trading on the established secu-
rities market in the country in which the
covered corporation is organized, includ-
ing a regional established securities mar-
ket that trades in that country.
(B) Stock traded on multiple exchanges
in country where covered corporation is
organized. If a covered corporation’s stock
is traded on multiple established securities
markets in the country in which the cov-
ered corporation is organized, the covered
corporation must determine the market
price of the stock by reference to trading
on the established securities market in that
country with the highest trading volume in
that stock in the prior taxable year.
(C) Other cases in which stock is
traded on multiple exchanges. If stock of a
covered corporation is traded on multiple
established securities markets and neither
paragraph (h)(2)(v)(A) nor (B) of this sec-
tion applies, the covered corporation must
determine the market price of the stock in
a manner that is reasonable and consistent
under the facts and circumstances.
(3) Stock not traded on an established
securities market—(i) General rule. If
repurchased or acquired stock of a cov-
ered corporation is not traded on an estab-
lished securities market, the market price
of the stock is determined as of the date
the stock is repurchased by the covered
corporation or acquired by a specified
affiliate of the covered corporation under
the principles of §1.409A-1(b)(5)(iv)(B)
(1) of this chapter.
(ii) Consistency requirement—(A)
Solely one method permitted for deter-
mining market price of repurchased or
acquired stock. The valuation method for
determining the market price of repur-
chased or acquired stock of a covered
corporation that is not traded on an estab-
lished securities market must be used for
all repurchases of stock of the covered
corporation or acquisitions by a speci-
fied affiliate of the covered corporation
of the same class throughout the covered
corporation’s taxable year, unless the
application of that method to a particular
repurchase or acquisition would be unrea-
sonable under the facts and circumstances
as of the valuation date within the mean-
ing of §1.409A-1(b)(5)(iv)(B)(1) of this
chapter.
(B) Application to netting rule. The
method used by the covered corpora-
tion under paragraph (h)(3)(ii)(A) of this
section must be consistently applied to
determine the market price of all stock

December 15, 2025 814 Bulletin No. 2025–51
of the covered corporation of the same
class issued throughout the covered cor-
poration’s taxable year for purposes of the
netting rule under §58.4501-4 except with
respect to the determination of the market
price of stock of the covered corporation
that is issued or provided in connection
with the performance of services or if the
application of that method to a particular
issuance in connection with the perfor-
mance of services would be unreasonable
under the facts and circumstances as of the
valuation date.
(4) Market price of stock denominated
in non-U.S. currency. The market price of
any stock of a covered corporation that is
denominated in a currency other than the
U.S. dollar is converted into U.S. dollars
at the spot rate (as defined in §1.988-1(d)
(1) of this chapter) on the date the stock
is repurchased by the covered corporation
or acquired by a specified affiliate of the
covered corporation.
§58.4501-3 Exceptions.
(a) Scope. This section provides rules
regarding the application of each excep-
tion set forth in section 4501(e) of the
Code, other than the de minimis exception
described in section 4501(e)(3) and sub-
ject to §58.4501-2(b)(2), to a repurchase
of stock of a covered corporation by the
covered corporation or an acquisition of
stock of a covered corporation by a speci-
fied affiliate of the covered corporation (as
appropriate). This section also provides
rules regarding an additional exception
to the stock repurchase excise tax appli-
cable to non-RIC ’40 Act funds. For rules
regarding the application of these excep-
tions in the context of section 4501(d), see
§58.4501-7(l).
(b) Reduction of covered corporation’s
stock repurchase excise tax base—(1) In
general. For purposes of determining a
covered corporation’s stock repurchase
excise tax base under §58.4501-2(c)(1),
the covered corporation reduces its gross
repurchase amount by an amount equal
to the aggregate fair market value of its
repurchased stock that qualifies for an
exception described in paragraphs (c)
through (h) of this section. See §58.4501-
2(c)(1)(ii).
(2) Coordination of exceptions. If a
repurchase of stock qualifies for more
than one exception described in para-
graphs (c) through (h) of this section, the
covered corporation may reduce its gross
repurchase amount under solely a single
exception, as determined by the covered
corporation.
(c) Reorganization exception. A cov-
ered corporation reduces its gross repur-
chase amount under §58.4501-2(c)(1)(ii)
by an amount equal to the aggregate fair
market value of its stock repurchased from
a shareholder in a transaction described in
§58.4501-2(e)(4)(ii) to the extent that the
repurchase is for property permitted by
section 355 to be received without the rec-
ognition of gain or loss.
(d) Stock contributions to an employ-
er-sponsored retirement plan—(1) Reduc-
tions in computing covered corporation’s
stock repurchase excise tax base—(i)
General rule. A covered corporation
reduces its gross repurchase amount under
§58.4501-2(c)(1)(ii) if the stock of the
covered corporation that is repurchased
by the covered corporation or acquired by
a specified affiliate of the covered corpo-
ration, or an amount of stock equal to the
fair market value of the stock repurchased
or acquired, is contributed to an employ-
er-sponsored retirement plan. The amount
of the reduction under this paragraph (d)
(1) is determined as provided in paragraph
(d)(3) or (4) of this section.
(ii) Special rule for leveraged ESOPs.
If a covered corporation or a specified
affiliate of the covered corporation main-
tains an ESOP with an exempt loan (as
described in section 4975(d)(3) of the
Code), allocations of qualifying employer
securities from the ESOP suspense
account to ESOP participants’ accounts
that are attributable to employer contri-
butions (and not to dividends) are treated
as contributions of stock under this para-
graph (d) as of the date stock attribut-
able to repayment of the exempt loan is
released from the suspense account and
allocated to ESOP participants’ accounts.
(2) Classes of stock contributed to an
employer-sponsored retirement plan. This
paragraph (d) applies to contributions of
any class of covered corporation stock to
an employer-sponsored retirement plan,
regardless of the class of stock that was
repurchased or acquired.
(3) Same class of stock repurchased
and contributed. If stock of a covered
corporation is repurchased by the covered
corporation or acquired by a specified
affiliate of the covered corporation, and
stock of the covered corporation of the
same class is contributed to an employ-
er-sponsored retirement plan, the amount
of the reduction under paragraph (d)(1) of
this section is equal to the lesser of—
(i) The aggregate fair market value of
the stock of the same class that was repur-
chased or acquired (as determined under
§58.4501-2(h)) during the covered corpo-
ration’s taxable year; or
(ii) The amount obtained by—
(A) Determining the aggregate fair
market value of all stock of that class
repurchased or acquired (as determined
under §58.4501-2(h)) during the covered
corporation’s taxable year, reduced by the
fair market value of shares of that class of
stock that is a reduction to the stock repur-
chase excise tax base for the taxable year
under an exception in this section other
than the exception in this paragraph (d);
(B) Dividing the amount determined
under paragraph (d)(3)(ii)(A) of this sec-
tion by the number of shares of that class
repurchased or acquired, reduced by the
number of shares of that class of stock the
fair market value of which is a reduction
to the stock repurchase excise tax base for
the taxable year under an exception in this
section other than the exception in this
paragraph (d); and
(C) Multiplying the amount determined
under paragraph (d)(3)(ii)(B) of this sec-
tion by the number of shares of that class
contributed to an employer-sponsored
retirement plan for the taxable year.
(4) Different class of stock repurchased
and contributed. If stock of a covered cor-
poration is repurchased by the covered
corporation or acquired by a specified
affiliate of the covered corporation, and
stock of the covered corporation of a dif-
ferent class is contributed to an employ-
er-sponsored retirement plan, then the
amount of the reduction under paragraph
(d)(1) of this section is equal to the fair
market value of the contributed stock at
the time the stock is contributed to the
employer-sponsored retirement plan.
(5) Timing of contributions—(i) In
general. The reduction under paragraph
(d)(1) of this section (that is, the reduction
in computing the stock repurchase excise
tax base), for a taxable year applies to con-

Bulletin No. 2025–51 815 December 15, 2025
tributions of covered corporation stock to
an employer-sponsored retirement plan
during the covered corporation’s taxable
year.
(ii) Treatment of contributions after
close of taxable year. For purposes of
paragraph (d)(5)(i) of this section, a
covered corporation may treat stock
contributions to an employer-sponsored
retirement plan made after the close of
the covered corporation’s taxable year
as having been contributed during that
taxable year if the following two require-
ments are satisfied:
(A) The stock must be contributed to
the employer-sponsored retirement plan
by the filing deadline for the form on
which the stock repurchase excise tax
must be reported (applicable form) for that
taxable year of the covered corporation.
(B) The stock must be treated by the
employer-sponsored retirement plan in
the same manner that the plan would treat
a contribution received on the last day of
that taxable year of the covered corpora-
tion.
(iii) No duplicate reductions. Stock
contributions that are treated under para-
graph (d)(5)(ii) of this section as having
been contributed in the taxable year to
which the applicable form applies may not
be treated as having been contributed for
any other taxable year for purposes of the
stock repurchase excise tax.
(6) Contributions before January 1,
2023. A covered corporation with a tax-
able year that both begins before Janu-
ary 1, 2023, and ends after December 31,
2022, may include for that taxable year
the fair market value of all contributions
of its stock to an employer-sponsored
retirement plan during the entirety of that
taxable year for purposes of applying this
paragraph (d).
(e) Repurchases or acquisitions by a
dealer in securities in the ordinary course
of business—(1) In general. Subject to
paragraph (e)(2) of this section, a covered
corporation reduces its gross repurchase
amount under §58.4501-2(c)(1)(ii) by an
amount equal to the aggregate fair market
value of its stock repurchased by the cov-
ered corporation or acquired by a speci-
fied affiliate of the covered corporation (as
appropriate) that is a dealer in securities
(within the meaning of section 475(c)
(1) of the Code) to the extent the stock
is acquired in the ordinary course of the
dealer’s business of dealing in securities.
(2) Applicability. The reduction
described in paragraph (e)(1) of this sec-
tion applies solely to the extent that—
(i) The dealer accounts for the stock as
securities held primarily for sale to cus-
tomers in the dealer’s ordinary course of
business;
(ii) The dealer disposes of the stock
within a period of time that is consistent
with the holding of the stock for sale to
customers in the dealer’s ordinary course
of business, taking into account the terms
of the stock and the conditions and prac-
tices prevailing in the markets for similar
stock during the period in which the stock
is held; and
(iii) The dealer (if it is a covered cor-
poration) does not sell or otherwise trans-
fer the stock to a specified affiliate of the
covered corporation, or the dealer (if it is
a specified affiliate of the covered corpo-
ration) does not sell or otherwise transfer
the stock to the covered corporation or to
another specified affiliate of the covered
corporation, in each case other than in a
sale or transfer to a dealer that also satis-
fies the requirements of this paragraph (e)
(2).
(f) Repurchases by a RIC or REIT.
A covered corporation that is a RIC or a
REIT reduces its gross repurchase amount
under §58.4501-2(c)(1)(ii) by an amount
equal to the aggregate fair market value
of any shares of its stock repurchased by
the covered corporation or acquired by a
specified affiliate of the covered corpora-
tion.
(g) Repurchase treated as a dividend—
(1) In general. A covered corporation
reduces its gross repurchase amount under
§58.4501-2(c)(1)(ii) by an amount equal
to the aggregate fair market value of the
covered corporation’s stock that the cov-
ered corporation repurchases (exclud-
ing stock treated as repurchased under
§58.4501-2(f)(1)) to the extent the repur-
chase is treated as a distribution of a divi-
dend under section 301(c)(1) or 356(a)(2)
of the Code.
(2) Rebuttable presumption of no div-
idend equivalence—(i) Presumption. A
repurchase to which section 302 or 356(a)
of the Code applies is presumed to be sub-
ject to section 302(a) or 356(a)(1), respec-
tively (and, therefore, is presumed ineligi-
ble for the exception in paragraph (g)(1)
of this section).
(ii) Rebuttal of presumption. A covered
corporation may rebut the presumption
described in paragraph (g)(2)(i) of this sec-
tion with regard to a specific shareholder
solely by establishing with sufficient evi-
dence that the covered corporation and
the shareholder treat the repurchase as a
dividend for Federal income tax purposes.
(3) Sufficient evidence requirement—
(i) In general. To provide sufficient evi-
dence under paragraph (g)(2)(ii) of this
section to establish that the shareholder
treats the repurchase as a dividend for
Federal income tax purposes, the covered
corporation must—
(A) Establish, based on information
known to the covered corporation (for
example, through legal documentation of
share ownership, publicly available infor-
mation, the pro rata nature of the repur-
chase, or the shareholder certification safe
harbor described in paragraph (g)(3)(ii) of
this section), that—
(1) The repurchase either constitutes a
redemption that is treated as a distribution
to which section 301 applies by reason
of section 302(d) or has the effect of the
distribution of a dividend under section
356(a)(2); and
(2) The covered corporation has no
knowledge of facts that would indicate
that the treatment described in paragraph
(g)(3)(i)(A)(1) of this section is incorrect;
(B) Treat the repurchase consistent
with the treatment described in paragraph
(g)(3)(i)(A)(1) of this section, including
by withholding the applicable amounts, if
required; and
(C) Demonstrate sufficient earnings
and profits to treat as a dividend either
the redemption under section 302 or the
receipt of money or other property under
section 356.
(ii) Shareholder certification safe har-
bor—(A) In general. To provide sufficient
evidence under paragraph (g)(3)(i)(A) of
this section to establish that the share-
holder treats the repurchase as a dividend
for Federal income tax purposes, the cov-
ered corporation—
(1) May obtain certification from the
shareholder, in accordance with paragraph
(g)(3)(ii)(B) of this section, that the repur-
chase constitutes a redemption treated as a
distribution to which section 301 applies

December 15, 2025 816 Bulletin No. 2025–51
by reason of section 302(d), or that the
repurchase has the effect of the distribu-
tion of a dividend under section 356(a)(2);
and
(2) Must have no knowledge of facts
that would indicate that the shareholder
certification is incorrect.
(B) Content of shareholder certifica-
tion. The shareholder certification allowed
under paragraph (g)(3)(ii)(A) of this sec-
tion must include the following informa-
tion:
(1) The name of the shareholder.
(2) The name of the covered corpora-
tion.
(3) The total number of shares of the
covered corporation outstanding imme-
diately before and immediately after the
repurchase.
(4) A statement that the shareholder
treated the repurchase as a dividend for
Federal income tax purposes.
(5) The number of shares actually and
constructively owned by the shareholder
before and after the repurchase.
(6) The shareholder’s percentage own-
ership before and after the repurchase.
(7) If the shareholder is not a United
States person (within the meaning of
section 7701(a)(30) of the Code) and the
shares are held through a broker (within
the meaning of section 6045(c) of the
Code), a statement that a copy of the cer-
tification has been provided to the share-
holder’s broker.
(8) Any other information described in
forms or instructions or in publications or
guidance published in the Internal Rev-
enue Bulletin (see §§601.601(d)(2) and
601.602 of this chapter).
(9) A penalties of perjury statement.
(10) The signature of the shareholder
and date of signature.
(C) Agreement to shareholder certi-
fication. After receiving the shareholder
certification provided under paragraph (g)
(3)(ii)(A)(1) of this section, the covered
corporation must include on the share-
holder certification a statement signed by
the covered corporation under penalties of
perjury that the covered corporation—
(1) Agrees to treat the repurchase con-
sistent with the shareholder certification
provided under paragraph (g)(3)(ii)(A)(1)
of this section; and
(2) Has no knowledge of facts that
would indicate that the shareholder certifi-
cation provided under paragraph (g)(3)(ii)
(A)(1) of this section is incorrect.
(4) Documentation of sufficient evi-
dence—(i) Retention and availability of
evidence. A covered corporation must
retain the evidence described in paragraph
(g)(3) of this section and make that evi-
dence available for inspection to the IRS
if any of the evidence becomes material in
the administration of any internal revenue
law.
(ii) Retention of supporting records.
The covered corporation must retain
records of all information necessary to
document and substantiate all content
described in paragraph (g)(3) of this sec-
tion.
(h) Repurchases by a non-RIC ’40
Act fund. A covered corporation that is
described in section 851(a)(1)(A) of the
Code, but that has not elected to be a RIC
under section 851(b) (non-RIC ’40 Act
fund), reduces its gross repurchase amount
under §58.4501-2(c)(1)(ii) by an amount
equal to the aggregate fair market value
of any shares of its stock repurchased by
the covered corporation or acquired by a
specified affiliate of the covered corpora-
tion if—
(1) The non-RIC ’40 Act fund is an
open-end company as defined in section
5(a)(1) of the Investment Company Act of
1940 (15 U.S.C. 80a-5); or
(2) The non-RIC ’40 Act fund is a
closed-end company as defined in section
5(a)(2) of the Investment Company Act of
1940, and the repurchase occurs as part of
a periodic repurchase offer made pursuant
to SEC Rule 23c-3 (17 CFR 270.23c-3).
§58.4501-4 Application of netting rule.
(a) Scope. This section provides rules
regarding the application of section
4501(c)(3) of the Code. Paragraph (b) of
this section provides general rules regard-
ing the adjustment to a covered corpora-
tion’s stock repurchase excise tax base
with respect to stock that is issued by
the covered corporation or provided by a
specified affiliate of the covered corpora-
tion (netting rule). Paragraph (c) of this
section provides special rules for stock
issued or provided in connection with the
performance of services. Paragraph (d) of
this section provides rules for determining
the date on which stock is issued or pro-
vided. Paragraph (e) of this section pro-
vides rules for determining the fair market
value of stock that is issued or provided.
Paragraph (f) of this section sets forth the
only circumstances under which an issu-
ance or provision of stock is disregarded
for purposes of the netting rule. For rules
regarding the application of the netting
rule in the context of section 4501(d), see
§58.4501-7(m).
(b) Issuances and provisions of stock
that are a reduction in computing the
stock repurchase excise tax base—(1)
General rule. The aggregate fair market
value of stock of a covered corporation
that is issued by the covered corporation
or provided by a specified affiliate of the
covered corporation during the covered
corporation’s taxable year is a reduction
for purposes of computing the covered
corporation’s stock repurchase excise tax
base for that taxable year in the following
circumstances:
(i) The stock is issued by the covered
corporation in connection with the per-
formance of services for the covered cor-
poration by an employee or other service
provider of the covered corporation.
(ii) The stock is provided by a specified
affiliate of the covered corporation in con-
nection with the performance of services
for the specified affiliate by an employee
or other service provider of the specified
affiliate.
(iii) The stock is issued by the covered
corporation other than in connection with
the performance of services.
(2) Stock issued or provided outside
period of covered corporation status. Any
stock of a covered corporation issued by
the covered corporation or provided by a
specified affiliate of the covered corpora-
tion before the initiation date or after the
cessation date is not taken into account
under paragraph (b)(1) of this section. See
§58.4501-2(d).
(3) Issuances or provisions before
January 1, 2023. Except as provided in
paragraph (b)(2) of this section, a covered
corporation with a taxable year that both
begins before January 1, 2023, and ends
after December 31, 2022, may include the
fair market value of all issuances or pro-
visions of its stock during the entirety of
that taxable year for purposes of applying
paragraph (b)(1) of this section to that tax-
able year.

Bulletin No. 2025–51 817 December 15, 2025
(c) Stock issued or provided in connec-
tion with the performance of services—(1)
In general. For purposes of this section,
stock of a covered corporation is issued or
provided by the covered corporation or a
specified affiliate of the covered corpora-
tion in connection with the performance
of services only if the issuance or provi-
sion of stock is a transfer described in sec-
tion 83 of the Code, including pursuant to
the exercise of a nonqualified stock option
described in §1.83-7 of this chapter, pur-
suant to the exercise of a stock option
described in section 421 of the Code, or
pursuant to stock settlement of a restricted
stock unit (RSU). A specified affiliate of
the covered corporation is not a service
provider for purposes of this section.
(2) Sale of shares to cover exercise
price and withholding—(i) Payment or
advance by third party equal to exercise
price. If a third party pays the exercise
price of an option to acquire stock of a
covered corporation on behalf of a service
provider or advances to a service provider
an amount equal to the exercise price of
a stock option that the service provider
uses to exercise the option, then any stock
transferred by the covered corporation or
specified affiliate to the third party upon
exercise of the option in connection with
exercising the option (as well as any stock
transferred by the covered corporation or
specified affiliate to the service provider)
is treated as issued or provided in connec-
tion with the performance of the services
by the service provider.
(ii) Advance by third party equal to
withholding obligation. If a third party
advances an amount equal to the with-
holding obligation of a service provider,
then any stock transferred by the cov-
ered corporation or specified affiliate to
the third party in connection with this
arrangement (as well as any stock trans-
ferred by the covered corporation or
specified affiliate to the service provider)
is treated as issued or provided in con-
nection with the performance of services
by the service provider.
(d) Date of issuance—(1) In general.
Except as provided in paragraph (d)(2) of
this section, stock of a covered corporation
is treated as issued by the covered corpo-
ration or provided by a specified affiliate
of the covered corporation on the date on
which ownership of the stock transfers to
the recipient for Federal income tax pur-
poses.
(2) Stock issued or provided in connec-
tion with the performance of services—(i)
In general. Stock of a covered corpora-
tion is issued by the covered corporation
or provided by a specified affiliate of the
covered corporation in connection with
the performance of services as of the date
the recipient of the stock is treated as the
beneficial owner of the stock for Federal
income tax purposes. In general, a recipi-
ent is treated as the beneficial owner of the
stock when the stock is both transferred
by the covered corporation (or a speci-
fied affiliate of the covered corporation)
and substantially vested within the mean-
ing of §1.83-3(b) of this chapter. Thus,
stock transferred pursuant to a vested
stock award or an RSU is issued or pro-
vided when the covered corporation or a
specified affiliate of the covered corpora-
tion initiates payment of the stock. Stock
transferred that is not substantially vested
within the meaning of §1.83-3(b) of this
chapter is not issued or provided until it
vests, except as provided in paragraph (d)
(2)(iii) of this section.
(ii) Stock options and stock apprecia-
tion rights. Stock of a covered corporation
transferred by the covered corporation or
a specified affiliate of the covered corpo-
ration pursuant to an option described in
§1.83-7 of this chapter or section 421 or
a stock appreciation right is issued by the
covered corporation or provided by the
specified affiliate of the covered corpora-
tion (as applicable) as of the date the stock
is transferred pursuant to the exercise of
the option or stock appreciation right.
(iii) Stock on which a section 83(b)
election is made. Stock of a covered cor-
poration transferred by the covered corpo-
ration or a specified affiliate of the covered
corporation when it is not substantially
vested within the meaning of §1.83-3(b)
of this chapter, but as to which a valid
election under section 83(b) is made, is
treated as issued by the covered corpora-
tion or provided by the specified affiliate
of the covered corporation (as applicable)
as of the transfer date.
(e) Fair market value of issued or pro-
vided stock—(1) In general. Except as
provided in paragraph (e)(5) of this sec-
tion, the fair market value of stock of a
covered corporation issued by the covered
corporation or provided by a specified
affiliate of the covered corporation is the
market price of the stock on the date the
stock is issued or provided.
(2) Stock traded on an established
securities market—(i) In general. If stock
of a covered corporation that is issued by
the covered corporation is traded on an
established securities market, the covered
corporation must determine the market
price of the stock by applying one of the
methods provided in paragraph (e)(2)(ii)
of this section.
(ii) Acceptable methods. The following
are the acceptable methods for determin-
ing the market price of stock of a covered
corporation traded on an established secu-
rities market:
(A) The daily volume-weighted aver-
age price as determined on the date the
stock is issued by the covered corporation.
(B) The closing price on the trading
day the stock is issued by the covered cor-
poration, or the immediately preceding
trading day.
(C) The average of the high and low
prices on the date the stock is issued by
the covered corporation.
(D) The trading price at the time the
stock is issued by the covered corporation.
(iii) Date of issuance not a trading day.
For purposes of each method provided in
paragraph (e)(2)(ii) of this section, if the
date the stock of a covered corporation is
issued by the covered corporation is not
a trading day, the date on which the mar-
ket price is determined is the immediately
preceding trading day.
(iv) Consistency requirement—(A)
Solely one method permitted for determin-
ing market price of issued stock. The mar-
ket price of stock of a covered corporation
that is traded on an established securities
market must be determined by consis-
tently applying solely one of the methods
provided in paragraph (e)(2)(ii) of this
section to all stock of the covered corpo-
ration issued by the covered corporation
throughout the covered corporation’s tax-
able year.
(B) Application to repurchased stock.
The method used by the covered corpo-
ration under paragraph (e)(2)(ii)(A) of
this section must be consistently applied
to determine the market price of all stock
of the covered corporation repurchased by
the covered corporation or acquired by a

December 15, 2025 818 Bulletin No. 2025–51
specified affiliate of the covered corpora-
tion throughout the covered corporation’s
taxable year. See §58.4501-2(h)(2)(iv).
(v) Stock traded on multiple exchanges.
See §58.4501-2(h)(2)(v) for rules regard-
ing the valuation of stock of a covered
corporation traded on multiple established
securities markets.
(3) Stock not traded on an established
securities market—(i) General rule. If
stock of a covered corporation is not
traded on an established securities market,
the market price of the stock is determined
as of the date the stock is issued by a cov-
ered corporation under the principles of
§1.409A-1(b)(5)(iv)(B)(1) of this chapter.
(ii) Consistency requirement. In deter-
mining the market price of stock of a cov-
ered corporation that is not traded on an
established securities market, the same
valuation method must be used for all
issuances of stock of the covered corpora-
tion belonging to the same class through-
out the covered corporation’s taxable year,
unless the application of that method to a
particular issuance would be unreasonable
under the facts and circumstances as of
the valuation date. That same method also
must be consistently applied to determine
the market price of all stock of the covered
corporation of the same class repurchased
by the covered corporation or acquired by
a specified affiliate of the covered corpo-
ration throughout the covered corpora-
tion’s taxable year, unless the application
of that method to a particular issuance
would be unreasonable under the facts and
circumstances as of the valuation date. See
§58.4501-2(h)(3)(ii).
(4) Market price of stock denominated
in non-U.S. currency. The market price of
any stock of a covered corporation that is
denominated in a currency other than the
U.S. dollar is converted into U.S. dollars
at the spot rate (as defined in §1.988-1(d)
(1) of this chapter) on the date the stock is
issued by the covered corporation or pro-
vided by a specified affiliate of the cov-
ered corporation (as applicable).
(5) Stock issued or provided in connec-
tion with the performance of services. The
fair market value of stock of a covered
corporation issued by the covered corpo-
ration or provided by a specified affiliate
of the covered corporation (as applicable)
in connection with the performance of ser-
vices is the fair market value of the stock,
as determined under section 83, as of the
date the stock is issued by the covered
corporation or provided by the specified
affiliate of the covered corporation (as
applicable). For purposes of this section,
the fair market value of the stock is deter-
mined under the rules provided in section
83 regardless of whether an amount is
includible in the service provider’s income
under section 83 or otherwise. For exam-
ple, the fair market value of stock issued
by a covered corporation pursuant to a
stock option described in section 421 and
stock issued by a covered corporation to
a nonresident alien for services performed
outside of the United States is determined
using the rules provided in section 83.
(f) Issuances that are disregarded for
purposes of applying the netting rule. This
paragraph (f) lists the only circumstances
in which an issuance of stock of a covered
corporation is disregarded for purposes of
the netting rule.
(1) Distributions by a covered corpo-
ration of its own stock. Stock of a cov-
ered corporation distributed by the cov-
ered corporation to its shareholders with
respect to the covered corporation’s stock
is disregarded for purposes of the netting
rule.
(2) Issuances to a specified affiliate—
(i) In general. Subject to paragraphs (f)(2)
(ii) through (iv) of this section, stock of
a covered corporation is disregarded for
purposes of the netting rule if that stock is
issued by the covered corporation—
(A) To a specified affiliate of the cov-
ered corporation; or
(B) In connection with the performance
of services by an employee of, or other
service provider for, a specified affiliate
of the covered corporation (but see para-
graph (f)(2)(iv) of this section, allowing
certain compensatory transfers of a speci-
fied affiliate to be regarded in accordance
with paragraph (b)(1)(ii) of this section).
(ii) Subsequent transfer by specified
affiliate. Stock of a covered corporation
issued by the covered corporation to a
specified affiliate of the covered corpora-
tion that is subsequently transferred by the
specified affiliate to a person that is not a
specified affiliate of the covered corpora-
tion is regarded for purposes of the netting
rule, and is treated as issued by the cov-
ered corporation on the date of the subse-
quent transfer, only if—
(A) The subsequent transfer by the
specified affiliate occurs within the same
taxable year that the specified affiliate
receives the stock from the covered cor-
poration (applicable year);
(B) The covered corporation does not
otherwise reduce its stock repurchase
excise tax base for the applicable year
with respect to the stock under this sec-
tion; and
(C) The subsequent transfer by the
specified affiliate is not in connection with
the performance of services provided to
the specified affiliate (but see paragraph
(f)(2)(iv) of this section, allowing cer-
tain compensatory transfers of a specified
affiliate to be regarded in accordance with
paragraph (b)(1)(ii) of this section).
(iii) Specific identification of shares.
For purposes of paragraph (f)(2)(ii)(A) of
this section, unless specifically identified,
the shares of stock of the covered corpora-
tion in a specific class of the covered cor-
poration’s stock treated as subsequently
transferred by the specified affiliate are
the earliest shares of that class issued by
the covered corporation to the specified
affiliate.
(iv) Subsequent transfers in connec-
tion with the performance of services for
a specified affiliate. Stock issued by a
covered corporation in connection with
the performance of services for a specified
affiliate is not treated as issued by the cov-
ered corporation. However, a transfer of
stock of a covered corporation described
in §1.83-6(d) of this chapter (in addition to
an actual provision of stock by a specified
affiliate described in paragraph (b)(1)(ii)
of this section) by a specified affiliate of
the covered corporation to an employee or
other service provider (that is not another
specified affiliate of the covered corpora-
tion) of the specified affiliate is treated as a
provision of stock described in paragraph
(b)(1)(ii) of this section.
(3) Issuances in an E reorganization or
an F reorganization. The following issu-
ances are disregarded for purposes of the
netting rule:
(i) Any stock issued by a recapitalizing
corporation as part of a transaction quali-
fying as an E reorganization.
(ii) Any stock issued by a resulting cor-
poration (as defined in §1.368-2(m)(1) of
this chapter) as part of a transaction quali-
fying as an F reorganization.

Bulletin No. 2025–51 819 December 15, 2025
(4) Deemed issuances under section
304(a)(1). Any stock treated as issued
by the acquiring corporation by reason
of the application of section 304(a)(1) to
a transaction (as more fully described in
§58.4501-2(e)(3)(i)) is disregarded for
purposes of the netting rule.
(5) Deemed issuance of a fractional
share. Any fractional share of a covered
corporation’s stock deemed to be issued
for Federal income tax purposes (by virtue
of a payment described in §58.4501-2(e)
(3)(iv)) is disregarded for purposes of the
netting rule.
(6) Issuance by a covered corporation
that is a dealer in securities. Any stock
of a covered corporation that is a dealer
in securities issued by such covered cor-
poration is disregarded for purposes of
the netting rule to the extent the stock is
issued, or otherwise is used to satisfy obli-
gations to customers arising, in the ordi-
nary course of the covered corporation’s
business of dealing in securities.
(7) Issuance by the target corporation
in a reverse triangular merger. Any target
corporation stock that is issued by the tar-
get corporation to the merged corporation
(within the meaning of section 368(a)(2)
(E)) in exchange for consideration that
includes the stock of the controlling cor-
poration (within the meaning of section
368(a)(2)(E)) in a transaction qualifying
as a reorganization under section 368(a)
(1)(A) by reason of section 368(a)(2)(E)
is disregarded for purposes of the netting
rule.
(8) Issuance as part of a section
1036(a) exchange. Any stock of a covered
corporation issued by the covered corpo-
ration in exchange for stock of the covered
corporation in a transaction that qualifies
under section 1036(a) of the Code is dis-
regarded for purposes of the netting rule.
(9) Issuance as part of a distribution
under section 355. Any stock issued by
a controlled corporation in a distribution
qualifying under section 355 (or so much
of section 356 as relates to section 355)
is disregarded for purposes of the netting
rule.
(10) Stock contributions to an employ-
er-sponsored retirement plan. Any stock
of a covered corporation contributed to
an employer-sponsored retirement plan,
any stock of a covered corporation treated
as contributed to an employer-sponsored
retirement plan under §58.4501-3(d)(1)
(ii) and (d)(5)(ii), and any stock of a cov-
ered corporation sold to a leveraged or
non-leveraged ESOP, is disregarded for
purposes of the netting rule.
(11) Net exercises and share withhold-
ing. Stock of a covered corporation with-
held by the covered corporation or a spec-
ified affiliate of the covered corporation to
satisfy the exercise price of a stock option,
or to pay any withholding obligation, is
disregarded for purposes of the netting
rule. For example, stock of a covered cor-
poration withheld by a covered corpora-
tion or a specified affiliate of the covered
corporation to pay the exercise price of
a stock option, to satisfy an employer’s
income tax withholding obligation under
section 3402 of the Code, to satisfy an
employer’s withholding obligation under
section 3102 of the Code, or to satisfy
an employer’s withholding obligation
for State, local, or foreign taxes, is disre-
garded for purposes of the netting rule.
(12) Settlement other than in stock.
Settlement of an option contract with
respect to stock of a covered corporation
using any consideration other than stock
of the covered corporation (including
cash) is disregarded for purposes of the
netting rule.
(13) Instrument not in the legal form of
stock—(i) Issuance or provision of cov-
ered non-stock instrument generally disre-
garded. Except as provided in paragraph
(f)(13)(iii) or (iv) of this section, the issu-
ance by a covered corporation or provi-
sion by a specified affiliate of the covered
corporation of a covered non-stock instru-
ment (as defined in paragraph (f)(13)(ii)
(B) of this section), including an issuance
or provision before the initiation date or
after the cessation date, is disregarded for
purposes of the netting rule.
(ii) Definitions. The following defini-
tions apply for purposes of this paragraph
(f)(13).
(A) Non-stock instrument. A non-stock
instrument is an instrument of a covered
corporation that is not in the legal form of
stock but that is treated as stock for Fed-
eral tax purposes. For the avoidance of
doubt, in the case of a covered corporation
that is an eligible entity within the mean-
ing of §301.7701-3(a) of this chapter, a
non-stock instrument does not include an
instrument that is in the legal form of a
membership, partnership, or other owner-
ship interest of the eligible entity.
(B) Covered non-stock instrument. A
covered non-stock instrument is a non-
stock instrument issued by a covered cor-
poration or provided by a specified affili-
ate of the covered corporation to a covered
holder.
(C) Covered holder. A covered holder
is any person that owns (or under the attri-
bution rules of section 318 of the Code
is considered to own) at least 10 percent
of the stock of the covered corporation,
either by vote or value, but only if the
covered corporation has knowledge of
facts that would indicate such ownership,
including through legal documentation of
share ownership, publicly available infor-
mation, or any other means—
(1) In the case of the covered corpora-
tion’s issuance of a non-stock instrument,
at the time of the issuance by the covered
corporation; or
(2) In the case of a specified affiliate
of the covered corporation’s provision of
a non-stock instrument, at the time of the
provision by the specified affiliate.
(iii) Certain instruments treated as
issued when repurchased or acquired—
(A) In general. Subject to the identifica-
tion requirement in paragraph (f)(13)(iii)
(B) of this section, if a covered non-stock
instrument is repurchased by a covered
corporation or acquired by a specified
affiliate of the covered corporation, the
issuance or provision of the instrument is
regarded for purposes of the netting rule
at the time of such repurchase or acqui-
sition based on the fair market value of
the instrument when the instrument was
issued or provided. Such fair market value
is determined under paragraph (e) of this
section. For purposes of the stock repur-
chase excise tax regulations, the delivery
of stock pursuant to the terms of a covered
non-stock instrument is treated as a repur-
chase of the covered non-stock instrument
in exchange for an issuance or provision
of the stock that is delivered.
(B) Identification of an instrument
not in the legal form of stock. The issu-
ance or provision of a covered non-stock
instrument is regarded under paragraph
(f)(13)(iii)(A) of this section only if
the covered corporation identifies the
repurchase or acquisition of the covered
non-stock instrument as the repurchase

December 15, 2025 820 Bulletin No. 2025–51
or acquisition of a covered non-stock
instrument on the return on which the
stock repurchase excise tax must be
reported for the covered corporation’s
taxable year in which the repurchase or
acquisition occurs.
(iv) Issuances pursuant to a public
offering. Paragraph (f)(13)(i) of this sec-
tion does not apply to any issuance of a
covered non-stock instrument the offer
and sale of which was registered with the
SEC.
(v) Coordination with specified affili-
ate rule. This paragraph (f)(13) does not
apply to the extent that paragraph (f)(2) of
this section applies.
§58.4501-5 Examples.
(a) Scope. The examples in this sec-
tion illustrate the application of section
4501 of the Code and the stock repur-
chase excise tax regulations other than
the provisions of section 4501(d) and
§58.4501-7. See §58.4501-7(n) and (o)
for examples that illustrate the applica-
tion of the rules in §58.4501-7 related to
section 4501(d).
(b) In general. For purposes of the
examples in this section, unless other-
wise stated: each of Corporation X and
unrelated Target is a covered corporation
that is a calendar-year taxpayer; the only
outstanding stock of each of Corporation
X and Target is a single class of com-
mon stock that is traded on an established
securities market; any shareholder whose
stock is redeemed in a section 317(b)
redemption qualifies for sale or exchange
treatment under section 302(a) of the
Code; the de minimis exception does not
apply; the covered corporation determines
the fair market value of its stock repur-
chased or issued based on the trading price
of the stock at the time it is repurchased
or issued; the stock is not a non-stock
instrument; and the facts set forth the only
repurchases and issuances made during
the taxable year.
(1) Example 1: Redemption of preferred stock
not subject to an exception—(i) Facts. Corporation
X has outstanding common stock that is traded on an
established securities market. Corporation X also has
outstanding mandatorily redeemable preferred stock
issued on July 1, 2023, that is stock for Federal tax
purposes but is not traded on an established securi-
ties market, is not additional tier 1 capital, and is not
described in section 1504(a)(4) of the Code. On Jan-
uary 1, 2025, Corporation X redeems the preferred
stock pursuant to its terms.
(ii) Analysis. The redemption by Corporation
X of its mandatorily redeemable preferred stock is
a repurchase because Corporation X redeems an
instrument that is stock for purposes of the stock
repurchase excise tax regulations (that is, preferred
stock issued by Corporation X that is neither addi-
tional tier 1 capital nor described in section 1504(a)
(4)), the redemption is a section 317(b) redemp-
tion, and the exception for mandatorily redeemable
stock does not apply. See §§58.4501-1(b)(34) and
58.4501-2(e)(2)(i) and (e)(3)(iii).
(iii) Mandatorily redeemable preferred stock
issued prior to August 16, 2022. The facts are the
same as in paragraph (b)(1)(i) of this section (Exam-
ple 1), except that Corporation X issues the mandato-
rily redeemable preferred stock on July 1, 2022. The
redemption by Corporation X of such stock is not a
repurchase. See §58.4501-2(e)(3)(iii).
(2) Example 2: Debt-for-debt exchange—(i)
Facts. Corporation X has outstanding securities
with a principal amount of $100x. On January 1,
2024, Corporation X issues new securities with a
principal amount of $100x to its security holders in
exchange for the outstanding securities (debt-for-
debt exchange). Neither the outstanding securities
nor the new securities are treated as stock for Federal
tax purposes.
(ii) Analysis. The debt-for-debt exchange is not
subject to the stock repurchase excise tax because it
is not a repurchase of stock. See §§58.4501-1(a) and
(b)(34) and 58.4501-2(c)(1) and (e)(4)(i).
(3) Example 3: Valuation of repurchase—(i)
Facts. On April 15, 2025, when the stock of Cor-
poration X is trading at $0.70x per share, Corpo-
ration X purchases 50 shares of its stock for $35x
from one of its shareholders on an established
securities market. The shareholder is required to
deliver the stock to Corporation X within the stan-
dard settlement cycle for the stock (a regular-way
sale), which is one business day after execution of
the sale (that is, the trade date of April 15, 2025).
On April 17, 2025, the 50 shares are delivered to
Corporation X.
(ii) Analysis. Corporation X’s purchase of 50
shares of Corporation X stock is a repurchase,
because the transaction is a section 317(b) redemp-
tion and no exception applies. See §58.4501-2(e)(2)
(i) and (e)(3). For purposes of computing Corpora-
tion X’s stock repurchase excise tax base, the trade
date of April 15, 2025, is the date of repurchase. See
§58.4501-2(g)(1) and (2). The fair market value of
the 50 shares of stock repurchased on April 15, 2025,
is the aggregate market price of those shares on the
date of repurchase, or $35x ($0.70x per share x 50
shares = $35x). See §58.4501-2(h)(1). Accordingly,
the repurchase by Corporation X increases its stock
repurchase excise tax base for the 2025 taxable year
by $35x.
(iii) Application of netting rule. The facts are
the same as in paragraph (b)(3)(i) of this section
(Example 3), except that, on August 1, 2025, Cor-
poration X issues 20 shares of its stock to an unre-
lated party, at which time ownership of the stock
transfers to the unrelated party for Federal income
tax purposes. On that date, the stock of Corporation
X is trading at $0.50x per share. For purposes of
computing Corporation X’s stock repurchase excise
tax base, Corporation X is treated as issuing the
20 shares of its stock on August 1, 2025 (that is,
the date on which ownership of the stock transfers
to the recipient for Federal income tax purposes).
See §58.4501-4(d)(1). The fair market value of that
issued stock is its aggregate market price on the
date of issuance by Corporation X, or $10x ($0.50x
per share x 20 shares = $10x). See §58.4501-4(e)
(1). Accordingly, the net increase in Corporation
X’s stock repurchase excise tax base for its 2025
taxable year is $25x ($35x repurchase - $10x issu-
ance = $25x). See §58.4501-2(c)(1).
(4) Example 4: Acquisition partially funded by
the target corporation—(i) Facts. On May 30, 2025,
Corporation X acquires all of Target’s outstanding
stock (Target Stock Acquisition). To effectuate the
Target Stock Acquisition, Corporation X causes the
following transaction steps to occur. First, Corpora-
tion X contributes $40x to a newly formed corpora-
tion (Merger Sub). Second, Merger Sub merges into
Target, with Target surviving the merger (Subsidiary
Merger). At the time of the Subsidiary Merger, the
stock of Target has an aggregate fair market value
of $100x. In the Subsidiary Merger, Target’s share-
holders exchange all their Target stock for $100x of
cash, of which $60x is funded by Target and $40x
is funded by Corporation X. For Federal income
tax purposes, the transitory existence of Merger
Sub is disregarded, and Target is treated as if Tar-
get redeemed 60 percent of its outstanding stock for
$60x as part of the Subsidiary Merger. (This treat-
ment results from the fact that Target funded $60x of
the consideration received by Target’s shareholders
in exchange for their Target stock.) All of Target’s
stock ceases to trade on an established securities
market upon completion of the Target Stock Acqui-
sition.
(ii) Analysis. Target ceases to be a covered cor-
poration after the Target Stock Acquisition. See
§58.4501-1(b)(7). Target’s redemption of 60 percent
of its outstanding stock is a redemption within the
meaning of section 317(b) with regard to the stock
of a covered corporation. See §58.4501-2(e)(2)(i).
However, because Target’s redemption occurs as
part of a transaction in which Target ceases to be
a covered corporation, it is not a repurchase. See
§58.4501-2(e)(3)(ii).
(5) Example 5: Pro rata stock split—(i) Facts.
On October 1, 2025, Corporation X distributes three
shares of Corporation X stock with respect to each
existing share of its outstanding stock (Corporation
X Stock Split).
(ii) Analysis. The stock distributed by Corpora-
tion X to its shareholders through the Corporation X
Stock Split is disregarded for purposes of the netting
rule because Corporation X distributed the stock to
its shareholders with respect to its outstanding stock.
See §58.4501-4(f)(1). Accordingly, the Corporation
X Stock Split is not taken into account in computing
Corporation X’s stock repurchase excise tax base for
its 2025 taxable year. See §58.4501-2(c)(1) (regard-
ing the computation of the stock repurchase excise
tax base).
(6) Example 6: Acquisition of a target corpora-
tion in an acquisitive reorganization—(i) Facts. On
October 1, 2025, Target merges into Corporation
X in a transaction that qualifies as a reorganiza-

Bulletin No. 2025–51 821 December 15, 2025
tion under section 368(a)(1)(A) of the Code (Tar-
get Merger). On the date of the Target Merger, the
fair market value of Target’s outstanding stock is
$100x. In the Target Merger, Target’s shareholders
exchange their Target stock for Corporation X stock
and cash.
(ii) Analysis. Target’s acquisition of its stock
from the Target shareholders in exchange for the
consideration received in the Target Merger is not a
repurchase by Target. See §58.4501-2(e)(5)(v).
(7) Example 7: E reorganization—(i) Facts. On
November 1, 2025, Corporation X issues shares of
new stock, with a fair market value of $100x (New
Common Stock), to its shareholders in exchange
for their outstanding stock in Corporation X (Old
Common Stock) pursuant to a plan of reorganization
(Recapitalization). The Recapitalization qualifies as
an E reorganization. At the time of the Recapitaliza-
tion, the fair market value of Corporation X’s Old
Common Stock is $100x.
(ii) Analysis. The acquisition by Corporation X
of its Old Common Stock solely in exchange for
New Common Stock in the Recapitalization is not
a repurchase. See §58.4501-2(e)(4)(i). The issu-
ance of the New Common Stock by Corporation X
is disregarded for purposes of the netting rule. See
§58.4501-4(f)(3)(i).
(8) Example 8: E reorganization with non-qual-
ifying property—(i) Facts. The facts are the same
as in paragraph (b)(7)(i) of this section (Example
7), except that some shareholders receive solely
shares of New Common Stock in exchange for their
shares of Old Common Stock, and other sharehold-
ers receive both shares of New Common Stock and
Corporation X securities in exchange for their shares
of Old Common Stock. The aggregate fair market
value of the New Common Stock is $80x, and the
aggregate fair market value of the Corporation X
securities is $20x. The distribution of the Corpora-
tion X securities is not treated as a distribution with
respect to Corporation X’s stock under §1.301-1(j)
of this chapter and is not treated as having the effect
of a distribution of a dividend under section 356(a)
(2) of the Code.
(ii) Analysis regarding repurchase treatment,
timing, and amount. The acquisition by Corpora-
tion X of its Old Common Stock in exchange for
New Common Stock in the Recapitalization is not
a repurchase. See §58.4501-2(e)(4)(i). The acquisi-
tion by Corporation X of its Old Common Stock for
Corporation X securities is a repurchase by Corpo-
ration X because the securities would not be permit-
ted to be received by Corporation X shareholders
under section 354 of the Code without the recog-
nition of gain. See id. The repurchase occurs on
November 1, 2025 (that is, the date on which own-
ership of the Old Common Stock transfers to Cor-
poration X for Federal income tax purposes). See
§58.4501-2(g)(1). The amount of the repurchase by
Corporation X is $20x, which equals the fair mar-
ket value of the Old Common Stock exchanged for
Corporation X securities on the date of the repur-
chase. See §58.4501-2(h)(1).
(iii) Analysis regarding impact of issuance of
New Common Stock on Corporation X’s stock repur-
chase excise tax base. Corporation X’s issuance of
the New Common Stock is disregarded for purposes
of the netting rule. See §58.4501-4(f)(3) (disregard-
ing such types of issuances). Therefore, Corporation
X does not take into account any of the New Com-
mon Stock issued to its shareholders in computing its
stock repurchase excise tax base for its 2025 taxable
year under §58.4501-4(b)(1).
(9) Example 9: Cash paid in lieu of fractional
shares—(i) Facts. The facts are the same as in para-
graph (b)(7)(i) of this section (Example 7), except
that, as part of the Recapitalization, Corporation
X shareholders receive cash in lieu of fractional
shares of New Common Stock. The payment by
Corporation X of cash in lieu of fractional shares
of New Common Stock was not separately bar-
gained-for consideration (that is, the cash paid by
Corporation X in lieu of the fractional shares rep-
resented a mere rounding off of the shares issued in
the Recapitalization). In addition, the payment by
Corporation X of cash in lieu of fractional shares
of New Common Stock was carried out solely for
administrative convenience (and, therefore, solely
for non-tax reasons) and was for an amount of cash
that did not exceed the value of one full share of
New Common Stock.
(ii) Analysis. The payment by Corporation X of
cash in lieu of fractional shares of New Common
Stock is treated for Federal income tax purposes as
though the fractional shares were distributed by Cor-
poration X as part of the Recapitalization and then
redeemed by Corporation X for cash. This deemed
redemption is not a repurchase because the payment
of cash in lieu of the fractional shares satisfies the
requirements of §58.4501-2(e)(3)(iv). In addition,
Corporation X’s deemed issuance of the fractional
shares is disregarded for purposes of the netting rule.
See §58.4501-4(f)(5).
(10) Example 10: F reorganization—(i) Facts.
Corporation X is a State A corporation. To reorga-
nize under the laws of State B, on November 15,
2025, Corporation X forms New Corporation X (a
State B corporation) and merges into New Corpora-
tion X in a transaction that qualifies as an F reorga-
nization (Corporation X Redomiciliation). On the
date of the Corporation X Redomiciliation, the fair
market value of Corporation X’s stock is $100x.
Shareholder A owns $25x of Corporation X’s out-
standing stock. In the Corporation X Redomicili-
ation, Shareholder A transfers all its Corporation
X stock in exchange for $25x of cash, which is
treated for Federal income tax purposes as an unre-
lated, separate transaction from the Corporation X
Redomiciliation to which section 302(a) applies
(Shareholder A Redemption). See §1.368-2(m)(3)
(iii) of this chapter. The remaining Corporation X
shareholders exchange their Corporation X stock
for New Corporation X stock as part of the Corpo-
ration X Redomiciliation.
(ii) Analysis regarding repurchase treatment,
timing, and amount. Corporation X and New Cor-
poration X are treated as the same corporation
for purposes of the stock repurchase excise tax
regulations. See §58.4501-1(e). The Shareholder
A Redemption is a repurchase by Corporation
X because it is a section 317(b) redemption. See
§58.4501-2(e)(2)(i). This repurchase occurs on
November 15, 2025 (that is, the date on which
Shareholder A’s ownership of its Corporation X
stock transfers to Corporation X as part of the
transaction). See §58.4501-2(g)(1). The acquisi-
tion by Corporation X of its Corporation X stock
in exchange for New Corporation X stock pursuant
to the plan of reorganization is not a repurchase
because that exchange is not an economically sim-
ilar transaction. See §58.4501-2(e)(4). The total
amount of the repurchase by Corporation X is $25x
(the fair market value of the Corporation X stock
redeemed in the Shareholder A Redemption on the
date of the redemption). See §58.4501-2(h)(1).
New Corporation X’s transfer of $75x of its stock
to Corporation X in the Corporation X Redomicili-
ation is disregarded for purposes of the netting rule.
See §58.4501-4(f)(3) (disregarding such types of
issuances). Therefore, New Corporation X’s stock
repurchase excise tax base for its 2025 taxable year
is $25x ($25x gross repurchase amount unreduced
by the $75x of New Corporation X stock issued in
the Corporation X Redomiciliation).
(11) Example 11: Section 355 split-off—(i)
Facts. Corporation X owns all the stock of a pre-ex-
isting subsidiary (Controlled). On December 1,
2025, Corporation X distributes all the stock of Con-
trolled (with a fair market value of $80x) and $20x
of cash to certain of Corporation X’s shareholders
(Participating Shareholders) in exchange for $100x
of Corporation X stock in a split-off (Corporation X
Split-Off).
(ii) Analysis regarding repurchase treatment,
timing, and amount. The acquisition by Corporation
X of its stock in exchange for Controlled stock and
cash in the Corporation X Split-Off is a repurchase
by Corporation X. See §58.4501-2(e)(2)(ii) and (e)
(4)(ii). This repurchase occurs on December 1, 2025
(that is, the date on which ownership of the Corpo-
ration X stock transfers to Corporation X for Fed-
eral income tax purposes). See §58.4501-2(g)(1).
The total amount of the repurchase by Corporation
X is $100x, which equals the aggregate fair market
value of the Corporation X stock on the date the
stock is exchanged by the Participating Shareholders
for Controlled stock and cash in the Corporation X
Split-Off (that is, December 1, 2025). See §58.4501-
2(h)(1).
(iii) Analysis regarding impact of Corporation
X Split-Off on Corporation X’s stock repurchase
excise tax base. Corporation X’s gross repurchase
amount for its 2025 taxable year is $100x on account
of the Corporation X Split-Off. See §58.4501-2(c)
(1)(i). Under the reorganization exception, Corpo-
ration X may reduce its gross repurchase amount
under §58.4501-2(c)(1)(ii) by an amount equal to
the aggregate fair market value of any Corporation X
stock repurchased from a Participating Shareholder
in the Corporation X Split-Off to the extent that the
repurchase is for property permitted by section 355
to be received without the recognition of gain or loss.
See §58.4501-3(c). Accordingly, Corporation X’s
gross repurchase amount is reduced under §58.4501-
2(c)(1)(ii) by $80x as a result of the application of
the reorganization exception. Consequently, Corpo-
ration X’s stock repurchase excise tax base for its
2025 taxable year is $20x ($100x - $80x).
(12) Example 12: Section 355 split-off as part of
a D reorganization—(i) Facts. The facts are the same
as in paragraph (b)(11)(i) of this section (Example
11), except that Controlled is a newly formed corpo-
ration, and the Corporation X Split-Off is carried out
as part of a transaction qualifying as a reorganization

December 15, 2025 822 Bulletin No. 2025–51
under section 368(a)(1)(D) in which Corporation X
transfers assets to Controlled.
(ii) Analysis regarding Corporation X’s stock
repurchase excise tax base. The analysis regarding
Corporation X’s stock repurchase excise tax base is
the same as in paragraphs (b)(11)(ii) and (iii) of this
section (Example 11).
(iii) Analysis regarding Controlled’s stock repur-
chase excise tax base. Controlled’s transfer of $80x
of its stock to Corporation X in the Corporation X
Split-Off is disregarded for purposes of the netting
rule. See §58.4501-4(f)(9) (disregarding such types
of issuances). Controlled’s transfer of its stock to
Corporation X also is disregarded for purposes of
the netting rule because Controlled is not a covered
corporation at the time of the transfer. See §58.4501-
2(d)(1). Therefore, Controlled does not take into
account any of the $80x of its stock transferred to
Corporation X in computing Controlled’s stock
repurchase excise tax base for its 2025 taxable year
under §58.4501-4(b)(1).
(13) Example 13: Section 355 spin-off—(i)
Facts. The facts are the same as in paragraph (b)(11)
(i) of this section (Example 11), except that Corpo-
ration X distributes the Controlled stock and cash to
the Corporation X shareholders pro rata without the
shareholders exchanging any Corporation X stock
(Corporation X Spin-Off).
(ii) Analysis. The Corporation X Spin-Off is not
a repurchase by Corporation X. See §58.4501-2(e)
(5)(iii).
(14) Example 14: Section 355 spin-off as part of
a D reorganization—(i) Facts. The facts are the same
as in paragraph (b)(13)(i) of this section (Example
13), except that Controlled is a newly formed corpo-
ration, the Corporation X Spin-Off is carried out as
part of a transaction qualifying as a reorganization
under section 368(a)(1)(D) in which Corporation X
transfers assets to Controlled, and Corporation X
receives the $20x of cash from Controlled and dis-
tributes the cash to certain of Corporation X’s share-
holders in exchange for Corporation X stock.
(ii) Analysis regarding Corporation X’s stock
repurchase excise tax base. The distribution by
Corporation X of the $80x of stock of Controlled in
the Corporation X Spin-Off is not a repurchase by
Corporation X. See §58.4501-2(e)(5)(iii)(A). The
distribution by Corporation X of the $20x of cash
in exchange for Corporation X stock is a repurchase.
See §58.4501-2(e)(5)(iii)(B).
(iii) Analysis regarding Controlled’s stock repur-
chase excise tax base. The analysis regarding Con-
trolled’s stock repurchase excise tax base is the same
as in paragraph (b)(12)(iii) of this section (Example
12).
(15) Example 15: Repurchase pursuant to
an accelerated share repurchase agreement—(i)
Facts. On October 10, 2022, Corporation X entered
into an accelerated share repurchase (ASR) agree-
ment with an investment bank (Bank). Under
the terms of the ASR agreement, Bank agrees to
deliver a number of shares of Corporation X stock
to Corporation X during the term of the ASR, in
an amount determined by reference to the price of
Corporation X stock on specified days during the
term of the ASR. Pursuant to the terms of the ASR
agreement, Corporation X paid Bank a prepayment
amount. Bank borrowed 80 shares of Corporation
X stock from a party not related to Bank or Corpo-
ration X. Pursuant to the terms of the ASR agree-
ment, Bank delivered 80 shares of Corporation X
stock to Corporation X on October 12, 2022. On
final settlement of the ASR, Bank may be required
to deliver additional shares of Corporation X stock
to Corporation X or Corporation X may be required
to make a payment to Bank. The terms of the ASR
agreement and the facts and circumstances cause
ownership of the 80 shares to transfer from Bank to
Corporation X for Federal income tax purposes at
the time of delivery (that is, October 12, 2022). The
agreement settled in 2023. On February 1, 2023,
Bank delivers an additional 20 shares to Corpora-
tion X in final settlement of the ASR agreement. For
Federal income tax purposes, ownership of those 20
shares is treated as transferring from Bank to Cor-
poration X at the time of delivery (that is, February
1, 2023).
(ii) Analysis. Corporation X is treated as repur-
chasing 80 shares of Corporation X stock on October
12, 2022 (that is, the date on which ownership of the
80 shares delivered by Bank transferred from Bank to
Corporation X for Federal income tax purposes). See
§58.4501-2(g)(1). However, the repurchase by Cor-
poration X of the 80 shares of Corporation X stock
does not increase Corporation X’s stock repurchase
excise tax base for its 2022 taxable year because the
repurchase occurred prior to January 1, 2023. See
§58.4501-2(c)(3); see also section 10201(d) of the
IRA (providing that the stock repurchase excise tax
applies to repurchases after December 31, 2022).
The delivery by Bank to Corporation X of 20 shares
of Corporation X stock on February 1, 2023, con-
stitutes a repurchase because, for Federal income
tax purposes, the terms of the ASR agreement and
the facts and circumstances cause ownership of
those shares to transfer from Bank to Corporation
X on that date. See §58.4501-2(g)(1). Therefore, the
repurchase by Corporation X of those 20 shares of
Corporation X stock increases Corporation X’s gross
repurchase amount for its 2023 taxable year.
(16) Example 16: Distribution in complete liqui-
dation of a covered corporation—(i) Facts. Corpo-
ration X adopts a plan of complete liquidation that
becomes effective on March 1, 2025 (Corporation X
Liquidation). Corporation X has 100 shares of stock
outstanding. On April 1, 2025, all shareholders of
Corporation X receive a liquidating distribution by
Corporation X in full payment for their Corporation
X stock. On the date on which Corporation X dis-
tributes all its corporate assets to its shareholders in
complete liquidation (that is, April 1, 2025), Cor-
poration X stock is trading at $1x per share. Each
distribution in complete liquidation is subject to sec-
tion 331 of the Code.
(ii) Analysis. A distribution in complete liquida-
tion of a covered corporation (that is, Corporation
X) to which section 331 applies is not a repurchase
by the covered corporation. See §58.4501-2(e)(5)(i).
Therefore, none of the distributions by Corporation
X in complete liquidation is a repurchase by Cor-
poration X, and Corporation X’s gross repurchase
amount for its 2025 taxable year is not increased
because of the Corporation X Liquidation.
(17) Example 17: Complete liquidation of a
covered corporation to which sections 331 and
332(a) both apply—(i) Facts. The facts are the
same as in paragraph (b)(16)(i) of this section
(Example 16), except that one of Corporation X’s
shareholders (Corporation Z) is an 80-percent dis-
tributee (as defined in section 337(c) of the Code),
and the liquidating distribution by Corporation X
to Corporation Z as part of the Corporation X Liq-
uidation qualifies as a complete liquidation under
section 332(a).
(ii) Analysis. The analysis is the same as in para-
graph (b)(16)(ii) of this section (Example 16).
(18) Example 18: Acquisition by disregarded
entity—(i) Facts. Corporation X owns all the inter-
ests in LLC, a domestic limited liability company
that is disregarded as an entity separate from its
owner for Federal tax purposes (disregarded entity)
under §301.7701-3 of this chapter. On May 31, 2025,
LLC purchases shares of Corporation X’s stock for
cash from an unrelated shareholder.
(ii) Analysis. Because LLC is a disregarded
entity, the May 31, 2025, acquisition of Corporation
X stock is treated as an acquisition by Corporation
X. Accordingly, the acquisition is a section 317(b)
redemption and therefore a repurchase. See
§58.4501-2(e)(2)(i). Section 301.7701-2(c)(2)(v) of
this chapter (treating disregarded entities as corpo-
rations for purposes of certain excise taxes) does not
apply to treat LLC as a corporation because neither
chapter 37 of the Code nor section 4501 is described
in §301.7701-2(c)(2)(v)(A) of this chapter.
(19) Example 19: Multiple repurchases and
contributions of same class of stock—(i) Facts. On
January 15, 2025, Corporation X repurchases 100
shares of its Class A stock that have an aggregate
fair market value of $1,000x ($10x per share). On
September 16, 2025, Corporation X repurchases 50
shares of its Class A stock that have an aggregate fair
market value of $200x ($4x per share). Corporation
X contributes to its ESOP 75 shares of its Class A
stock on March 15, 2025, and 75 shares of its Class
A stock on October 15, 2025.
(ii) Analysis. Corporation X’s gross repurchase
amount for its 2025 taxable year is increased by
$1,200x ($1,000x + $200x = $1,200x) as a result of
the repurchases of its Class A stock. See §58.4501-
2(c)(1)(i). Under the exception for stock contribu-
tions to an employer-sponsored retirement plan, Cor-
poration X’s stock contributions reduce Corporation
X’s gross repurchase amount. See §§58.4501-2(c)(1)
(ii) and 58.4501-3(d). The amount of the reduction
is determined by dividing the aggregate fair market
value of shares of Class A stock repurchased by the
number of shares repurchased ($1,200x/150 shares =
$8 per share) and multiplying the number of shares
contributed by the average price of the repurchased
shares (150 shares x $8 per share = $1,200x). See
§58.4501-3(d)(3)(i). Therefore, Corporation X’s
stock repurchase excise tax base for its 2025 taxable
year is $0 ($1,200x repurchase - $1,200x exception
= $0).
(20) Example 20: Multiple repurchases and con-
tributions of different classes of stock—(i) Facts.
The facts are the same as in paragraph (b)(19)(i) of
this section (Example 19), except that Corporation X
has Class B stock and contributes its Class B stock
rather than its Class A stock to its ESOP. On October
15, 2025, Corporation X contributes to its ESOP 75
shares of its Class B stock that have an aggregate fair
market value of $1,000x. On December 16, 2025,

Bulletin No. 2025–51 823 December 15, 2025
Corporation X contributes to its ESOP 25 shares of
its Class B stock that have an aggregate fair market
value of $500x.
(ii) Analysis. Corporation X reduces its gross
repurchase amount by an amount equal to the sum of
the fair market values of the different class of stock
at the time the stock is contributed to the employ-
er-sponsored retirement plan ($1,000x + $500x =
$1,500x). However, the amount of the reduction may
not exceed the aggregate fair market value of stock of
a different class repurchased during the taxable year
by Corporation X (that is, $1,200x). See §58.4501-
3(d)(4)(ii). Therefore, Corporation X’s stock repur-
chase excise tax base for its 2025 taxable year is $0
($1,200x repurchase - $1,200x exception = $0). The
$300x excess of the contributions over the allowable
reduction ($1,500x contributions - $1,200x allow-
able reduction) may not be carried forward or back-
ward to preceding or succeeding taxable years of
Corporation X. See §58.4501-2(c)(2)(ii).
(21) Example 21: Treatment of contributions
after the taxable year—(i) Facts. Corporation X
repurchases 200 shares of its stock on December 31,
2025, for $200x ($1x per share). Corporation X has
no other repurchases in 2025. On February 2, 2026,
Corporation X contributes 200 shares of stock to its
ESOP. Corporation X treats the contribution as if it
had been received for the 2025 calendar year for plan
allocation purposes. See §58.4501-3(d)(5)(ii).
(ii) Analysis. Corporation X may use the contri-
bution of the 200x shares of its stock on February 2,
2026, to reduce its $200x gross repurchase amount
for 2025. See §58.4501-3(d)(5)(ii).
(22) Example 22: Becoming a covered corpora-
tion—(i) Facts. As of January 1, 2025, all of Cor-
poration X’s stock is privately held (and, therefore,
none of Corporation X’s stock is traded on an estab-
lished securities market). On February 15, 2025,
Corporation X purchases 10 shares of its stock for
$5x of cash ($.50x per share). On April 1, 2025, Cor-
poration X issues 100 shares of its stock to the public
(Public Shareholders), at which time Corporation
X’s stock begins trading on an established securities
market. On November 15, 2025, when Corporation
X stock is trading at $2x per share, Corporation X
purchases 60 shares of its stock for $120x of cash.
(ii) Analysis regarding purchase on February 15,
2025. Corporation X becomes a covered corporation
at the beginning of the day on April 1, 2025 (the
initiation date). See §58.4501-2(d)(1). Accordingly,
Corporation X’s purchase of 10 shares of its stock
for $5x of cash on February 15, 2025, is not a repur-
chase. Thus, the purchase on February 15, 2025, is
not included in Corporation X’s gross repurchase
amount for its 2025 taxable year.
(iii) Analysis regarding issuance on April 1,
2025. Corporation X is a covered corporation at the
beginning of the day on April 1, 2025. See §58.4501-
2(d)(1). Accordingly, the Corporation X stock issued
to the Public Shareholders on that date is stock of a
covered corporation for purposes of the netting rule.
See §58.4501-4(b)(1). As a result, Corporation‘s
gross repurchase amount for its 2025 taxable year is
reduced by $100x. See §58.4501-2(c)(1)(iii).
(iv) Analysis regarding purchase on November
15, 2025. Corporation X is a covered corporation
on November 15, 2025. Accordingly, Corporation
X’s purchase of 60 shares of its stock on that date
is a repurchase because the transaction is a section
317(b) redemption (that is, a redemption within the
meaning of section 317(b) with regard to the stock of
a covered corporation). See §§58.4501-1(b)(31) and
58.4501-2(e)(2)(i). For purposes of computing Cor-
poration X’s gross repurchase amount, the fair mar-
ket value of the 60 shares of stock repurchased on
November 15, 2025, is the aggregate market price of
those shares on that repurchase date, or $120x ($2x
per share x 60 shares = $120x). See §58.4501-2(g)
(1). Accordingly, Corporation‘s gross repurchase
amount for its 2025 taxable year is increased by
$120x. See §58.4501-2(c)(1)(i).
(23) Example 23: Actual pro rata redemption
in partial liquidation—(i) Facts. Corporation X
is actively engaged in the conduct of Businesses A
and B. Each business constitutes a qualified trade or
business within the meaning of section 302(e)(3). On
September 1, 2025, pursuant to a plan of partial liq-
uidation adopted in the same taxable year, Corpora-
tion X sells Business B for $100x and distributes the
proceeds to its shareholders pro rata in redemption
of $100x of Corporation X stock. The transaction
qualifies as a distribution in partial liquidation under
section 302(b)(4) and (e).
(ii) Analysis. Corporation X’s distribution in
partial liquidation is a section 317(b) redemption.
In addition, Corporation X’s pro rata distribution in
partial liquidation is not included in the exclusive
list of transactions under §58.4501-2(e)(3) that are
a section 317(b) redemption but are not treated as
a repurchase. Accordingly, the distribution in partial
liquidation is a repurchase. See §58.4501-2(e)(2)(i).
Therefore, as a result of the distribution, Corporation
X’s gross repurchase amount for its 2025 taxable
year is increased by $100x. See §58.4501-2(c)(1)(i).
(24) Example 24: Constructive redemption in
partial liquidation—(i) Facts. The facts are the same
as in paragraph (b)(23)(i) of this section (Example
23), except that the shareholders of Corporation X
surrender no stock in exchange for the proceeds from
the sale of Business B. For Federal income tax pur-
poses, a constructive redemption of stock is deemed
to occur, and the transaction qualifies as a distribu-
tion in partial liquidation under section 302(b)(4)
and (e).
(ii) Analysis. The analysis regarding Corporation
X’s gross repurchase amount is the same as in para-
graph (b)(23)(ii) of this section (Example 23).
(25) Example 25: Non-pro rata redemption in
partial liquidation—(i) Facts. The facts are the same
as in paragraph (b)(23)(i) of this section (Example
23), except that Corporation X distributes the pro-
ceeds to Shareholder A in redemption of $100x of
preferred Corporation X stock that is not described
in §58.4501-1(b)(34)(ii) or (iii).
(ii) Analysis. The analysis regarding Corporation
X’s gross repurchase amount is the same as in para-
graph (b)(23)(ii) of this section (Example 23).
(26) Example 26: Physical settlement of call
option contract—(i) Facts. On March 1, 2025, Cor-
poration X issues an option that entitles the holder to
buy 100 shares of Corporation X stock from Corpo-
ration X for $150x ($1.50x per share). On the date
the option is issued, Corporation X stock is trading at
$1x per share. On November 1, 2025, when Corpo-
ration X stock is trading at $2x per share, the holder
pays $150x to Corporation X to exercise the option,
and Corporation X issues 100 shares of Corporation
X stock to the holder, at which time ownership of
the shares transfers to the holder for Federal income
tax purposes.
(ii) Analysis. For purposes of computing Corpo-
ration X’s stock repurchase excise tax base, Corpora-
tion X is treated as issuing 100 shares of Corporation
X stock on November 1, 2025. See §58.4501-4(d)(1).
The fair market value of that stock is its aggregate
market price on the date of issuance by Corporation
X, or $200x ($2x per share x 100 shares = $200x).
See §58.4501-4(e)(1). Accordingly, the issuance is a
$200x reduction of $200x to Corporation X’s gross
repurchase amount in computing Corporation X’s
stock repurchase excise tax base for its 2025 taxable
year. See §58.4501-2(c)(1)(iii).
(27) Example 27: Net cash settlement of call
option contract—(i) Facts. The facts are the same as
in paragraph (b)(26)(i) of this section (Example 26),
except that Corporation X net cash settles the option
by paying the holder $50x.
(ii) Analysis. The net cash settlement is dis-
regarded for purposes of the netting rule. See
§58.4501-4(f)(12) (disregarding the settlement of
an option contract with respect to stock of a covered
corporation using any consideration other than stock
of the covered corporation). The net cash settlement
also is not a repurchase. See §58.4501-2(e)(5)(iv)
(providing that net cash settlement of an option con-
tract with respect to stock of a covered corporation
generally is not a repurchase by the covered corpo-
ration).
(28) Example 28: Physical settlement of put
option contract—(i) Facts. On April 1, 2025, Corpo-
ration X issues an option entitling the holder to sell
100 shares of Corporation X stock to Corporation
X for $100x ($1x per share). On the date the option
is issued, Corporation X stock is trading at $1.25x
per share. On October 1, 2025, when Corporation X
stock is trading at $0.75x per share, the holder exer-
cises the option, and Corporation X purchases 100
shares of Corporation X stock for $100x, at which
time ownership of the shares transfers to Corpora-
tion X.
(ii) Analysis. Corporation X’s purchase on Octo-
ber 1, 2025, is a repurchase because it is a section
317(b) redemption that is not otherwise excluded.
See §58.4501-2(e)(2) and (3). For purposes of com-
puting Corporation X’s gross repurchase amount,
the fair market value of the repurchased stock is its
aggregate market price on the date on which own-
ership of the stock transfers to Corporation X for
Federal income tax purposes (October 1, 2025), or
$75x ($0.75x per share x 100 shares = $75x). See
§58.4501-2(g)(1) and (h)(1). Accordingly, the repur-
chase is an increase of $75x to Corporation X’s gross
repurchase amount for its 2025 taxable year. See
§58.4501-2(c)(1)(i).
(29) Example 29: Net cash settlement of put
option contract—(i) Facts. The facts are the same
as in paragraph (b)(28)(i) of this section (Example
28), except that Corporation X net cash settles the
put option by paying the holder $25x.
(ii) Analysis. The net cash settlement is not a
repurchase. See §58.4501-2(e)(5)(vi) (providing that
net cash settlement of an option contract with respect
to stock of a covered corporation generally is not a
repurchase by the covered corporation).

December 15, 2025 824 Bulletin No. 2025–51
(30) Example 30: Indirect ownership—(i) Facts.
Corporation X owns 60 percent of the only class of
stock of Sub 1, a domestic corporation. Sub 1 owns
60 percent of the only class of stock of Sub 2, which
also is a domestic corporation. On October 15, 2025,
Sub 2 purchases stock of Corporation X with a mar-
ket price of $100,000.
(ii) Analysis. Corporation X must determine at
the time its stock is repurchased by Sub 2 (that is,
on October 15, 2025) whether Sub 2 is a specified
affiliate of Corporation X. See §58.4501-2(f)(2)(i).
Under §58.4501-2(f)(2)(ii), Corporation X indirectly
owns 36 percent (60% x 60% = 36%) of the stock of
Sub 2. Sub 2 is not a specified affiliate of Corporation
X, because Corporation X does not own, directly or
indirectly, more than 50 percent of the stock of Sub
2. See §58.4501-1(b)(32). Accordingly, Sub 2’s pur-
chase of Corporation X stock on October 15, 2025, is
not a repurchase under §58.4501-2(f)(1).
(31) Example 31: Restricted stock provided to a
service provider—(i) Facts. Individual M provides
services to Corporation X. In 2025, as compensation
for Individual M’s services, Corporation X trans-
fers to Individual M 100 shares of Corporation X
restricted stock with an aggregate fair market value
of $500x ($5x per share). The shares vest in 2028.
Individual M does not make an election under sec-
tion 83(b) of the Code. In 2028, Corporation X with-
holds from Individual M’s other wages amounts that
are required to pay the income tax and employment
tax withholding obligations arising from the stock
transfer. The shares have a fair market value of $7x
per share when they vest.
(ii) Analysis. Corporation X is treated as issu-
ing 100 shares of stock to Individual M when they
become substantially vested in 2028. See §58.4501-
4(d)(2)(i). The fair market value of the shares issued
is $700x (100 shares x $7x per share = $700x).
Accordingly, the issuance is a reduction of $700x in
computing Corporation X’s stock repurchase excise
tax base for its 2028 taxable year.
(32) Example 32: Restricted stock provided to
a service provider with section 83(b) election—(i)
Facts. The facts are the same as in paragraph (b)
(31)(i) of this section (Example 31), except that
Individual M makes a valid election under section
83(b) to include the fair market value of the shares
of restricted stock in gross income when the shares
are transferred.
(ii) Analysis. Corporation X is treated as issuing
100 shares of stock to Individual M when the shares
are transferred in 2025. See §58.4501-4(d)(2)(iii).
The fair market value of the shares issued is $500x
(100 shares x $5x per share = $500x). Accordingly,
the issuance is a reduction of $500x in computing
Corporation X’s stock repurchase excise tax base for
its 2025 taxable year. Corporation X is not treated as
issuing stock to Individual M when the shares vest
in 2028.
(33) Example 33: Forfeiture of restricted stock
provided to a service provider with section 83(b)
election—(i) Facts. The facts are the same as in para-
graph (b)(32)(i) of this section (Example 32), except
that Individual M forfeits the 100 shares of restricted
stock in 2027 because of a failure to meet the vesting
conditions for the stock. At the time of the forfeiture,
the fair market value of the 100 shares of stock is
$600x (100 shares x $6x per share = $600x).
(ii) Analysis. The analysis regarding the timing
and amount of Corporation X’s issuance of stock is
the same as in paragraph (b)(32)(ii) of this section
(Example 32). See §58.4501-4(d)(2)(iii). However,
because Individual M made a valid election under
section 83(b) with regard to the stock and the for-
feiture resulted from Individual M failing to meet
the vesting conditions for the stock, Individual M’s
forfeiture of the 100 shares of stock to Corporation X
is a repurchase by Corporation X. See §58.4501-2(e)
(4)(iii). The stock is treated as repurchased in 2027.
See §58.4501-2(g)(1). The amount of the repurchase
by Corporation X equals the fair market value of the
stock (that is, $600x) on the date of the repurchase.
See §58.4501-2(h)(1).
(34) Example 34: Vested stock provided to a
service provider with share withholding—(i) Facts.
Individual N is an employee of Corporation X. In
2025, as compensation for Individual N’s services,
Corporation X grants Individual N 100 restricted
stock units (RSUs). Pursuant to the RSUs, if Indi-
vidual N remains employed by Corporation X
through December 31, 2027, Corporation X will
transfer 100 shares of Corporation X stock to Indi-
vidual N in January 2028. Individual N remains
employed by Corporation X through December 31,
2027. In January 2028, when the shares have a fair
market value of $5x per share, Corporation X initi-
ates the transfer of 60 shares of Corporation X stock
to Individual N and withholds 40 shares to satisfy
Corporation X’s income tax and employment tax
withholding obligations arising from Individual N
vesting in the shares.
(ii) Analysis. Corporation X is treated as issuing
60 shares of stock to Individual N when the shares
are transferred in 2028. See §58.4501-4(d)(2)(i).
The 40 shares of Corporation X stock withheld to
satisfy Corporation X’s withholding obligations are
disregarded for purposes of the netting rule. See
§58.4501-4(f)(11)(i). The fair market value of the
shares issued is $300x (60 shares x $5x per share =
$300x). Accordingly, the issuance is a reduction of
$300x in computing Corporation X’s stock repur-
chase excise tax base for its 2028 taxable year.
(35) Example 35: Stock option net exercise—(i)
Facts. Individual O is an employee of Corporation
X. In 2025, in connection with the performance of
services, Corporation X transfers to Individual O
options to purchase 100 shares of Corporation X
stock with an exercise price of $4x per share ($400x
exercise price in total). The options are described
in §1.83-7 of this chapter and do not have a readily
ascertainable fair market value. Individual O exer-
cises the options to purchase 100 shares in 2026,
when the fair market value is $5x per share. Corpora-
tion X withholds 80 shares to pay the $400x exercise
price (80 shares x $5x per share = $400x).
(ii) Analysis. Corporation X is treated as issuing
20 shares of stock to Individual O when Individual O
exercises the options in 2026. See §58.4501-4(d)(2)
(ii). The 80 shares of Corporation X stock withheld
to pay the exercise price are disregarded for purposes
of the netting rule. See §58.4501-4(f)(11). The fair
market value of the shares issued is $100x (20 shares
x $5x per share = $100x). Accordingly, the issuance
is a reduction of $100x in computing Corporation
X’s stock repurchase excise tax base for its 2026
taxable year.
(36) Example 36: Net share settlement not
in connection with performance of services—(i)
Facts. Corporation X issues a call option to Indi-
vidual P that entitles Individual P to buy 100 shares
of Corporation X stock for $100x ($1x per share)
from Corporation X for a limited time. The terms
of the option require or permit net share settlement.
On the date the option is issued, Corporation X
stock is trading at $1x per share. On the date the
option is exercised, Corporation X stock is trading
at $1.25x per share. To settle the option, Individual
P makes no payment to Corporation X, and Corpo-
ration X issues 20 shares of Corporation X stock
(worth $25x).
(ii) Analysis. Corporation X is treated as issu-
ing 20 shares with a fair market value of $25x. See
§58.4501-4(f)(11).
(37) Example 37: Broker-assisted net exercise—
(i) Facts. The facts are the same as in paragraph (b)
(35)(i) of this section (Example 35), except that,
instead of Corporation X withholding shares to
pay the exercise price, a third-party broker pays an
amount equal to the exercise price (that is, $400x) to
Corporation X. Corporation X transfers 100 shares
of Corporation X stock to the third-party broker,
which deposits the 100 shares into Individual O’s
account. The third-party broker then immediately
sells 80 shares to recover the $400x exercise price
paid to Corporation X (80 shares x $5x per share =
$400x).
(ii) Analysis. Corporation X is treated as issuing
100 shares of stock to Individual O when Individual
O exercises the options in 2026. See §58.4501-4(c)
(2) and (d)(1)(i). The fair market value of the shares
issued is $500x (100 shares x $5x per share = $500x).
Accordingly, the issuance is a reduction of $500x in
computing Corporation X’s stock repurchase excise
tax base for its 2026 taxable year.
(38) Example 38: Stock provided by a specified
affiliate to an employee—(i) Facts. Individual Q is
an employee of Corporation Y, which is a specified
affiliate of Corporation X. In 2025, Corporation X
transfers 100 shares of its stock to Individual Q,
when the stock is valued at $9x per share, in connec-
tion with Individual Q’s performance of services as
an employee of Corporation Y.
(ii) Analysis. Under §1.83-6(d) of this chapter,
Corporation X is treated as contributing the stock
to the capital of Corporation Y, which is treated as
transferring the shares to Individual Q as compen-
sation for services. Corporation Y is treated as pro-
viding 100 shares to Individual Q. See §58.4501-
4(b)(1)(ii) and (f)(2)(iv). The fair market value of
the shares provided is $900x (100 shares x $9x
per share = $900x). Accordingly, the provision is
a reduction of $900x in computing Corporation X’s
stock repurchase excise tax base for its 2025 tax-
able year.
(39) Example 39: Stock provided by a specified
affiliate to a non-employee—(i) Facts. The facts are
the same as in paragraph (b)(38)(i) of this section
(Example 38), except that Individual Q provides
services as a non-employee service provider of Cor-
poration Y.
(ii) Analysis. The analysis is the same as in para-
graph (b)(38)(ii) of this section (Example 38).
(40) Example 40: Corporation treated as a
domestic corporation under section 7874(b)—(i)

Bulletin No. 2025–51 825 December 15, 2025
Facts. Corporation FB is a corporation the stock of
which is traded on an established securities market
(within the meaning of section 7704(b)(1) of the
Code) and that is created or organized in a foreign
jurisdiction. Corporation FB is treated as a domestic
corporation under section 7874(b) of the Code.
(ii) Analysis. Corporation FB is treated for
purposes of this title as a domestic corporation
under section 7874(b). Corporation FB is a cov-
ered corporation because it is treated for purposes
of this title as a domestic corporation and its stock
is traded on an established securities market. See
§58.4501-1(b)(7).
§58.4501-6 Applicability dates.
(a) In general. Except as provided in
paragraph (b) of this section, §§58.4501-1
through 58.4501-5 apply to—
(1) Repurchases of stock of a covered
corporation occurring after December 31,
2022; and
(2) Issuances and provisions of stock
of a covered corporation occurring during
taxable years ending after December 31,
2022.
(b) Exceptions—(1) Applicability date
for certain rules. Sections 58.4501-2(d),
(e)(4)(iii), (f)(2), (h)(2)(v), and (h)(3)(ii),
58.4501-3(g)(3) through (5), 58.4501-4(e)
(2)(v), (e)(3)(ii), (f)(2)(ii), (f)(8), (f)(9),
and (f)(13) apply to—
(i) Repurchases of stock of a covered
corporation occurring after April 12,
2024; and
(ii) Issuances and provisions of stock
of a covered corporation occurring after
April 12, 2024.
(2) Early application. Provided a cov-
ered corporation consistently applies all
the rules set forth in paragraph (b)(1) of
this section, the covered corporation may
choose to apply all the rules set forth in
paragraph (b)(1) of this section to—
(i) Repurchases of stock of the covered
corporation occurring on or before April
12, 2024, and after December 31, 2022;
and
(ii) Issuances and provisions of stock
of the covered corporation occurring on or
before April 12, 2024, and during taxable
years ending after December 31, 2022.
(c) Special rules for acquisitions
or repurchases of stock of certain for-
eign corporations. See §58.4501-7(p)
for applicability dates for the provisions
of §58.4501-7 and the provisions of
§58.4501-1 as applicable to transactions
subject to §58.4501-7.
§58.4501-7 Special rules for
acquisitions or repurchases of stock of
certain foreign corporations.
(a) Scope. This section provides rules
regarding the application of section
4501(d) of the Code. Paragraph (b) of this
section provides definitions applicable for
purposes of this section. Paragraph (c) of
this section provides rules for computing a
section 4501(d) covered corporation’s sec-
tion 4501(d) excise tax liability. Paragraph
(d) of this section provides certain coor-
dination rules related to section 4501(d)
(2). Paragraph (e) of this section provides
certain rules for determining the status
of a corporation as an applicable foreign
corporation or a covered surrogate foreign
corporation. Paragraph (f) of this section
provides certain rules for determining the
status of a corporation or partnership as an
applicable specified affiliate of an applica-
ble foreign corporation or a specified affili-
ate of a covered surrogate foreign corpora-
tion. Paragraph (g) of this section provides
rules for determining whether a foreign
partnership is an applicable specified affil-
iate. Paragraph (h) of this section defines
the term CSFC repurchase. Paragraph (i)
of this section is reserved. Paragraph (j) of
this section provides rules for determining
the date of a section 4501(d)(1) repurchase
or a section 4501(d)(2) repurchase. Para-
graph (k) of this section provides rules for
determining the fair market value of stock
of an applicable foreign corporation or a
covered surrogate foreign corporation that
is repurchased or acquired. Paragraph (l)
of this section provides rules regarding
the application of certain section 4501(d)
exceptions. Paragraph (m) of this sec-
tion provides rules regarding the section
4501(d) netting rule. Paragraph (n) of
this section illustrates the application of
the rules of this section through examples
involving section 4501(d)(1). Paragraph
(o) of this section illustrates the application
of the rules of this section through exam-
ples involving section 4501(d)(2). Para-
graph (p) of this section provides applica-
bility dates for the rules of this section.
(b) Definitions—(1) Application of
definitions in §58.4501-1(b). Any term
used in this section but not defined in
paragraph (b)(2) of this section has the
meaning provided in §58.4501-1(b), with
the following modifications:
(i) For all definitions provided in
§58.4501-1(b) other than those described
in paragraph (b)(1)(ii) of this section,
any reference in those definitions to a
covered corporation is treated as a refer-
ence to either a section 4501(d) covered
corporation, an applicable foreign cor-
poration, or a covered surrogate foreign
corporation, as appropriate based on the
context.
(ii) For the definitions of employee
and employer-sponsored retirement plan
provided in §58.4501-1(b)(14) and (15),
any reference to a covered corporation or
its specified affiliates is treated solely as
a reference to a section 4501(d) covered
corporation.
(2) Section 4501(d) definitions. The
definitions in this paragraph (b)(2) apply
solely for purposes of this section.
(i) Applicable foreign corporation.
The term applicable foreign corporation
means any foreign corporation the stock
of which is traded on an established secu-
rities market.
(ii) Applicable specified affiliate. The
term applicable specified affiliate means
a specified affiliate of an applicable for-
eign corporation, other than a foreign cor-
poration or a foreign partnership (unless
the partnership has a domestic entity as a
direct or indirect partner, as determined
under paragraph (g) of this section).
(iii) CSFC repurchase. The term CSFC
repurchase has the meaning provided in
paragraph (h) of this section.
(iv) Covered surrogate foreign cor-
poration. The term covered surrogate
foreign corporation means any surro-
gate foreign corporation (as determined
under section 7874(a)(2)(B) of the Code
by substituting September 20, 2021 for
March 4, 2003 each place it appears) the
stock of which is traded on an established
securities market, including any succes-
sor to the surrogate foreign corporation
(as determined under §1.7874-12(a)(10)
of this chapter), but only with respect to
taxable years that include any portion of
the applicable period with respect to such
corporation under section 7874(d)(1).
(v) Direct partner. The term direct
partner has the meaning given the term in
paragraph (g)(2)(i) of this section.
(vi) Domestic entity. The term domes-
tic entity means a domestic corporation, a
domestic partnership, or a trust within the

December 15, 2025 826 Bulletin No. 2025–51
meaning of section 7701(a)(30)(E) of the
Code.
(vii) Expatriated entity. The term
expatriated entity has the meaning given
the term in section 7874(a)(2)(A) and
§1.7874-12(a)(8) of this chapter, includ-
ing any successor (as determined under
§1.7874-12(a)(6) of this chapter).
(viii) Indirect partner. The term indi-
rect partner has the meaning given the
term in paragraph (g)(2)(ii) of this section.
(ix) Section 4501(d) covered corpora-
tion. The term section 4501(d) covered
corporation means either—
(A) An applicable specified affiliate
of an applicable foreign corporation that
is treated as a covered corporation under
section 4501(d)(1)(A) by reason of a sec-
tion 4501(d)(1) repurchase; or
(B) Any expatriated entity with respect
to a covered surrogate foreign corporation
that is treated as a covered corporation
under section 4501(d)(2)(A) by reason of
a section 4501(d)(2) repurchase.
(x) Section 4501(d) covered holder.
The term section 4501(d) covered holder
has the meaning provided in paragraph
(m)(7)(v)(B)(3) of this section.
(xi) Section 4501(d) covered non-stock
instrument. The term section 4501(d) cov-
ered non-stock instrument has the mean-
ing provided in paragraph (m)(7)(v)(B)(2)
of this section.
(xii) Section 4501(d) de minimis excep-
tion. The term section 4501(d) de minimis
exception has the meaning provided in
paragraph (c)(2)(i) of this section.
(xiii) Section 4501(d) economically
similar transaction. The term section
4501(d) economically similar transaction
has the meaning provided in paragraph (h)
(4) of this section.
(xiv) Section 4501(d) exception. The
term section 4501(d) exception has the
meaning provided in paragraph (l)(1) of
this section.
(xv) Section 4501(d) excise tax. The
term section 4501(d) excise tax has the
meaning provided in paragraph (c)(1) of
this section.
(xvi) Section 4501(d) excise tax base.
The term section 4501(d) excise tax base
has the meaning provided in paragraph (c)
(3)(i) of this section.
(xvii) Section 4501(d) gross repur-
chase amount. The term section 4501(d)
gross repurchase amount has the meaning
provided in paragraph (c)(3)(i)(A) of this
section.
(xviii) Section 4501(d) netting rule.
The term section 4501(d) netting rule has
the meaning provided in paragraph (m)(1)
of this section.
(xix) Section 4501(d) non-stock
instrument. The term section 4501(d)
non-stock instrument has the meaning
provided in paragraph (m)(7)(v)(B)(1) of
this section.
(xx) Section 4501(d) reorganization
exception. The term section 4501(d) reor-
ganization exception has the meaning pro-
vided in paragraph (l)(2) of this section.
(xxi) Section 4501(d)(1) repurchase.
The term section 4501(d)(1) repurchase
means an acquisition of stock of an appli-
cable foreign corporation by an applicable
specified affiliate of the applicable foreign
corporation from a person other than the
applicable foreign corporation or a speci-
fied affiliate of the applicable foreign cor-
poration. A section 4501(d)(1) repurchase
includes a clawback or forfeiture of stock
of an applicable foreign corporation pur-
suant to a legal or contractual obligation
on the date of forfeiture or clawback (as
appropriate), but only if the stock was
treated in the current or a prior year as
issued or provided by the section 4501(d)
covered corporation to its employees in
accordance with the section 4501(d) net-
ting rule.
(xxii) Section 4501(d)(2) repurchase.
The term section 4501(d)(2) repurchase
means a CSFC repurchase or an acquisi-
tion of stock of a covered surrogate for-
eign corporation by a specified affiliate of
the covered surrogate foreign corporation.
(c) Computation of section 4501(d)
excise tax liability for a section 4501(d)
covered corporation—(1) Imposition of
tax. Except as provided in paragraph (c)
(2) of this section (regarding the sec-
tion 4501(d) de minimis exception), the
amount of excise tax imposed pursuant to
section 4501(a) on a section 4501(d) cov-
ered corporation (section 4501(d) excise
tax) for a taxable year equals the product
obtained by multiplying—
(i) The applicable percentage; by
(ii) The section 4501(d) excise tax
base of the section 4501(d) covered cor-
poration for the taxable year determined
in accordance with paragraph (c)(3)(i) of
this section.
(2) Section 4501(d) de minimis excep-
tion—(i) In general. A section 4501(d)
covered corporation is not subject to the
section 4501(d) excise tax with regard
to a taxable year of the section 4501(d)
covered corporation if, during that tax-
able year, the aggregate fair market value
of all section 4501(d)(1) repurchases
with respect to all applicable specified
affiliates of the applicable foreign cor-
poration or all section 4501(d)(2) repur-
chases by the covered surrogate foreign
corporation and all specified affiliates
of the covered surrogate foreign corpo-
ration, as applicable, does not exceed
$1,000,000 (section 4501(d) de minimis
exception).
(ii) Determination. A determination of
whether the section 4501(d) de minimis
exception applies with regard to a taxable
year of a section 4501(d) covered corpora-
tion is made before applying—
(A) Any section 4501(d) exception
under paragraph (l) of this section; and
(B) Any adjustments pursuant to the
section 4501(d) netting rule under para-
graph (m) of this section.
(3) Section 4501(d) excise tax base—
(i) In general. With regard to a section
4501(d) covered corporation, the term
section 4501(d) excise tax base means the
dollar amount (not less than zero) that is
obtained by—
(A) Determining the aggregate fair
market value of, as applicable, all section
4501(d)(1) repurchases or section 4501(d)
(2) repurchases during the section 4501(d)
covered corporation’s taxable year (sec-
tion 4501(d) gross repurchase amount);
(B) Reducing the section 4501(d) gross
repurchase amount by the fair market
value of stock repurchased or acquired
in all section 4501(d)(1) repurchases or
section 4501(d)(2) repurchases, as appli-
cable, during the section 4501(d) covered
corporation’s taxable year to the extent
any section 4501(d) exceptions apply in
accordance with paragraph (l) of this sec-
tion; and then
(C) Further reducing the section
4501(d) gross repurchase amount by the
aggregate fair market value of, as appli-
cable, stock of the applicable foreign cor-
poration or stock of the covered surrogate
foreign corporation to the extent the sec-
tion 4501(d) netting rule applies in accor-
dance with paragraph (m) of this section.

Bulletin No. 2025–51 827 December 15, 2025
(ii) Taxable year determination—(A)
In general. The determinations under
paragraph (c)(3)(i) of this section are
made separately for each section 4501(d)
covered corporation and for each taxable
year of such section 4501(d) covered cor-
poration.
(B) No carrybacks or carryforwards.
Reductions under paragraphs (c)(3)(i)(B)
and (C) of this section in excess of the
section 4501(d) gross repurchase amount
with regard to a section 4501(d) covered
corporation may not be carried forward or
backward to preceding or succeeding tax-
able years of the section 4501(d) covered
corporation.
(4) Section 4501(d)(1) repurchases or
section 4501(d)(2) repurchases before
January 1, 2023. Section 4501(d)(1)
repurchases and section 4501(d)(2) repur-
chases before January 1, 2023, are neither
included in the section 4501(d) excise tax
base of a section 4501(d) covered corpo-
ration nor taken into account in determin-
ing the applicability of the section 4501(d)
de minimis exception.
(d) Section 4501(d)(2) coordination
rules—(1) Coordination rule for sec-
tion 4501(d)(1) repurchases and section
4501(d)(2) repurchases. To the extent any
CSFC repurchase or acquisition of stock
of a covered surrogate foreign corporation
by a specified affiliate of the covered sur-
rogate foreign corporation would be both
a section 4501(d)(1) repurchase and a
section 4501(d)(2) repurchase absent this
paragraph (d)(1), the CSFC repurchase or
acquisition will only be a section 4501(d)
(2) repurchase.
(2) Coordination rule for multiple sec-
tion 4501(d) covered corporations—(i) In
general. Except as provided in paragraph
(d)(2)(ii) of this section, each section
4501(d) covered corporation with respect
to a covered surrogate foreign corporation
is liable for any section 4501(d) excise tax
with respect to section 4501(d)(2) repur-
chases that occur during a taxable year of
the section 4501(d) covered corporation.
(ii) Full payment and reporting by a
section 4501(d) covered corporation. If
there are multiple section 4501(d) covered
corporations with respect to a covered sur-
rogate foreign corporation, then provided
that one of those section 4501(d) covered
corporations pays the amount of section
4501(d) excise tax determined under para-
graph (c)(1) of this section with respect
to all section 4501(d)(2) repurchases that
occur during the paying section 4501(d)
covered corporation’s taxable year and
fulfills the filing obligations for the tax-
able year with respect to such section
4501(d)(2) repurchases, no other section
4501(d) covered corporation with respect
to the covered surrogate foreign corpora-
tion is liable for section 4501(d) excise tax
related to such section 4501(d)(2) repur-
chases.
(e) Status as applicable foreign corpo-
ration or covered surrogate foreign corpo-
ration—(1) Initiation date. A corporation
becomes an applicable foreign corpora-
tion or a covered surrogate foreign corpo-
ration, as applicable, at the beginning of
the corporation’s initiation date (that is,
the date on which stock of the corporation
begins to be traded on an established secu-
rities market).
(2) Cessation date. A corporation
ceases to be an applicable foreign corpo-
ration or a covered surrogate foreign cor-
poration, as applicable, at the end of the
corporation’s cessation date (that is, the
date on which all stock of the corporation
ceases to be traded on an established secu-
rities market).
(3) Rules regarding F reorganizations—
(i) Inbound F reorganization. In the case of
a foreign corporation that transfers its assets
or that is treated as transferring its assets to
a domestic corporation in an F reorganiza-
tion (as described in §1.367(b)-2(f) of this
chapter), the corporation is not treated as a
domestic corporation until the day after the
reorganization.
(ii) Outbound F reorganization. In the
case of a domestic corporation that trans-
fers its assets or that is treated as trans-
ferring its assets to a foreign corporation
in an F reorganization (as described in
§1.367(a)-1(e) of this chapter), the corpo-
ration is not treated as a foreign corpora-
tion until the day after the reorganization.
(iii) Treatment of F reorganizations.
For purposes of the stock repurchase
excise tax regulations, the transferor cor-
poration and the resulting corporation
(each as defined in §1.368 2(m)(1) of this
chapter) in an F reorganization are treated
as the same corporation.
(f) Status as an applicable specified
affiliate or a specified affiliate of a covered
surrogate foreign corporation—(1) Tim-
ing of determination. The determination of
whether a corporation or partnership is an
applicable specified affiliate of an applica-
ble foreign corporation, or a specified affil-
iate of a covered surrogate foreign corpora-
tion, as applicable, is made at the time the
stock of the applicable foreign corporation
or covered surrogate foreign corporation
is acquired or provided by the applicable
specified affiliate or a specified affiliate of
a covered surrogate foreign corporation,
respectively, whenever such determination
is relevant for purposes of this section.
(2) Determination of indirect owner-
ship. Except as provided in paragraph (g)
(2)(ii)(B) of this section, a corporation or
partnership is treated as indirectly owning
stock in a corporation or holding capital
or profits interests in a partnership equal
to the corporation’s or partnership’s pro-
portionate percentage of stock owned or
capital or profits interests held through
other entities.
(g) Foreign partnerships that are
applicable specified affiliates—(1) In gen-
eral. A foreign partnership is an applicable
specified affiliate of an applicable foreign
corporation, if—
(i) More than 50 percent of the capital
interests or profits interests of the foreign
partnership are held, directly or indirectly,
by the applicable foreign corporation; and
(ii) Under the rules described in para-
graphs (g)(2) through (5) of this section,
at least one domestic entity is a direct or
indirect partner with respect to the foreign
partnership.
(2) Direct or indirect partner. Except
as provided in paragraphs (g)(4) and (5)
of this section—
(i) A domestic entity is a direct partner
with respect to a foreign partnership if it
directly owns an interest in the foreign
partnership; and
(ii) A domestic entity is an indirect part-
ner with respect to a foreign partnership if
the domestic entity owns an interest in the
foreign partnership indirectly through—
(A) One or more other foreign partner-
ships;
(B) One or more foreign corporations
controlled by one or more domestic enti-
ties within the meaning of paragraph (g)
(3) of this section; or
(C) An ownership chain with one or
more entities described in paragraphs (g)
(2)(ii)(A) and (B) of this section.

December 15, 2025 828 Bulletin No. 2025–51
(3) Control of a foreign corporation.
For purposes of paragraph (g)(2)(ii)(B) of
this section, a foreign corporation is con-
trolled by one or more domestic entities,
if more than 50 percent of the total com-
bined voting power of all classes of stock
of such corporation entitled to vote or the
total value of the stock of such corporation
is owned, directly or indirectly, in aggre-
gate, by one or more domestic entities.
(4) Indirect interests held through
applicable foreign corporations. Solely
for purposes of paragraph (g)(2)(ii) of this
section, if an applicable foreign corpora-
tion owns, directly or indirectly, stock of
a foreign corporation or an interest in a
foreign partnership, a domestic entity is
not treated as indirectly owning stock of
the foreign corporation or an interest in
the foreign partnership solely by reason of
owning, directly or indirectly, stock of the
applicable foreign corporation.
(5) De minimis domestic entity (direct
or indirect) partner. A foreign partnership
that has one or more domestic entities as
direct or indirect partners is not consid-
ered an applicable specified affiliate if the
domestic entities hold, directly or indi-
rectly, in aggregate, less than 10 percent
in each of the capital interests and profits
interests in the foreign partnership.
(h) CSFC repurchase—(1) Overview.
This paragraph (h) provides rules for
determining whether a transaction is a
CSFC repurchase for purposes of this sec-
tion. Paragraph (h)(2) of this section pro-
vides a general rule regarding the scope of
such term. Paragraph (h)(3) of this section
provides an exclusive list of transactions
that are section 317(b) redemptions but
are not CSFC repurchases. Paragraph (h)
(4) of this section provides an exclusive
list of transactions that are section 4501(d)
economically similar transactions. Para-
graph (h)(5) of this section provides a
non-exclusive list of transactions that are
not CSFC repurchases.
(2) Scope of CSFC repurchases. For
purposes of this section, a CSFC repur-
chase means solely—
(i) A section 317(b) redemption with
respect to stock of a covered surrogate
foreign corporation, except as provided in
paragraph (h)(3) of this section; or
(ii) A section 4501(d) economically
similar transaction described in paragraph
(h)(4) of this section.
(3) Certain section 317(b) redemptions
that are not CSFC repurchases. This para-
graph (h)(3) provides an exclusive list of
section 317(b) redemptions that are not
CSFC repurchases for purposes of the sec-
tion 4501(d) excise tax.
(i) Section 304(a)(1) transactions. The
deemed distribution by an acquiring cor-
poration (within the meaning of section
304(a)(1) of the Code) that is a covered
surrogate foreign corporation in redemp-
tion of stock of the acquiring corporation
(resulting from the application of section
304(a)(1) to an acquisition of stock by
such acquiring corporation), regardless of
whether section 302(a) or (d) of the Code
applies to the acquiring corporation’s
deemed distribution in redemption of its
stock.
(ii) Leveraged buyouts and take-pri-
vate transactions. A redemption by a cov-
ered surrogate foreign corporation that
occurs as part of a transaction in which
the covered surrogate foreign corporation
ceases to be a covered surrogate foreign
corporation.
(iii) Stock issued prior to August 16,
2022. A redemption by a covered sur-
rogate foreign corporation of stock of
the covered corporation issued prior to
August 16, 2022, if, at the time such stock
was issued, the stock was subject to—
(A) Mandatory redemption by the cov-
ered surrogate foreign corporation; or
(B) A unilateral put option by the
holder of such stock.
(iv) Payment by a covered surrogate
foreign corporation of cash in lieu of frac-
tional shares. A payment by a covered
surrogate foreign corporation of cash in
lieu of a fractional share of the stock of
the covered surrogate foreign corporation,
if—
(A) The payment is carried out as part
of a transaction that qualifies as a reorga-
nization under section 368(a) of the Code
or a distribution to which section 355 of
the Code applies, or pursuant to the set-
tlement of an option or a similar financial
instrument (for example, a convertible
debt instrument or convertible preferred
share);
(B) The cash received by the share-
holder entitled to the fractional share is
not separately bargained-for consideration
(that is, the cash paid by the covered sur-
rogate foreign corporation in lieu of the
fractional share represents a mere round-
ing off of the shares issued in the exchange
or settlement);
(C) The payment is carried out solely
for administrative convenience (and,
therefore, solely for non-tax reasons); and
(D) The amount of cash paid to the
shareholder in lieu of a fractional share
does not exceed the fair market value
of one full share of the class of stock
of the applicable foreign corporation or
covered surrogate foreign corporation,
as applicable, with respect to which the
payment of cash in lieu of a fractional
share is made.
(4) Section 4501(d) economically sim-
ilar transactions. This paragraph (h)(4)
provides an exclusive list of transactions
that are economically similar to section
317(b) redemptions solely for purposes
of the section 4501(d) excise tax (each,
a section 4501(d) economically similar
transaction) and, therefore, are taken into
account as CSFC repurchases for pur-
poses of this section.
(i) E reorganizations—(A) In general.
Except as provided in paragraph (h)(4)
(i)(B) of this section, in the case of an E
reorganization in which the recapitalizing
corporation is a covered surrogate foreign
corporation, solely the recapitalizing cor-
poration’s acquisition of its stock pursuant
to the plan of reorganization in exchange
for property that is not permitted to be
received by the recapitalizing corpora-
tion’s shareholders under section 354 of
the Code without the recognition of gain.
(B) Exception. Paragraph (h)(4)(i)(A)
of this section does not apply to the extent
that—
(1) The distribution of such property is
treated as a distribution with respect to the
recapitalizing corporation’s stock under
§1.301-1(j) of this chapter; or
(2) The exchange is with respect to pre-
ferred stock with dividends in arrears and
is treated under §1.305-7(c)(2) or 1.368-
2(e)(5) of this chapter as a deemed distri-
bution to which sections 301 and 305(b)
(4) of the Code apply.
(ii) Split-offs. In the case of a split-off
by a distributing corporation that is a cov-
ered surrogate foreign corporation, the
acquisition by the distributing corporation
of its stock in exchange for property.
(iii) Certain forfeitures and clawbacks
of stock—(A) In general. In the case of a

Bulletin No. 2025–51 829 December 15, 2025
forfeiture or clawback of stock of a cov-
ered surrogate foreign corporation pursu-
ant to a legal or contractual obligation, the
forfeiture or clawback is a section 4501(d)
(2) repurchase on the date of forfeiture or
clawback (as appropriate) if the stock was
treated as issued or provided under para-
graph (m)(1) of this section and the for-
feiture or clawback of the stock (as appro-
priate) is described in paragraph (h)(4)(iii)
(B) or (C) of this section.
(B) Stock for which a section 83(b)
election was made. The stock was subject
to a substantial risk of forfeiture within the
meaning of section 83(a) of the Code on
the date the stock was issued or provided,
the service provider made a valid election
under section 83(b) with regard to the
stock, and the forfeiture resulted from the
service provider failing to meet the vest-
ing condition.
(C) Clawbacks. On the date the stock
was issued or provided, the stock was
subject to a clawback agreement, and a
clawback of the stock resulted from the
occurrence of an event specified in the
clawback agreement.
(5) Transactions that are not CSFC
repurchases. This paragraph (h)(5) pro-
vides a non-exclusive list of transactions
each of which is not a CSFC repurchase
for purposes of this section.
(i) Complete liquidations. A distribu-
tion by a covered surrogate foreign corpo-
ration—
(A) In complete liquidation of the
covered surrogate foreign corporation
to which section 331 or 332(a) (or both)
applies;
(B) Pursuant to a resolution or plan of
dissolution of the covered surrogate for-
eign corporation that is reported on an
original (but not a supplemented or an
amended) IRS Form 966, Corporate Dis-
solution or Liquidation (or any successor
form); or
(C) Pursuant to a deemed dissolution of
the covered surrogate foreign corporation
(for instance, pursuant to a deemed liqui-
dation under §301.7701-3 of this chapter).
(ii) Distributions during taxable year
of complete liquidation or dissolution. A
distribution by a covered surrogate for-
eign corporation during a taxable year of
the covered surrogate foreign corporation,
if the covered surrogate foreign corpora-
tion—
(A) Completely liquidates during the
taxable year (that is, has a final distribu-
tion during the taxable year in a complete
liquidation to which section 331 or 332(a)
(or both) applies);
(B) Dissolves during the taxable year
pursuant to a resolution or plan of disso-
lution as reported on an original (but not
a supplemented or an amended) IRS Form
966, Corporate Dissolution or Liquida-
tion (or any successor form); or
(C) Is deemed to dissolve during the
taxable year (for instance, pursuant to a
deemed liquidation under §301.7701-3 of
this chapter).
(iii) Divisive transactions under sec-
tion 355 other than split-offs—(A) In
general. Subject to paragraph (h)(5)(iii)
(B) of this section, a distribution by a
distributing corporation that is a covered
surrogate foreign corporation of stock of
a controlled corporation qualifying under
section 355 that is not a split-off.
(B) Exception regarding non-qualify-
ing property in spin-offs. A distribution
by a distributing corporation that is a
covered surrogate foreign corporation of
other property or money in exchange for
stock of the distributing corporation is a
repurchase by the distributing corporation
if it occurs in pursuance of a transaction
qualifying under section 355 in which the
distribution by the distributing corpora-
tion of stock of the controlled corporation
is with respect to stock of the distributing
corporation.
(iv) Non-redemptive distributions sub-
ject to section 301(c)(2) or (3). A distri-
bution to which section 301 applies by a
covered surrogate foreign corporation to a
distributee, if the distribution—
(A) Is subject to section 301(c)(2) or
(3); and
(B) The distributee does not exchange
stock of the covered surrogate foreign cor-
poration (and is not treated as exchanging
stock of the covered surrogate foreign cor-
poration for Federal income tax purposes).
(v) Acquisitive reorganizations. In the
case of an acquisitive reorganization in
which the target corporation is a covered
surrogate foreign corporation, the acquisi-
tion by the target corporation of its stock
pursuant to the plan of reorganization in
exchange for property that is received
by the target corporation’s shareholders
under section 354 or 356 of the Code.
(vi) Net cash settlement of an option
contract—(A) In general. Subject to para-
graph (h)(5)(vi)(B) of this section, the net
cash settlement of an option contract or
other derivative financial instrument with
respect to stock of a covered surrogate for-
eign corporation.
(B) Exception regarding net cash set-
tlement of an option contract or other
derivative financial instrument treated as
stock. The net cash settlement of an instru-
ment in the legal form of an option con-
tract or other derivative financial instru-
ment that is treated as stock of a covered
surrogate foreign corporation for Federal
tax purposes at the time of issuance is a
repurchase.
(i) [Reserved]
(j) Date of section 4501(d)(1) repur-
chase or section 4501(d)(2) repurchase—
(1) General rule. In general, stock of
an applicable foreign corporation or a
covered surrogate foreign corporation is
treated as acquired in a section 4501(d)
(1) repurchase or a section 4501(d)(2)
repurchase, as applicable, on the date on
which ownership of the stock transfers to
the specified affiliate of the applicable for-
eign corporation, the specified affiliate of
the covered surrogate foreign corporation,
or the covered surrogate foreign corpora-
tion, as applicable, for Federal income tax
purposes.
(2) Regular-way sale. A regular-way
sale of stock of an applicable foreign cor-
poration or a covered surrogate foreign
corporation (that is, a transaction in which
a trade order is placed on the trade date,
and settlement of the transaction, includ-
ing payment and delivery of the stock,
occurs a standardized period of time, as
set by a regulator, after the trade date) is
treated as acquired in a section 4501(d)(1)
repurchase or a section 4501(d)(2) repur-
chase, as applicable, on the trade date.
(k) Fair market value of stock of an
applicable foreign corporation or a cov-
ered surrogate foreign corporation that is
repurchased or acquired—(1) In general.
The fair market value of stock of an appli-
cable foreign corporation or a covered sur-
rogate foreign corporation, as applicable,
that is acquired in a section 4501(d)(1)
repurchase or a section 4501(d)(2) repur-
chase is the market price of the stock on
the date of the section 4501(d)(1) repur-
chase or the section 4501(d)(2) repurchase

December 15, 2025 830 Bulletin No. 2025–51
(as determined under paragraph (j) of this
section). That is, if the price at which
the repurchased or acquired stock is pur-
chased differs from the market price of the
stock on the date the stock is repurchased
or acquired, the fair market value of the
stock is the market price on the date the
stock is repurchased or acquired.
(2) Stock traded on an established
securities market—(i) In general. If stock
of an applicable foreign corporation or a
covered surrogate foreign corporation, as
applicable, that is acquired in a section
4501(d)(1) repurchase a or section 4501(d)
(2) repurchase with respect to a section
4501(d) covered corporation is traded on
an established securities market, the sec-
tion 4501(d) covered corporation must
determine the market price of the stock
by applying one of the methods provided
in paragraph (k)(2)(ii) of this section. For
purposes of this paragraph (k)(2), stock
of an applicable foreign corporation or
a covered surrogate foreign corporation,
as applicable, is treated as traded on an
established securities market if any stock
of the same class and issue of stock is so
traded, regardless of whether the shares
repurchased or acquired are so traded.
(ii) Acceptable methods. The following
are acceptable methods for determining
the market price of stock of an applicable
foreign corporation or a covered surrogate
foreign corporation, as applicable, traded
on an established securities market:
(A) The daily volume-weighted aver-
age price as determined on the date the
stock is acquired in a section 4501(d)(1)
repurchase or section 4501(d)(2) repur-
chase.
(B) The closing price on the date the
stock is acquired in a section 4501(d)(1)
repurchase or a section 4501(d)(2) repur-
chase.
(C) The average of the high and low
prices on the date the stock is acquired in a
section 4501(d)(1) repurchase or a section
4501(d)(2) repurchase.
(D) The trading price at the time the
stock is acquired in a section 4501(d)(1)
repurchase or a section 4501(d)(2) repur-
chase.
(iii) Date of section 4501(d)(1) repur-
chase or section 4501(d)(2) repurchase
not a trading day. For purposes of each
method provided in paragraph (k)(2)(ii) of
this section, if the date stock is acquired in
a section 4501(d)(1) repurchase or a sec-
tion 4501(d)(2) repurchase is not a trading
day, the date on which the market price is
determined is the immediately preceding
trading day.
(iv) Consistency requirement. The mar-
ket price of stock of an applicable foreign
corporation or a covered surrogate foreign
corporation, as applicable, that is traded
on an established securities market must
be determined by consistently applying
one (but not more than one) of the meth-
ods provided in paragraph (k)(2)(ii) of this
section to all section 4501(d)(1) repur-
chases with respect to an applicable for-
eign corporation or all section 4501(d)(2)
repurchases with respect to a covered sur-
rogate foreign corporation, as applicable,
in the same taxable year of the applicable
foreign corporation or covered surrogate
foreign corporation, as applicable (which,
if the applicable foreign corporation or
covered surrogate foreign corporation, as
applicable, does not have a taxable year
for Federal tax purposes, is the calendar
year).
(v) Stock traded on multiple
exchanges—(A) In general. A section
4501(d) covered corporation must deter-
mine the market price of the stock of the
applicable foreign corporation or covered
surrogate foreign corporation, as applica-
ble, by reference to trading on the estab-
lished securities market in the country in
which the applicable foreign corporation
or covered surrogate foreign corporation,
as applicable, is organized, including a
regional established securities market that
trades in that country.
(B) Stock traded on multiple exchanges
in country where corporation is organized.
If the stock of an applicable foreign corpo-
ration or a covered surrogate foreign cor-
poration, as applicable, is traded on mul-
tiple established securities markets in the
country in which the applicable foreign
corporation or covered surrogate foreign
corporation, as applicable, is organized, a
section 4501(d) covered corporation must
determine the market price of the stock
by reference to trading on the established
securities market in that country with the
highest trading volume in the stock of the
applicable foreign corporation or covered
surrogate foreign corporation, as applica-
ble, in the section 4501(d) covered corpo-
ration’s prior taxable year.
(C) Other cases in which stock is
traded on multiple exchanges. If stock
of an applicable foreign corporation or a
covered surrogate foreign corporation, as
applicable, is traded on multiple estab-
lished securities markets and neither para-
graph (k)(2)(v)(A) nor (B) of this section
applies, a section 4501(d) covered corpo-
ration must determine the market price of
the stock of the applicable foreign corpo-
ration or covered surrogate foreign corpo-
ration, as applicable, in a manner that is
reasonable and consistent under the facts
and circumstances.
(3) Stock not traded on an established
securities market—(i) General rule. If
stock of an applicable foreign corpora-
tion or a covered surrogate foreign cor-
poration, as applicable, is not traded
on an established securities market, the
market price of the stock is determined
as of the date the stock is acquired in a
section 4501(d)(1) repurchase or a section
4501(d)(2) repurchase under the princi-
ples of §1.409A-1(b)(5)(iv)(B)(1) of this
chapter.
(ii) Consistency requirement. The val-
uation method for determining the market
price of stock of an applicable foreign
corporation or a covered surrogate for-
eign corporation, as applicable, that is not
traded on an established securities market
must be used for all section 4501(d)(1)
repurchases with respect to the same class
of stock of an applicable foreign corpora-
tion or all section 4501(d)(2) repurchases
with respect to the same class of stock of a
covered surrogate foreign corporation, as
applicable, in the same taxable year of the
applicable foreign corporation or covered
surrogate foreign corporation, as appli-
cable (which, if the applicable foreign
corporation or covered surrogate foreign
corporation, as applicable, does not have
a taxable year for Federal tax purposes,
is the calendar year), unless the applica-
tion of that method to a particular sec-
tion 4501(d)(1) repurchase or a particular
section 4501(d)(2) repurchase would be
unreasonable under the facts and circum-
stances as of the valuation date within the
meaning of §1.409A-1(b)(5)(iv)(B)(1) of
this chapter.
(4) Market price of stock denominated
in non-U.S. currency. The market price of
any stock of an applicable foreign corpo-
ration or a covered surrogate foreign cor-

Bulletin No. 2025–51 831 December 15, 2025
poration that is denominated in a currency
other than the U.S. dollar is converted into
U.S. dollars at the spot rate (as defined in
§1.988-1(d)(1) of this chapter) on the date
the stock is acquired in a section 4501(d)
(1) repurchase or a section 4501(d)(2)
repurchase.
(l) Section 4501(d) exceptions—(1) In
general—(i) Overview. This paragraph (l)
provides rules regarding the application of
each exception set forth in section 4501(e)
(other than the section 4501(d) de minimis
exception) and an additional exception
applicable to certain investment compa-
nies (each, a section 4501(d) exception) to
a section 4501(d)(1) repurchase or a sec-
tion 4501(d)(2) repurchase.
(ii) Reduction of section 4501(d)
excise tax base. For purposes of deter-
mining a section 4501(d) covered corpo-
ration’s section 4501(d) stock repurchase
excise tax base under paragraph (c)(3) of
this section, the section 4501(d) covered
corporation reduces its section 4501(d)
gross repurchase amount by an amount
equal to the aggregate fair market value
of stock of an applicable foreign corpo-
ration or a covered surrogate foreign cor-
poration, as applicable, that qualifies for
an exception described in this paragraph
(l). See paragraph (c)(3)(i)(B) of this sec-
tion.
(iii) Coordination of exceptions. If a
section 4501(d)(1) repurchase or a section
4501(d)(2) repurchase qualifies for more
than one exception described in para-
graphs (l)(2) through (7) of this section,
the section 4501(d) covered corporation
may reduce its gross repurchase amount
under solely a single exception, as deter-
mined by the section 4501(d) covered cor-
poration.
(2) Section 4501(d) reorganization
exception. A section 4501(d) covered cor-
poration reduces its section 4501(d) gross
repurchase amount under paragraph (c)(3)
(i)(B) of this section by an amount equal
to the aggregate fair market value of a cov-
ered surrogate foreign corporation’s stock
repurchased from a shareholder in a CSFC
repurchase described in paragraph (h)(4)
(i) or (ii) of this section to the extent that
the repurchase is for property permitted
by section 355 to be received without the
recognition of gain or loss on that CSFC
repurchase (section 4501(d) reorganiza-
tion exception).
(3) Stock contributions to an employ-
er-sponsored retirement plan—(i) Reduc-
tions to section 4501(d) excise tax base—
(A) General rule. A section 4501(d)
covered corporation reduces its section
4501(d) gross repurchase amount under
paragraph (c)(3)(i)(B) of this section if
the stock of the applicable foreign cor-
poration or the covered surrogate foreign
corporation, as applicable, that is repur-
chased or acquired in a section 4501(d)(1)
repurchase or a section 4501(d)(2) repur-
chase, as applicable, or an amount of stock
equal to the fair market value of the stock
repurchased or acquired, is contributed to
an employer-sponsored retirement plan of
the section 4501(d) covered corporation.
(B) Special rule for leveraged ESOPs.
If a section 4501(d) covered corporation
maintains an ESOP with an exempt loan
(as described in section 4975(d)(3) of the
Code), allocations of qualifying employer
securities that are stock of the applicable
foreign corporation or covered surro-
gate foreign corporation from the ESOP
suspense account to ESOP participants’
accounts that are attributable to employer
contributions (and not to dividends) are
treated as contributions of stock under this
paragraph (l)(3) as of the date stock attrib-
utable to repayment of the exempt loan is
released from the suspense account and
allocated to ESOP participants’ accounts.
(ii) Classes of stock contributed to an
employer-sponsored retirement plan. This
paragraph (l)(3) applies to contributions of
any class of stock of an applicable foreign
corporation or a covered surrogate foreign
corporation, as applicable, to an employ-
er-sponsored retirement plan of the section
4501(d) covered corporation, regardless
of the class of stock that was repurchased
or acquired in a section 4501(d)(1) repur-
chase or a section 4501(d)(2) repurchase
by the section 4501(d) covered corpora-
tion.
(iii) Determining amount of reduc-
tion to section 4501(d) excise tax base.
The amount of the reduction under para-
graph (l)(3)(i) of this section for a section
4501(d) covered corporation is deter-
mined as provided in paragraph (l)(3)(iii)
(A) or (B) of this section.
(A) Same class of stock repurchased
and contributed. If stock of an applica-
ble foreign corporation or a covered sur-
rogate foreign corporation, as applicable,
is repurchased or acquired in a section
4501(d)(1) repurchase or a section 4501(d)
(2) repurchase, as applicable, and stock of
the applicable foreign corporation or the
covered surrogate foreign corporation, as
applicable, that is of the same class is con-
tributed to an employer-sponsored retire-
ment plan of the section 4501(d) covered
corporation, the amount of the reduction
under paragraph (l)(3)(i) of this section is
equal to the lesser of—
(1) The aggregate fair market value of
the stock of the same class that was repur-
chased or acquired (as determined under
paragraph (k) of this section) during the
section 4501(d) covered corporation’s tax-
able year; or
(2) The amount obtained by—
(i) Determining the aggregate fair mar-
ket value of all stock of that class repur-
chased or acquired (as determined under
paragraph (k) of this section) in all section
4501(d)(1) repurchases or section 4501(d)
(2) repurchases, as applicable, during the
section 4501(d) covered corporation’s tax-
able year, reduced by the fair market value
of shares of that class of stock that is a
reduction to the section 4501(d) excise tax
base for the taxable year under a section
4501(d) exception other than this para-
graph (l)(3);
(ii) Dividing the amount determined
under paragraph (l)(3)(iii)(A)(2)(i) of this
section by the number of shares of that
class repurchased or acquired in all sec-
tion 4501(d)(1) repurchases or section
4501(d)(2) repurchases, as applicable,
during the section 4501(d) covered cor-
poration’s taxable year, reduced by the
number of shares of that class of stock the
fair market value of which is a reduction
to the section 4501(d) excise tax base for
the taxable year under a section 4501(d)
exception other than this paragraph (l)(3);
and
(iii) Multiplying the amount deter-
mined under paragraph (l)(3)(iii)(A)(2)
(ii) of this section by the number of shares
of that class contributed to an employ-
er-sponsored retirement plan of the sec-
tion 4501(d) covered corporation for the
taxable year.
(B) Different class of stock repur-
chased and contributed—(1) In general.
Subject to paragraph (l)(3)(iii)(B)(2) of
this section, if stock of an applicable for-
eign corporation or a covered surrogate

December 15, 2025 832 Bulletin No. 2025–51
foreign corporation, as applicable, of a
different class of stock than is repurchased
or acquired in a section 4501(d)(1) repur-
chase or a section 4501(d)(2) repurchase,
as applicable, with respect to a section
4501(d) covered corporation is contrib-
uted to an employer-sponsored retirement
plan of the section 4501(d) covered cor-
poration, then the amount of the reduction
under paragraph (l)(3)(i) of this section is
equal to the fair market value of the con-
tributed stock at the time the stock is con-
tributed to the employer-sponsored retire-
ment plan.
(2) Maximum reduction permitted. The
amount of the reduction under paragraph
(l)(3)(iii)(B)(1) of this section may not
exceed the section 4501(d) excise tax base
for the taxable year (determined without
regard to any reduction under paragraph
(l)(3)(i) of this section).
(iv) Timing of contributions—(A) In
general. The reduction under paragraph
(l)(3)(i) of this section (that is, the reduc-
tion in the section 4501(d) excise tax
base), for a taxable year applies to contri-
butions of stock of an applicable foreign
corporation or a covered surrogate foreign
corporation, as applicable, to an employ-
er-sponsored retirement plan during the
section 4501(d) covered corporation’s
taxable year.
(B) Treatment of contributions after
close of taxable year. For purposes of
paragraph (l)(3)(iv)(A) of this section, a
section 4501(d) covered corporation may
treat stock contributions to an employ-
er-sponsored retirement plan made after
the close of the section 4501(d) covered
corporation’s taxable year as having been
contributed during that taxable year if the
following two requirements are satisfied:
(1) The stock must be contributed to
the employer-sponsored retirement plan
by the filing deadline for the form on
which the section 4501(d) excise tax must
be reported (applicable form) for that tax-
able year of the section 4501(d) covered
corporation.
(2) The stock must be treated by the
employer-sponsored retirement plan in
the same manner that the plan would treat
a contribution received on the last day of
that taxable year of the section 4501(d)
covered corporation.
(C) No duplicate reductions. Stock
contributions that are treated under para-
graph (l)(3)(iv)(B) of this section as hav-
ing been contributed in the taxable year to
which the applicable form applies may not
be treated as having been contributed for
any other taxable year for purposes of the
section 4501(d) excise tax.
(v) Contributions before January 1,
2023. A section 4501(d) covered corpora-
tion with a taxable year that both begins
before January 1, 2023, and ends after
December 31, 2022, may include for that
taxable year the fair market value of all
contributions of stock of an applicable
foreign corporation or a covered surro-
gate foreign corporation, as applicable,
to an employer-sponsored retirement plan
during the entirety of that taxable year for
purposes of applying this paragraph (l)(3).
(4) Repurchases or acquisitions by
a dealer in securities in the ordinary
course of business—(i) In general. Sub-
ject to paragraph (l)(4)(ii) of this section,
a section 4501(d) covered corporation
reduces its section 4501(d) gross repur-
chase amount under paragraph (c)(3)(i)
(B) of this section by an amount equal to
the aggregate fair market value of stock
acquired in a section 4501(d)(1) repur-
chase or in a section 4501(d)(2) repur-
chase if the repurchasing or acquiring
entity is a dealer in securities (within the
meaning of section 475(c)(1) of the Code)
to the extent the stock is repurchased or
acquired in the ordinary course of the
dealer’s business of dealing in securities.
(ii) Applicability. The reduction
described in paragraph (l)(4)(i) of this
section applies solely to the extent that—
(A) The dealer accounts for the stock
as securities held primarily for sale to cus-
tomers in the dealer’s ordinary course of
business;
(B) The dealer disposes of the stock
within a period of time that is consistent
with the holding of the stock for sale to
customers in the dealer’s ordinary course
of business, taking into account the terms
of the stock and the conditions and prac-
tices prevailing in the markets for similar
stock during the period in which the stock
is held; and
(C) The dealer (if it is a covered surro-
gate foreign corporation) does not sell or
otherwise transfer the stock to a specified
affiliate of the covered surrogate foreign
corporation or the dealer (if it is a speci-
fied affiliate of an applicable foreign cor-
poration or of a covered surrogate foreign
corporation, as applicable) does not sell or
otherwise transfer the stock to the appli-
cable foreign corporation, covered sur-
rogate foreign corporation, or to another
specified affiliate of the applicable foreign
corporation or covered surrogate foreign
corporation, as applicable, in each case
other than in a sale or transfer to a dealer
that also satisfies the requirements of this
paragraph (l)(4)(ii).
(5) Repurchases by a RIC or REIT.
Section 4501(e)(5) does not apply for pur-
poses of section 4501(d).
(6) CSFC repurchase treated as a div-
idend—(i) In general. A section 4501(d)
covered corporation reduces its section
4501(d) gross repurchase amount under
paragraph (c)(3)(i)(B) of this section by
an amount equal to the aggregate fair mar-
ket value of stock of a covered surrogate
foreign corporation repurchased by the
covered surrogate foreign corporation in a
CSFC repurchase to the extent the CSFC
repurchase is treated as a distribution of
a dividend under section 301(c)(1) or
356(a)(2).
(ii) Rebuttable presumption of no div-
idend equivalence—(A) Presumption. A
CSFC repurchase to which section 302 or
356(a) applies is presumed to be subject to
section 302(a) or 356(a)(1), respectively
(and, therefore, is presumed ineligible for
the exception in paragraph (l)(6)(i) of this
section).
(B) Rebuttal of presumption. A section
4501(d) covered corporation may rebut
the presumption described in paragraph
(l)(6)(ii)(A) of this section with regard
to a specific shareholder of the covered
surrogate foreign corporation solely by
establishing with sufficient evidence that
the covered surrogate foreign corporation
and the shareholder treat the CSFC repur-
chase as a dividend for Federal income tax
purposes.
(iii) Sufficient evidence requirement—
(A) In general. To provide sufficient evi-
dence under paragraph (l)(6)(ii)(B) of this
section to establish that the covered sur-
rogate foreign corporation and the share-
holder treat the CSFC repurchase as a
dividend for Federal income tax purposes,
the section 4501(d) covered corporation
must—
(1) Establish, based on information
known to the section 4501(d) covered

Bulletin No. 2025–51 833 December 15, 2025
corporation (for example, through legal
documentation of share ownership, pub-
licly available information, the pro rata
nature of the repurchase, or the share-
holder certification safe harbor described
in paragraph (l)(6)(iii)(B) of this sec-
tion), that—
(i) The CSFC repurchase either consti-
tutes a redemption that is treated as a dis-
tribution to which section 301 applies by
reason of section 302(d) or has the effect
of the distribution of a dividend under sec-
tion 356(a)(2); and
(ii) The section 4501(d) covered
corporation has no knowledge of facts
that would indicate that the treatment
described in paragraph (l)(6)(iii)(A)(1)(i)
of this section is incorrect;
(2) Treat the CSFC repurchase consis-
tent with the treatment described in para-
graph (l)(6)(iii)(A)(1)(i) of this section,
including by withholding the applicable
amounts, if required; and
(3) Demonstrate sufficient earnings
and profits to treat as a dividend either
the redemption under section 302 or the
receipt of money or other property under
section 356.
(B) Shareholder certification safe har-
bor. To provide sufficient evidence under
paragraph (l)(6)(iii)(A) of this section
to establish that the shareholder treats
the repurchase as a dividend for Federal
income tax purposes, the section 4501(d)
covered corporation—
(1) May obtain certification from
the shareholder, in accordance with
§58.4501-3(g)(3)(ii), that the repurchase
constitutes a redemption treated as a dis-
tribution to which section 301 applies by
reason of section 302(d), or that the repur-
chase has the effect of the distribution of a
dividend under section 356(a)(2), includ-
ing evidence that applicable withholding
occurred if required; and
(2) Must have no knowledge of facts
that would indicate that the shareholder
certification is incorrect.
(iv) Documentation of sufficient evi-
dence—(A) Retention and availability
of evidence. A section 4501(d) covered
corporation must retain the evidence
described in paragraph (l)(6)(iii) of this
section and make that evidence available
for inspection to the IRS if any of the evi-
dence becomes material in the administra-
tion of any internal revenue law.
(B) Retention of supporting records.
The section 4501(d) covered corporation
must retain records of all information nec-
essary to document and substantiate all
content described in paragraph (l)(6)(iii)
of this section.
(7) Repurchases by a non-RIC ’40 Act
fund. The exception for repurchases by a
non-RIC ’40 Act fund under §58.4501-
3(h) does not apply for purposes of section
4501(d).
(m) Application of section 4501(d) net-
ting rule—(1) In general. This paragraph
(m) provides the section 4501(d) netting
rule, under which the section 4501(d)
excise tax base with respect to a section
4501(d) covered corporation for a taxable
year is reduced only by stock of the appli-
cable foreign corporation or the covered
surrogate foreign corporation, as appli-
cable, issued or provided by the section
4501(d) covered corporation to its employ-
ees during its taxable year. Any reference
in this paragraph (m) to issuing or provid-
ing stock to an employee refers solely to
stock of the applicable foreign corporation
or the covered surrogate foreign corpora-
tion, as applicable, that is issued or pro-
vided by a section 4501(d) covered corpo-
ration to an employee in connection with
the employee’s performance of services in
the employee’s capacity as an employee of
the section 4501(d) covered corporation.
The fair market value of stock of an appli-
cable foreign corporation or a covered
surrogate foreign corporation, as applica-
ble, that is described in this paragraph (m)
is a reduction for purposes of computing
the section 4501(d) covered corporation’s
section 4501(d) excise tax base. See para-
graph (c)(3)(i)(C) of this section.
(2) Stock issued or provided outside
period of applicable foreign corporation
or covered surrogate foreign corporation
status. Any stock issued or provided prior
to the initiation date or after the cessation
date of the applicable foreign corpora-
tion or the covered surrogate foreign cor-
poration, as applicable, is not taken into
account under paragraph (m)(1) of this
section. See paragraph (e)(1) of this sec-
tion (determination of initiation date and
cessation date).
(3) Issuances or provisions before
January 1, 2023. Except as provided in
paragraph (m)(2) of this section, a sec-
tion 4501(d) covered corporation with a
taxable year that both begins before Janu-
ary 1, 2023, and ends after December 31,
2022, must include the fair market value
of all issuances or provisions of stock
during the entirety of that taxable year for
purposes of applying paragraph (m)(1) of
this section for that taxable year.
(4) Stock issued or provided in connec-
tion with the performance of services—(i)
In general. For purposes of this paragraph
(m), stock of an applicable foreign cor-
poration or a covered surrogate foreign
corporation, as applicable, is transferred
by the section 4501(d) covered corpora-
tion in connection with the performance
of services only if the transfer is described
in section 83, including pursuant to the
exercise of a nonqualified stock option
described in §1.83-7 of this chapter, or is
pursuant to the exercise of a stock option
described in section 421 of the Code.
(ii) Sale of shares to cover exercise
price or withholding—(A) Payment or
advance by third party equal to exer-
cise price. If a third party pays the exer-
cise price of an option to acquire stock
of a covered corporation on behalf of an
employee or advances to an employee
an amount equal to the exercise price of
a stock option that the employee uses to
exercise the option, then any stock trans-
ferred by the section 4501(d) covered cor-
poration to the third party in connection
with exercising the option (as well as any
stock transferred by the covered corpora-
tion or specified affiliate to the employee)
is treated as issued or provided in connec-
tion with the performance of the services
by the employee.
(B) Advance by third party equal to
withholding obligation. If a third party
advances an amount equal to the with-
holding obligation of an employee, then
any stock transferred by the section
4501(d) covered corporation to the third
party (as well as any stock transferred by
the covered corporation or specified affil-
iate to the employee) in connection with
this arrangement is treated as issued or
provided in connection with the perfor-
mance of services by the employee.
(5) Date of issuance or provision
for section 4501(d) netting rule—(i) In
general. Stock of an applicable foreign
corporation or a covered surrogate for-
eign corporation, as applicable, is issued
or provided to an employee of a section

December 15, 2025 834 Bulletin No. 2025–51
4501(d) covered corporation as of the date
the employee is treated as the beneficial
owner of the stock for Federal income
tax purposes. In general, an employee is
treated as the beneficial owner of the stock
when the stock is both transferred by the
section 4501(d) covered corporation and
substantially vested within the meaning
of §1.83-3(b) of this chapter. Thus, stock
transferred pursuant to a vested stock
award or a restricted stock unit is issued
or provided when the section 4501(d)
covered corporation initiates payment
of the stock. Stock transferred that is not
substantially vested within the meaning of
§1.83-3(b) of this chapter is not issued or
provided until it vests, except as provided
in paragraph (m)(5)(iii) of this section.
(ii) Stock options and stock apprecia-
tion rights. Stock of an applicable foreign
corporation or a covered surrogate foreign
corporation, as applicable, transferred by
a section 4501(d) covered corporation
pursuant to an option described in §1.83-7
of this chapter or section 421 or a stock
appreciation right is issued or provided by
the section 4501(d) covered corporation
as of the date the option or stock apprecia-
tion right is exercised.
(iii) Stock on which a section 83(b)
election is made. Stock of an applicable
foreign corporation or a covered surro-
gate foreign corporation, as applicable,
transferred by the section 4501(d) covered
corporation when it is not substantially
vested within the meaning of §1.83-3(b)
of this chapter, but as to which a valid
election under section 83(b) is made, is
treated as issued or provided by the sec-
tion 4501(d) covered corporation as of the
transfer date.
(6) Fair market value of stock of an
applicable foreign corporation or a cov-
ered surrogate foreign corporation that is
issued or provided to employees—(i) In
general. For purposes of paragraph (m)
(1) of this section, the fair market value of
stock of an applicable foreign corporation
or a covered surrogate foreign corporation,
as applicable, that is issued or provided
is determined under section 83 as of the
date the stock is issued or provided to an
employee by the section 4501(d) covered
corporation. The fair market value of the
stock is determined under the rules pro-
vided in section 83 regardless of whether
an amount is includible in the employee’s
income under section 83 or otherwise. For
example, the fair market value of stock
issued or provided by a section 4501(d)
covered corporation to its employee pur-
suant to a stock option described in sec-
tion 421 and stock issued or provided by a
section 4501(d) covered corporation to an
employee who is a nonresident alien for
services performed outside of the United
States is determined using the rules pro-
vided in section 83.
(ii) Market price of stock denomi-
nated in non-U.S. currency. The market
price of any stock of an applicable for-
eign corporation or a covered surrogate
foreign corporation, as applicable, that is
denominated in a currency other than the
U.S. dollar is converted into U.S. dollars
at the spot rate (as defined in §1.988-1(d)
(1) of this chapter) on the date the stock is
issued or provided by the section 4501(d)
covered corporation to its employee.
(7) Issuances that are disregarded for
purposes of applying the section 4501(d)
netting rule—(i) In general. This para-
graph (m)(7) lists the sole circumstances
in which an issuance or provision of
stock by the section 4501(d) covered cor-
poration to its employee is disregarded
for purposes of this paragraph (m). The
transfers of stock described in §58.4501-
4(f)(1) through (9) are not issuances or
provisions of stock by a section 4501(d)
covered corporation to its employees and
therefore are not relevant to the section
4501(d) netting rule.
(ii) Stock contributions to an employ-
er-sponsored retirement plan. Any stock
of an applicable foreign corporation or
a covered surrogate foreign corporation,
as applicable, contributed to an employ-
er-sponsored retirement plan of the sec-
tion 4501(d) covered corporation, any
stock of an applicable foreign corporation
or a covered surrogate foreign corpora-
tion, as applicable, treated as contributed
to an employer-sponsored retirement plan
of the section 4501(d) covered corporation
under paragraph (l)(3) of this section, and
any stock of an applicable foreign corpo-
ration or a covered surrogate foreign cor-
poration, as applicable, sold to a leveraged
or non-leveraged ESOP, is disregarded for
purposes of this paragraph (m).
(iii) Net exercises and share withhold-
ing. Stock of an applicable foreign cor-
poration or a covered surrogate foreign
corporation, as applicable, withheld by
a section 4501(d) covered corporation to
satisfy the exercise price of a stock option
issued to an employee, or to pay any with-
holding obligation, is disregarded for pur-
poses of this paragraph (m). For example,
stock of an applicable foreign corporation
or a covered surrogate foreign corpora-
tion, as applicable, withheld by a section
4501(d) covered corporation to pay the
exercise price of a stock option, to satisfy
an employer’s income tax withholding
obligation under section 3402 of the Code,
to satisfy an employer’s withholding obli-
gation under section 3102 of the Code, or
to satisfy an employer’s withholding obli-
gation for State, local, or foreign taxes, is
disregarded for purposes of this paragraph
(m).
(iv) Settlement other than in stock.
Settlement of an option contract with
respect to stock of an applicable foreign
corporation or a covered surrogate foreign
corporation, as applicable, using any con-
sideration other than stock of the appli-
cable foreign corporation or the covered
surrogate foreign corporation, as appli-
cable, (including cash) is disregarded for
purposes of this paragraph (m).
(v) Instrument not in the legal form of
stock—(A) Issuance or provision of sec-
tion 4501(d) covered non-stock instru-
ment generally disregarded. Except as
provided in paragraph (m)(7)(v)(C) or (D)
of this section, the issuance or provision
by a section 4501(d) covered corporation
of a section 4501(d) covered non-stock
instrument (as defined in paragraph (m)
(7)(v)(B)(2) of this section, including an
issuance or provision before the initiation
date or after the cessation date, is disre-
garded for purposes of the section 4501(d)
netting rule.
(B) Definitions. The following defini-
tions apply for purposes of this paragraph
(m)(7)(v).
(1) Section 4501(d) non-stock instru-
ment. A section 4501(d) non-stock instru-
ment is an instrument of an applicable
foreign corporation or a covered surrogate
foreign corporation, as applicable, that is
not in the legal form of stock but that is
treated as stock for Federal tax purposes.
For the avoidance of doubt, in the case
of an applicable foreign corporation or
a covered surrogate foreign corporation,
as applicable, that is an eligible entity

Bulletin No. 2025–51 835 December 15, 2025
with the meaning of §301.7701-3(a) of
this chapter, a section 4501(d) non-stock
instrument does not include an instrument
that is in the legal form of membership,
partnership, or other ownership interests
of the eligible entity.
(2) Section 4501(d) covered non-stock
instrument. A section 4501(d) covered
non-stock instrument is a section 4501(d)
non-stock instrument issued or provided
by a section 4501(d) covered corporation
to a section 4501(d) covered holder.
(3) Section 4501(d) covered holder.
A section 4501(d) covered holder is any
person that owns (or under the attribu-
tion rules of section 318 of the Code is
considered to own) at least 10 percent of
the stock of the applicable foreign corpo-
ration or the covered surrogate foreign
corporation, as applicable, either by vote
or value, but only if the section 4501(d)
covered corporation has knowledge of
facts that would indicate such ownership,
including through legal documentation of
share ownership, publicly available infor-
mation, or any other means at the time of
the issuance or provision of the section
4501(d) non-stock instrument by the sec-
tion 4501(d) covered corporation.
(C) Certain instruments treated as
issued when repurchased—(1) In gen-
eral. Subject to the identification require-
ment in paragraph (m)(7)(v)(C)(2) of
this section, if a section 4501(d) covered
non-stock instrument is repurchased by a
section 4501(d) covered corporation, the
issuance or provision of the instrument
is regarded for purposes of the section
4501(d) netting rule at the time of such
repurchase based on the fair market value
of the instrument when the instrument was
issued or provided. Such fair market value
is determined under paragraph (m)(6) of
this section. For purposes of the section
4501(d) excise tax, the delivery of stock
pursuant to the terms of a section 4501(d)
covered non-stock instrument is treated as
a repurchase of the section 4501(d) cov-
ered non-stock instrument in exchange for
an issuance or provision of the stock that
is delivered.
(2) Identification of an instrument not
in the legal form of stock. The issuance
or provision of a section 4501(d) covered
non-stock instrument is regarded under
paragraph (m)(7)(v)(C)(1) of this section
only if the section 4501(d) covered cor-
poration identifies the section 4501(d)
(1) repurchase or the section 4501(d)(2)
repurchase, as applicable, of the section
4501(d) covered non-stock instrument on
the return on which the section 4501(d)
excise tax must be reported for the sec-
tion 4501(d) covered corporation’s tax-
able year in which the section 4501(d)
(1) repurchase or the section 4501(d)(2)
repurchase, as applicable, occurs.
(D) Issuances pursuant to a public
offering. Paragraph (m)(7)(v)(A) of this
section does not apply to any issuance or
provision of a section 4501(d) covered
non-stock instrument the offer and sale of
which was registered with the SEC.
(n) Section 4501(d)(1) examples. The
following examples illustrate the appli-
cation of the rules in this section relating
to section 4501(d)(1). For purposes of
the following examples, unless other-
wise stated: Corporation FZ is an appli-
cable foreign corporation; each entity has
a calendar taxable year, has no direct or
indirect owner that is a domestic entity,
and is not related to any other entity; each
corporation’s only outstanding stock for
Federal tax purposes is a single class of
common stock; the functional currency
(within the meaning of section 985 of
the Code) of any entity is the U.S. dol-
lar; any acquisition of the stock of an
applicable foreign corporation is from a
person who is not the applicable foreign
corporation or a specified affiliate of the
applicable foreign corporation; no stock
is transferred to any employee; for exam-
ples that expressly provide that stock is
transferred to any employee, such transfer
is made in connection with the employ-
ee’s performance of services in its capac-
ity as an employee of the transferor, and
the employee is treated as the beneficial
owner of the stock for Federal income tax
purposes on the date of the transfer; and
the section 4501(d) exceptions are inap-
plicable.
(1) Example 1: Section 4501(d) netting rule with
respect to a single applicable specified affiliate—(i)
Facts. Corporation FZ owns all the outstanding stock
of Corporation US1, a domestic corporation. Each
of Employee M and Employee P is an employee of
Corporation US1. On February 1, 2025, Corporation
US1 purchases 100 shares of stock of Corporation FZ
when the market price of each share is $8x. On May
15, 2025, Corporation US1 transfers to Employee M
50 shares of stock of Corporation FZ when the fair
market value of each share is $5x. On November 1,
2025, Corporation US1 transfers to Employee P 30
shares of stock of Corporation US1 when the fair
market value of each share is $9x.
(ii) Analysis. Corporation US1 is an applicable
specified affiliate. See paragraph (b)(2)(ii) of this
section. Corporation US1’s purchase of 100 shares
of stock of Corporation FZ on February 1, 2025, is
a section 4501(d)(1) repurchase. See paragraph (b)
(2)(xxi) of this section. Corporation US1 is a sec-
tion 4501(d) covered corporation with respect to the
section 4501(d)(1) repurchase. See paragraph (b)(2)
(ix)(A) of this section. For purposes of computing
Corporation US1’s section 4501(d) excise tax base
for its 2025 taxable year, the fair market value of the
100 shares of stock of Corporation FZ subject to the
section 4501(d)(1) repurchase is $800x. See para-
graph (k)(1) of this section. Accordingly, the section
4501(d)(1) repurchase increases Corporation US1’s
section 4501(d) excise tax base for the 2025 taxable
year by $800x. 50 shares of Corporation FZ stock
are treated as issued or provided to Employee M on
May 15, 2025. See paragraph (m)(5) of this section.
Therefore, Corporation US1’s section 4501(d) excise
tax base for its 2025 taxable year is reduced by $250x
(50 shares x $5x per share = $250x). See paragraph
(c)(3)(i)(C) of this section. Corporation US1’s sec-
tion 4501(d) excise tax base for its 2025 taxable year
is not reduced by the transfer of stock of Corpora-
tion US1 to Employee P because the section 4501(d)
excise tax base with respect to Corporation US1 can
only be reduced by the fair market value of stock of
Corporation FZ issued or provided by Corporation
US1 to employees of Corporation US1. See para-
graph (m) of this section. Accordingly, Corporation
US1’s section 4501(d) excise tax base with respect to
these transactions for its 2025 taxable year is $550x
($800x repurchase - $250x issuance = $550x).
(2) Example 2: Section 4501(d) netting rule with
respect to multiple applicable specified affiliates—
(i) Facts. Corporation FZ owns all the outstanding
stock of both Corporation US1, a domestic corpora-
tion, and Corporation US2, a domestic corporation.
Employee T is an employee of Corporation US2. On
February 1, 2025, Corporation US1 purchases 100
shares of stock of Corporation FZ when the market
price of each share is $8x. On May 15, 2025, Cor-
poration US2 transfers to Employee T 50 shares of
stock of Corporation FZ when the fair market value
of each share is $5x.
(ii) Analysis. Corporation US1 is an applicable
specified affiliate. See paragraph (b)(2)(ii) of this
section. Corporation US1’s purchase of 100 shares
of stock of Corporation FZ on February 1, 2025, is
a section 4501(d)(1) repurchase. See paragraph (b)
(2)(xxi) of this section. Corporation US1 is a sec-
tion 4501(d) covered corporation with respect to the
section 4501(d)(1) repurchase. See paragraph (b)(2)
(ix)(A) of this section. For purposes of computing
Corporation US1’s section 4501(d) excise tax base
for its 2025 taxable year, the fair market value of
the 100 shares of stock of Corporation FZ subject
to the section 4501(d)(1) repurchase is $800x. See
paragraph (k)(1) of this section. Accordingly, the
section 4501(d)(1) repurchase increases Corporation
US1’s section 4501(d) excise tax base for the 2025
taxable year by $800x. Corporation US1’s section
4501(d) excise tax base for its 2025 taxable year is
not reduced by the transfer of stock of Corporation
FZ to Employee T, an employee of Corporation US2,

December 15, 2025 836 Bulletin No. 2025–51
because the section 4501(d) excise tax base with
respect to Corporation US1 can only be reduced
by the fair market value of stock of Corporation FZ
issued or provided by Corporation US1 to employees
of Corporation US1. See paragraph (m) of this sec-
tion. Because there is no section 4501(d) repurchase
by Corporation US2, the section 4501(d) netting rule
does not apply to Corporation US2’s transfer of 50
shares of stock of Corporation FZ to Employee T.
(3) Example 3: Foreign partnership that is an
applicable specified affiliate—(i) Facts. Partnership
FP is a foreign partnership in which Corporation FZ,
Corporation FB, a foreign corporation, and Corpora-
tion US1, a domestic corporation, are partners. Cor-
poration FZ owns 70 percent of the capital interests
and profits interests of Partnership FP; Corporation
FB owns 20 percent of the capital interests and prof-
its interests of Partnership FP; and Corporation US1
owns 10 percent of the capital interests and profits
interests of Partnership FP. On March 1, 2024, Part-
nership FP purchases 100 shares of stock of Corpo-
ration FZ when the market price of each share is $8x.
(ii) Analysis. Corporation US1 is a domes-
tic entity. See paragraph (b)(2)(vi) of this section.
Corporation US1 is a direct partner with respect to
Partnership FP for purposes of section 4501(d)(1)
because Corporation US1 directly owns an interest
in Partnership FP and is not a de minimis domes-
tic entity partner with respect to Partnership FP.
See paragraphs (g)(2)(i) and (g)(5) of this section.
Accordingly, Partnership FP is an applicable spec-
ified affiliate of Corporation FZ because Corpora-
tion FZ owns more than 50 percent of the capital
interests or profits interests of Partnership FP, and
Corporation US1, a domestic entity, is a direct part-
ner of Partnership FP. See paragraph (g)(1) of this
section. Consequently, Partnership FP’s purchase of
100 shares of stock of Corporation FZ is a section
4501(d)(1) repurchase. See paragraph (b)(2)(xxi) of
this section. Partnership FP is a section 4501(d) cov-
ered corporation with respect to the section 4501(d)
(1) repurchase. See paragraph (b)(2)(ix)(A) of this
section. For purposes of computing Partnership FP’s
section 4501(d) excise tax base, the fair market value
of the 100 shares of stock of Corporation FZ sub-
ject to the section 4501(d)(1) repurchase is $800x.
See paragraph (k)(1) of this section. Accordingly, the
section 4501(d)(1) repurchase increases Partnership
FP’s section 4501(d) excise tax base for the 2024
taxable year by $800x. See paragraph (c)(3)(i) of this
section.
(4) Example 4: Foreign partnership that is not
an applicable specified affiliate—(i) Facts. The facts
are the same as in paragraph (n)(3)(i) of this section
(Example 3), except that Corporation FZ owns 76
percent of the capital interests and profits interests of
Partnership FP; Corporation FB owns 20 percent of
the capital interests and profits interests of Partner-
ship FP; and Corporation US1 owns 4 percent of the
capital interests and profits interests of Partnership
FP.
(ii) Analysis. Corporation US1 is not a direct or
indirect partner with respect to Partnership FP for
purposes of section 4501(d)(1) because Corpora-
tion US1 qualifies as a de minimis domestic entity
partner. See paragraph (g)(5) of this section. Conse-
quently, Partnership FP is not an applicable specified
affiliate of Corporation FZ because Partnership FP
has no direct or indirect domestic entity partner. See
paragraph (g)(1) of this section. Accordingly, Part-
nership FP’s purchase of 100 shares of stock of Cor-
poration FZ is not a section 4501(d)(1) repurchase.
See paragraph (b)(2)(xxi) of this section.
(5) Example 5: Foreign partnership that is
directly owned by foreign corporations and is an
applicable specified affiliate—(i) Facts. Corporation
FZ owns all the outstanding stock of Corporation
US1, a domestic corporation. Corporation US1 owns
all the outstanding stock of Corporation FB, a for-
eign corporation. Partnership FP is a foreign partner-
ship in which Corporation FB and Corporation FE,
a foreign corporation, are partners. Corporation FB
owns 80 percent of the capital interests and profits
interests of Partnership FP, and Corporation FE owns
20 percent of the capital interests and profits interests
of Partnership FP.
(ii) Analysis. Corporation US1 is a domestic
entity. See paragraph (b)(2)(vi) of this section. Cor-
poration US1 owns an interest in Partnership FP indi-
rectly through Corporation FB, a foreign corporation
that Corporation US1 controls within the meaning
of paragraph (g)(3) of this section. Corporation US1
does not qualify as a de minimis domestic entity
partner with respect to Partnership FP. See paragraph
(g)(5) of this section. Thus, Corporation US1 is an
indirect partner with respect to Partnership FP for
purposes of section 4501(d)(1). See paragraph (g)(2)
(ii)(B) of this section. Accordingly, Partnership FP
is an applicable specified affiliate of Corporation FZ
because Corporation FZ indirectly owns more than
50 percent of the capital interests or profits interests
of Partnership FP and Corporation US1, a domestic
entity, is an indirect partner of Partnership FP. See
paragraph (g)(1) of this section.
(o) Section 4501(d)(2) examples. The
following examples illustrate the appli-
cation of the rules in this section relating
to section 4501(d)(2). For purposes of
the following examples, unless otherwise
stated: Corporation FZ is a covered sur-
rogate foreign corporation; each domestic
entity is an expatriated entity within the
meaning of section 7874(a)(2)(A) with
respect to Corporation FZ and is not a
member of a consolidated group; there are
no expatriated entities with respect to Cor-
poration FZ other than as described in the
facts; a reference to ownership refers to
direct ownership; any repurchase or acqui-
sition of stock is during a taxable year that
includes at least a portion of the appli-
cable period with respect to Corporation
FZ under section 7874(d)(1); each entity
has a calendar taxable year; each corpo-
ration’s only outstanding stock is a single
class of common stock; the functional cur-
rency (within the meaning of section 985)
of any entity is the U.S. dollar; no stock
is transferred to any employee; for exam-
ples that expressly provide that stock is
transferred to any employee, such transfer
is made in connection with the employ-
ee’s performance of services in its capac-
ity as an employee of the transferor, and
the employee is treated as the beneficial
owner of the stock for Federal income tax
purposes on the date of the transfer; and
the section 4501(d) exceptions are inap-
plicable.
(1) Example 1: Section 4501(d) netting rule with
respect to an expatriated entity—(i) Facts. Corpora-
tion FZ owns all the outstanding stock of Corpora-
tion US1, a domestic corporation. Employee M is an
employee of Corporation FZ, and Employee P is an
employee of Corporation US1. On February 1, 2024,
Corporation US1 purchases 100 shares of stock of
Corporation FZ when the market price of each share
is $8x. On May 15, 2024, Corporation FZ transfers
to Employee M 50 shares of stock of Corporation
FZ when the fair market value of each share is $5x.
On November 1, 2024, Corporation US1 transfers to
Employee P 30 shares of stock of Corporation US1
when the fair market value of each share is $9x. On
December 15, 2024, Corporation FZ purchases 90
shares of its stock when the market price of each
share is $12x.
(ii) Analysis. Each of Corporation US1’s pur-
chase of 100 shares of stock of Corporation FZ and
Corporation FZ’s purchase of 90 shares of its stock
is a section 4501(d)(2) repurchase. See paragraph (b)
(2)(xxii) of this section. Corporation US1 is a sec-
tion 4501(d) covered corporation with respect to the
section 4501(d)(2) repurchases. See paragraph (b)
(2)(ix)(B) of this section. For purposes of comput-
ing Corporation US1’s section 4501(d) excise tax
base, the fair market value of the 100 shares of stock
of Corporation FZ subject to the section 4501(d)
(2) repurchase on February 1, 2024, is $800x, and
the fair market value of the 90 shares of stock of
Corporation FZ subject to the section 4501(d)(2)
repurchase on December 15, 2024, is $1,080x. See
paragraph (k)(1) of this section. Thus, the section
4501(d)(2) repurchases increase Corporation US1’s
section 4501(d) excise tax base for the 2024 taxable
year by $1,880x ($800x + $1,080x). See paragraph
(c)(3)(i)(A) of this section. Corporation US1’s sec-
tion 4501(d) excise tax base for its 2024 taxable
year is not reduced by the fair market value of the
stock of Corporation FZ transferred to Employee M
or the fair market value of the stock of Corporation
US1 transferred to Employee P because the section
4501(d) excise tax base with respect to Corporation
US1 can only be reduced by the fair market value
of stock of Corporation FZ issued or provided by
Corporation US1 to employees of Corporation US1.
See paragraph (m)(1) of this section. Accordingly,
Corporation US1’s section 4501(d) excise tax base
with respect to these transactions for its 2024 taxable
year is $1,880x.
(2) Example 2: Section 4501(d)(2) repurchase
from the covered surrogate foreign corporation or
another specified affiliate of the covered surrogate
foreign corporation—(i) Facts. Corporation FZ
owns all the outstanding stock of each of Corpora-
tion US1, a domestic corporation, Corporation FB,
a foreign corporation, and Corporation FE, a foreign
corporation. On February 1, 2024, Corporation US1
purchases 100 shares of stock of Corporation FZ

Bulletin No. 2025–51 837 December 15, 2025
from Corporation FB when the market price of each
share is $8x. On December 15, 2024, Corporation FZ
contributes 90 shares of its stock to Corporation FE
when the fair market value of each share is $12x.
(ii) Analysis. Each of Corporation US1’s pur-
chase of 100 shares of stock of Corporation FZ and
Corporation FZ’s transfer of 90 shares of its stock is
a section 4501(d)(2) repurchase. See paragraph (b)
(2)(xxii) of this section. Corporation US1 is a sec-
tion 4501(d) covered corporation with respect to the
section 4501(d)(2) repurchases. See paragraph (b)
(2)(ix)(B) of this section. For purposes of comput-
ing Corporation US1’s section 4501(d) excise tax
base, the fair market value of the 100 shares of stock
of Corporation FZ subject to the section 4501(d)
(2) repurchase on February 1, 2024, is $800x, and
the fair market value of the 90 shares of stock of
Corporation FZ subject to the section 4501(d)(2)
repurchase on December 15, 2024, is $1,080x. See
paragraph (k)(1) of this section. Accordingly, Cor-
poration US1’s section 4501(d) excise tax base with
respect to these transactions for its 2024 taxable year
is $1,880x. See paragraph (c)(3)(i) of this section.
(3) Example 3: Liability with respect to multiple
expatriated entities—(i) Facts. Corporation FZ owns
all the outstanding stock of each of Corporation US1,
a domestic corporation, and Corporation US2, a
domestic corporation. Employee M is an employee
of Corporation US1, and Employee P is an employee
of Corporation US2. On February 1, 2024, Corpora-
tion US1 purchases 100 shares of stock of Corpora-
tion FZ when the market price of each share is $8x.
On May 15, 2024, Corporation US2 purchases 40
shares of stock of Corporation FZ when the market
price of each share is $9x. On October 15, 2024, Cor-
poration FZ repurchases 50 shares of its stock when
the market price of each share is $7x. On November
1, 2024, Corporation US1 transfers to Employee M
30 shares of stock of Corporation FZ when the fair
market value of each share is $9x. On November
20, 2024, Corporation US2 transfers to Employee P
30 shares of stock of Corporation FZ when the fair
market value of each share is $8x. Corporation US1
pays the entire amount of section 4501(d) excise tax
that it owes with respect to all section 4501(d)(2)
repurchases relating to Corporation FZ and its spec-
ified affiliates that occur during Corporation US1’s
2024 taxable year and fulfills its filing obligations
for its 2024 taxable year with respect to such section
4501(d)(2) repurchases.
(ii) Analysis. Each of Corporation US1’s pur-
chase of 100 shares of stock of Corporation FZ,
Corporation US2’s purchase of 40 shares of stock of
Corporation FZ, and Corporation FZ’s repurchase of
50 shares of its stock is a section 4501(d)(2) repur-
chase. See paragraphs (b)(2)(xxii) and (d)(2)(i) of
this section. Each of Corporation US1 and Corpo-
ration US2 is a section 4501(d) covered corporation
with respect to the section 4501(d)(2) repurchases.
See paragraph (b)(2)(ix)(B) of this section. For pur-
poses of computing the section 4501(d) excise tax
base for each of Corporation US1 and Corporation
US2, the fair market value of the 100 shares subject
to the section 4501(d)(2) repurchase on February 1,
2024, is $800x; the fair market value of the 40 shares
of stock of Corporation FZ subject to the section
4501(d)(2) repurchase on May 15, 2024, is $360x;
and the fair market value of the 50 shares of stock
of Corporation FZ subject to the section 4501(d)
(2) repurchase on October 15, 2024, is $350x. See
paragraph (k)(1) of this section. Thus, the section
4501(d)(2) repurchases increase each of Corpora-
tion US1’s and Corporation US2’s section 4501(d)
excise tax base for the 2024 taxable year by $1,510x
($800x + $360x + $350x). See paragraph (c)(3)(i)(A)
of this section. 30 shares of Corporation FZ stock
are treated as issued or provided to Employee M on
November 1, 2024. See paragraph (m)(5) of this sec-
tion. Therefore, Corporation US1’s section 4501(d)
excise tax base is reduced for its 2024 taxable year
by the fair market value of the 30 shares of stock of
Corporation FZ transferred on November 1, 2024, or
$270x ($9x per share x 30 shares = $270x). See para-
graph (m)(7) of this section. Corporation US1’s sec-
tion 4501(d) excise tax base for its 2024 taxable year
is not reduced by the fair market value of the stock
of Corporation FZ that Corporation US2 transferred
to Employee P because the section 4501(d) excise
tax base with respect to Corporation US1 can only
be reduced by the fair market value of stock of Cor-
poration FZ issued or provided by Corporation US1
to employees of Corporation US1. See paragraph (m)
(1) of this section. Accordingly, Corporation US1’s
section 4501(d) excise tax base with respect to these
transactions for its 2024 taxable year is $1,240x
($1,510x - $270x). See paragraph (c)(3)(i) of this
section. Because Corporation US1 pays the entire
amount of section 4501(d) excise tax that it owes
with respect to all section 4501(d)(2) repurchases
that occur during Corporation US1’s 2024 taxable
year relating to Corporation FZ and its specified
affiliates and fulfills its filing obligations for its 2024
taxable year with respect to such section 4501(d)(2)
repurchases, Corporation US2 is not liable for sec-
tion 4501(d) excise tax with respect to such section
4501(d)(2) repurchases. See paragraph (d)(2)(ii) of
this section.
(p) Applicability dates—(1) In gen-
eral. Except as provided in paragraphs (p)
(2) and (3) of this section, the provisions
of this section apply to transactions that
occur after April 12, 2024.
(2) Transition rule for foreign partner-
ship de minimis rule. A section 4501(d)
covered corporation may choose to apply
paragraph (g)(5) of this section by replac-
ing the phrase “10 percent” with “five
percent” for transactions that occur after
April 12, 2024, but before November 24,
2025.
(3) Early application. A section
4501(d) covered corporation may choose
to apply all the rules of this section to
transactions occurring after December 31,
2022, provided that the section 4501(d)
covered corporation and all other section
4501(d) covered corporations with respect
to the same applicable foreign corporation
or covered surrogate foreign corporation,
as applicable, consistently apply all the
rules of this section with respect to such
transactions.
Par. 5. Section 58.6011-1 is amended
by revising paragraph (a) to read as fol-
lows:
§58.6011-1 General requirement of
return, statement, or list.
(a) In general. Any covered corpora-
tion (as defined in section 4501(b) of the
Internal Revenue Code (Code)), or any
person treated as a covered corporation
(as described in section 4501(d)(1)(A) or
(d)(2)(A)), other than a regulated invest-
ment company (as defined in section 851
of the Code), a real estate investment trust
(as defined in section 856(a) of the Code),
or a non-RIC ’40 Act fund (as described in
§58.4501-3(h)), that makes a repurchase
(as defined in section 4501(c)(1)), or that
is treated as making a repurchase under
section 4501(c)(2)(A), (d)(1)(B), or (d)
(2)(B), after December 31, 2022, must file
a stock repurchase excise tax return with
respect to any taxable year in which the
covered corporation or person treated as
a covered corporation makes a repurchase
or is treated as making a repurchase under
section 4501(c)(2)(A), (d)(1)(B), or (d)(2)
(B).
* * * * *
Frank J. Bisignano,
Chief Executive Officer.
Approved: October 22, 2025.
Kenneth J. Kies,
Assistant Secretary of the Treasury
(Tax Policy).
(Filed by the Office of the Federal Register Novem-
ber 21, 2025, 8:45 a.m., and published in the issue
of the Federal Register for November 24, 2025, 90
FR 53144)

December 15, 2025 838 Bulletin No. 2025–51
CFR Part 300
T.D. 10038
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 300
Estate Tax Closing Letter
User Fee Update
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final rule.
SUMMARY: This document contains
final regulations relating to the imposi-
tion of a user fee on authorized persons
requesting the issuance of IRS Letter 627,
also referred to as an estate tax closing
letter. The final regulations adopt without
change the text of the interim final rule
and proposed regulations that reduced
the amount of the user fee imposed on a
request for the issuance of an estate tax
closing letter from $67 to $56. The Inde-
pendent Offices Appropriations Act of
1952 authorizes the charging of user fees.
The final regulations affect persons who
request an estate tax closing letter.
DATES: Effective date: These regulations
are effective on December 31, 2025.
Applicability date: For date of applica-
bility, see §300.12(d).
FOR FURTHER INFORMATION
CONTACT: Concerning the final regu-
lations, Juli Ro Kim at (202) 317-6859;
concerning cost methodology, CFO Cost
and User Fees at (202) 317-6400 (not toll-
free numbers).
SUPPLEMENTARY INFORMATION:
Authority
This document contains amendments
to 26 CFR part 300 regarding user fees for
authorized persons who request the issu-
ance of an estate tax closing letter (IRS
Letter 627).
The Independent Offices Appropri-
ations Act of 1952 (IOAA) (31 U.S.C.
9701) authorizes each agency to prescribe
regulations that establish user fees for ser-
vices provided by the agency. The IOAA
provides that regulations implementing
user fees are subject to policies prescribed
by the President; these policies are set
forth in the Office of Management and
Budget Circular A-25, 58 FR 38142 (July
15, 1993) (OMB Circular A-25).
The IOAA states that the services pro-
vided by an agency should be self-sustain-
ing to the extent possible. Under OMB
Circular A-25, agencies that provide ser-
vices that confer special benefits on identi-
fiable recipients beyond those accruing to
the general public must identify those ser-
vices, determine whether user fees should
be assessed for those services, and, if so,
establish user fees that recover the full
cost of providing those services, unless
an exception to the full cost requirement
is granted. As required by the IOAA and
OMB Circular A-25, agencies are to
review user fees biennially and update
them as necessary to reflect changes in the
cost of providing the underlying services.
Background
On May 20, 2025, the Department of
the Treasury (Treasury Department) and
the IRS published in the Federal Regis-
ter (90 FR 21439) a notice of proposed
rulemaking (proposed regulations) (REG-
107459-24) proposing amendments to
regulations under 26 CFR part 300. On the
same date, the Treasury Department and
the IRS published in the Federal Register
(90 FR 21410) an interim final rule (TD
10031) that reduced the amount of the user
fee imposed on a request for the issuance
of an estate tax closing letter from $67 to
$56, applicable to requests received by the
IRS after May 20, 2025. The text of the
interim final rule also served as the text of
the proposed regulations.
The preamble to the interim final rule
contains a detailed explanation of the legal
background and user fee calculations sup-
porting the amendment to these regula-
tions. The IRS received five written public
comments in response to the interim final
rule and proposed regulations. These com-
ments are available at https://www.reg-
ulations.gov or upon request. No public
hearing on the proposed regulations was
requested and accordingly no public hear-
ing was held. After careful consideration
of the comments received, the Treasury
Department and the IRS adopt the text of
the interim final rule and proposed regula-
tions without change.
Summary of Comments
One comment requested more transpar-
ency regarding how the fee is calculated
and the specific administrative costs cov-
ered in determining the fee. The IRS fol-
lowed the OMB Circular A-25 guidance to
compute the full cost of issuing estate tax
closing letters to authorized persons. The
preamble to the interim final rule provides
a detailed explanation of how the user fee
was calculated and shows that computa-
tion. The IRS determined the total pro-
cessing labor and benefits cost and qual-
ity assurance labor and benefits cost. The
IRS then applied the overhead rate to the
total labor and benefits cost to calculate
the full cost of the estate tax closing let-
ter program. Finally, the IRS divided that
full cost by the average annual volume of
requests.
Comments recommended a further
reduction of the user fee for small estates
or low-income families. Alternatively,
comments suggested eliminating the fee
in all cases and encouraged the IRS to
automatically issue, without charge, an
estate tax closing letter for every estate
tax return filed. The elimination of the
user fee would require the Federal gov-
ernment to bear the full cost of the addi-
tional service of issuing an estate tax
closing letter. OMB Circular A-25 states
that when a service offered by an agency
confers special benefits to identifiable
recipients beyond those accruing to the
general public, the agency is to charge a
user fee to recover the full cost of pro-
viding the service. The issuance of the
estate tax closing letter constitutes the
provision of a service that confers special
benefits to persons requesting such let-
ters beyond those accruing to the general
public. In accordance with OMB Circu-
lar A-25, the IRS conducted a biennial
review of the estate tax closing letter user
fee and determined that the full cost of
issuing estate tax closing letters to autho-
rized persons is $56.

Bulletin No. 2025–51 839 December 15, 2025
Finally, one comment recommended
changes to the marginal tax brackets for
estates at specified amounts. Marginal
tax brackets are beyond the scope of this
rulemaking.
After consideration of the comments,
these final regulations therefore adopt the
text of the interim final rule and proposed
regulations without change.
Special Analyses
I. Regulatory Planning and Review
These final regulations are not subject
to review under section 6(b) of Executive
Order 12866 pursuant to the Memorandum
of Agreement (July 4, 2025) between the
Treasury Department and OMB regarding
review of tax regulations.
II. Regulatory Flexibility Act
Pursuant to the Regulatory Flexibility
Act (5 U.S.C. chapter 6), it is hereby cer-
tified that these final regulations will not
have a significant economic impact on a
substantial number of small entities. These
regulations, which reduce the amount
of a fee to obtain a particular service,
affect decedents’ estates, which generally
are not small entities as defined under 5
U.S.C. 601(6). Thus, these regulations
have no economic impact on small enti-
ties. In addition, the final regulations will
establish a $56 fee, which is a reduction
from the previously established fee and is
not substantial enough to have a signifi-
cant economic impact on any entities that
could be affected by establishing such a
fee. Accordingly, the Secretary certifies
that the rule will not have a significant
economic impact on a substantial number
of small entities.
III. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates
Reform Act of 1995 requires that agencies
assess anticipated costs and benefits and
take certain other actions before issuing a
final rule that includes any Federal mandate
that may result in expenditures in any one
year by a State, local, or Tribal government,
in the aggregate, or by the private sector,
of $100 million in 1995 dollars, updated
annually for inflation. These final regula-
tions do not include any Federal mandate
that may result in expenditures by State,
local, or Tribal governments, or by the pri-
vate sector in excess of that threshold.
IV. Executive Order 13132: Federalism
Executive Order 13132 (Federalism)
prohibits an agency from publishing any
rule that has federalism implications if
the rule either imposes substantial, direct
compliance costs on State and local gov-
ernments, and is not required by statute,
or preempts State law, unless the agency
meets the consultation and funding
requirements of section 6 of the Executive
order. These final regulations do not have
federalism implications and do not impose
substantial direct compliance costs on
State and local governments or preempt
State law within the meaning of the Exec-
utive order.
V. Submission to Small Business
Administration
Pursuant to section 7805(f) of the
Internal Revenue Code, the notice of pro-
posed rulemaking and the interim final
rule that preceded these final regulations
were submitted to the Chief Counsel for
the Office of Advocacy of the Small Busi-
ness Administration for comment on their
impact on small business. No comments
were received on the proposed regulations
or the interim final rule.
VI. Congressional Review Act
Pursuant to the Congressional Review
Act (5 U.S.C. 801 et seq.), the Office of
Information and Regulatory Affairs des-
ignated this rule as not a major rule, as
defined by 5 U.S.C. 804(2).
Drafting Information
The principal author of these reg-
ulations is the Office of the Associate
Chief Counsel (Passthroughs, Trusts, and
Estates). Other personnel from the Trea-
sury Department and the IRS participated
in the development of the regulations.
List of Subjects in 26 CFR Part 300
Estate taxes, Reporting and record-
keeping requirements.
PART 300—USER FEES
Accordingly, the interim rule amending
26 CFR part 300, which was published at
90 FR 21410 on May 20, 2025, is adopted
as final without change.
Frank J. Bisignano,
Chief Executive Officer.
Approved: November 4, 2025.
Kenneth J. Kies,
Assistant Secretary of the Treasury
(Tax Policy).
(Filed by the Office of the Federal Register Novem-
ber 28, 2025, 8:45 a.m., and published in the issue of
the Federal Register for December 1, 2025, 90 FR
55041)

December 15, 2025 840 Bulletin No. 2025–51
Part III
Allocation of Foreign
Income Taxes Resulting
from the Repeal of Section
898(c)(2); Recognition of
Pretransition Gain or Loss
under Section 987
Notice 2025-72
SECTION 1. PURPOSE
This notice announces that the Depart-
ment of the Treasury (Treasury Depart-
ment) and the Internal Revenue Service
(IRS) intend to issue proposed regulations
under section 70352 of Public Law 119-
21, 139. Stat. 72 (July 4, 2025), commonly
known as the One, Big, Beautiful Bill Act
(OBBBA), which repeals section 898(c)
(2) of the Internal Revenue Code (Code)
and directs the Treasury Department and
the IRS to issue guidance on the alloca-
tion of foreign taxes of foreign corpora-
tions affected by that repeal (forthcoming
proposed section 898 regulations). This
notice also announces that the Treasury
Department and the IRS intend to issue
proposed regulations under section 987
(forthcoming proposed section 987 regu-
lations) that would modify the election to
recognize pretransition section 987 gain
or loss ratably over the transition period
pursuant to §1.987-10(e)(5)(ii)(A).
SECTION 2. BACKGROUND
.01 Section 898 and the One-Month
Deferral Election.
Section 898 provides rules for deter-
mining the required taxable year of any
“specified foreign corporation.” A foreign
corporation is a specified foreign corpora-
tion if it is treated as a controlled foreign
corporation (CFC) for any purpose under
subpart F of subchapter N of Chapter 1 of
Subtitle A of the Code, and if any United
States shareholder (as defined in section
951(b)) (U.S. shareholder) owns (deter-
mined by applying the ownership rules of
section 958) more than 50 percent of the
stock of the CFC by vote or value on each
testing day (majority U.S. shareholder).
1

See section 898(b).
Section 898(c)(1) generally requires a
specified foreign corporation to have the
same taxable year as the taxable year of
its majority U.S. shareholder (the major-
ity U.S. shareholder year). However, prior
to the enactment of the OBBBA, section
898(c)(2) permitted a specified foreign
corporation to elect a taxable year begin-
ning one month earlier than the majority
U.S. shareholder year (one-month deferral
election).
.02 Repeal of One-Month Deferral
Election and Statutory Transition Rule.
Section 70352 of the OBBBA repeals
the one-month deferral election for tax-
able years of specified foreign corpo-
rations beginning after November 30,
2025. Section 70352(c) of the OBBBA
provides that if a corporation is a speci-
fied foreign corporation as of November
30, 2025, its first taxable year beginning
after November 30, 2025, will end at the
same time as the first required year (within
the meaning of section 898(c)(1)) ending
after such date (first required year). Thus,
a specified foreign corporation with a one-
month deferral election in place will have
a one-month short taxable year as its first
required year.
Section 70352(c) of the OBBBA pro-
vides a transition rule for specified for-
eign corporations required to change
their taxable years due to the repeal of the
one-month deferral election. Under the
transition rule, the change to the specified
foreign corporation’s taxable year will
be treated as initiated by the corporation
and as having been made with the consent
of the Secretary. The transition rule also
directs the Secretary to issue guidance
allocating foreign taxes paid or accrued
in the specified foreign corporation’s first
required year and its succeeding taxable
year among those taxable years in the
manner the Secretary determines appro-
priate to carry out the purposes of section
70352 of the OBBBA.
.03 Foreign Income Taxes Paid or
Accrued by a CFC.
In general, under section 951(a)(1),
2
a
U.S. shareholder of a CFC must include
in gross income its pro rata share of the
CFC’s subpart F income for the year. Sim-
ilarly, section 951A(a) generally requires
a U.S. shareholder of a CFC to include in
gross income the U.S. shareholder’s global
intangible low-taxed income (GILTI
inclusion amount).
3
A U.S. shareholder’s
GILTI inclusion amount is determined
by taking into account the U.S. share-
holder’s pro rata share of tested items (as
defined in §1.951A-1(f)(5)) of all CFCs in
which the U.S. shareholder owns (within
the meaning of section 958(a)) stock,
including tested income and tested loss.
See §1.951A-1(c). In computing a CFC’s
items of subpart F income and its tested
income or tested loss, deductions (includ-
ing taxes) properly allocable to such
income are taken into account. See, e.g.,
sections 954(b)(5) and 951A(c)(2)(A)(ii).
A CFC’s items of subpart F income and its
tested income or tested loss are computed
in the functional currency of the CFC and
translated into U.S. dollars as net amounts
using the average exchange rate for the
CFC’s taxable year. See sections 986(b),
989(b)(3) and §1.951A-1(d)(1).
Section 960(a) provides that when a
domestic corporation includes in gross
income any item of income under sec-
tion 951(a)(1) with respect to a CFC, the
domestic corporation is deemed to have
1
Section 898(c)(3)(B) (redesignated by section 70352(a) of the OBBBA as section 898(c)(2)(B)) defines the testing days as the first day of the corporation’s taxable year, or the days during
a representative period that the Secretary may prescribe. No final regulations have been issued that prescribe such a representative period.
2
Unless otherwise indicated, all references to sections 951, 951A, and 960(d) in this notice are to the versions of those provisions as in effect before the amendments made by sections 70312
and 70354 of the OBBBA. Because the amendments to section 898(c) apply to taxable years of foreign corporations beginning after November 30, 2025, and the amendments to sections 951,
951A, and 960(d) apply to taxable years of foreign corporations beginning after December 31, 2025, the versions of sections 951, 951A, and 960(d) that apply to a foreign corporation’s first
required year will depend on when that first required year begins.
3
Under the amendments made by the OBBBA, for taxable years beginning after December 31, 2025, the U.S. shareholder will include in gross income its net CFC tested income under section
951A. This inclusion is determined based on the U.S. shareholder’s pro rata share of a CFC’s tested income or tested loss.

Bulletin No. 2025–51 841 December 15, 2025
paid so much of the CFC’s foreign income
taxes as are properly attributable to the
item of income. Section 960(d) provides
that when a domestic corporation includes
in gross income an amount under section
951A, the domestic corporation is deemed
to have paid 80 percent of the product of
such domestic corporation’s inclusion per-
centage
4
multiplied by the aggregate tested
foreign income taxes paid or accrued by
its CFCs.
5
Section 960(d)(3) defines tested
foreign income taxes as the foreign income
taxes paid or accrued by a CFC which are
properly attributable to the tested income
of the CFC taken into account by the
domestic corporation under section 951A.
Therefore, for foreign income taxes paid
or accrued by a CFC in a taxable year to
be deemed paid by a U.S. shareholder,
the related subpart F income of the CFC
must be included in gross income by the
U.S. shareholder under section 951(a)(1),
or the related tested income of the CFC
must be taken into account in determining
a GILTI inclusion amount included by the
U.S. shareholder under section 951A.
Section 1.901-2(f) provides rules for
determining the person considered to have
paid or accrued a foreign income tax for
foreign tax credit purposes (the section
901 taxpayer). A partnership is consid-
ered the section 901 taxpayer of a foreign
income tax imposed at the entity level on
the income of the partnership. See §1.901-
2(f)(4)(i). The person who is treated as
owning the assets of a disregarded entity
6

for Federal income tax purposes is con-
sidered the section 901 taxpayer of any
foreign income tax imposed at the entity
level on the income of the disregarded
entity. See §1.901-2(f)(4)(ii). However, if
a partnership, disregarded entity, or cor-
poration undergoes one or more covered
events
7
during its foreign taxable year that
do not close the foreign taxable year, a
foreign income tax, other than a withhold-
ing tax described in section 901(k)(1)(B),
imposed with respect to that continuing
foreign taxable year is allocated among
the current owner or entity and predeces-
sor entities or prior owners under §1.901-
2(f)(5).
Section 1.861-20 provides rules for
allocating and apportioning foreign
income taxes to statutory and residual
groupings. See also §1.861-8(f). These
rules are needed for determining a CFC’s
net items of subpart F income and tested
income as well as for determining which
taxes are attributable to the CFC’s income
groups and PTEP groups (as defined in
§1.960-1(b)) for purposes of section 960.
See §§1.960-1(d), 1.960-2(b)(2), 1.960-
2(c)(4) and 1.960-3(d)(1)(i)(A).
8
Among
other purposes, these rules are used for
determining whether an item of CFC
income is high-taxed for purposes of the
high-tax exception to foreign base com-
pany income or the high-tax exclusion
from tested income. See §§1.954-1(d) and
1.951A-2(c)(7).
For purposes of determining the
amount of the foreign tax credit, foreign
income taxes are translated at the rate pro-
vided under section 986(a). If the section
901 taxpayer of the foreign income tax
takes foreign income taxes into account
when accrued, taxes are generally trans-
lated using the average exchange rate for
the taxable year to which the taxes relate.
See section 986(a)(1)(A). Section 986(a)
provides certain exceptions to the general
rule, including for foreign income taxes
that are not paid within two years of the
close of the U.S. taxable year to which
they relate. See section 986(a)(1)(B). Sec-
tion 905(c) provides that, among other
things, a change in the amount of for-
eign income tax accrued and claimed as
a credit requires a redetermination of the
U.S. tax liability for the year to which the
tax relates.
Foreign income taxes accrue in the
taxable year in which all the events have
occurred that establish the fact of the lia-
bility and the amount of the liability can
be determined with reasonable accuracy.
See §§1.446-1(c)(1)(ii)(A) and 1.461-4(g)
(6)(iii)(B). A foreign income tax deter-
mined on the basis of items of income,
gain, deduction, and loss that arise in a
foreign taxable year (a foreign net income
tax) becomes fixed and determinable at
the close of the section 901 taxpayer’s
foreign taxable year. See §1.905-1(d)(1)
(i). For section 901 taxpayers who use
the cash method of accounting, foreign
income taxes are taken into account when
paid. See §§1.905-1(c)(1) and 1.446-1(c)
(1)(i). Foreign income taxes are gener-
ally considered paid in the taxable year in
which the taxes are remitted to the foreign
country.
A specified foreign corporation’s for-
eign taxable year may close with or within
the specified foreign corporation’s first
required year. In that case, the foreign net
income tax, likely imposed with respect to
a full taxable year of foreign law income,
accrues in the first required year while
only one month of income accrues in that
year for Federal income tax purposes.
Depending on the amount of the foreign
net income tax imposed, this could result
in the specified foreign corporation having
a loss with respect to a particular income
group for the first required year. In such
case, a U.S. shareholder would have no
inclusion with respect to that income
group under section 951(a)(1) or would
take into account no tested income with
respect to that income group under section
951A, and therefore, taxes attributable to
that income group would not be deemed
paid under section 960(a) or (d).
.04 Section 987 and the Recognition of
Pretransition Gain or Loss.
Section 987 applies to taxpayers
(including CFCs) that own a qualified
business unit (QBU) with a functional cur-
rency other than the dollar. Under section
987(3), the owner of a QBU recognizes
foreign currency gain or loss when the
QBU makes a remittance. Section 989(c)
provides that the Secretary shall prescribe
regulations as may be necessary or appro-
priate to carry out the purposes of subpart
4
The domestic corporation’s inclusion percentage equals its GILTI inclusion amount divided by the domestic corporation’s aggregate pro rata shares of its CFCs’ tested income.
5
Under the amendments made by the OBBBA, for taxable years beginning after December 31, 2025, the domestic corporation is deemed to have paid 90 percent of the product of such
domestic corporation’s inclusion percentage multiplied by the aggregate tested foreign income taxes paid or accrued by its CFCs. Under the amendments made by the OBBBA, the domestic
corporation’s inclusion percentage equals its net CFC tested income under section 951A(b) divided by the aggregate amount of its CFCs’ tested income.
6
A disregarded entity is an entity described in §301.7701-2(c)(2)(i).
7
”Covered events” is defined in §1.901-2(f)(5)(ii). Covered events include the transfer of a disregarded entity or a change in entity classification under §301.7701-3.
8
Proposed amendments to regulations under sections 959 and 960 were published in the Federal Register on December 2, 2024 (89 FR 95362).

December 15, 2025 842 Bulletin No. 2025–51
J of subchapter N of Chapter 1 of Subti-
tle A of the Code (which includes section
987), including regulations limiting the
recognition of foreign currency loss on
certain remittances from QBUs.
On December 10, 2024, the Treasury
Department and the IRS published Trea-
sury Decision 10016, which contained
final regulations under sections 861, 985,
987 through 989, and 1502 (the section 987
regulations), in the Federal Register (89
FR 100138). The section 987 regulations
generally apply to taxable years beginning
after December 31, 2024, but taxpayers can
elect to apply the section 987 regulations to
earlier taxable years ending after Novem-
ber 9, 2023. See §1.987-15.
The section 987 regulations provide,
among other things, rules for calculating
the amount of foreign currency gain or
loss recognized by the owner of a QBU
under section 987(3) (section 987 gain
or loss) and transition rules that apply in
the first taxable year in which the sec-
tion 987 regulations are applicable. The
transition rules, provided in §1.987-10,
include rules for determining and recog-
nizing section 987 gain or loss that arose
before the section 987 regulations became
applicable (pretransition gain or loss). In
particular, §1.987-10(e)(5)(ii)(A) permits
taxpayers to elect to recognize pretransi-
tion gain or loss ratably over the transition
period (the amortization election). The
transition period is a period of ten tax-
able years beginning with the first taxable
year in which the section 987 regulations
apply. Subject to special rules for transfers
described in section 381(a), a taxpayer
that makes the amortization election rec-
ognizes one tenth of its pretransition gain
or loss in each taxable year of the transi-
tion period.
SECTION 3. REGULATIONS TO
BE ISSUED UNDER SECTION
70352 OF THE OBBBA ON THE
ALLOCATION OF FOREIGN
TAXES
.01 In General. The forthcoming pro-
posed section 898 regulations would pro-
vide the rules described in this section 3.
.02 Definitions. For purposes of this
section 3 and section 5 of this notice:
(1) Affected corporation. Affected cor-
poration means a specified foreign corpo-
ration (as defined in section 898(b)) that
takes into account foreign income taxes
under an accrual method of accounting
and that, pursuant to section 70352(c) of
the OBBBA, is required to change its first
taxable year beginning after November
30, 2025.
(2) First required year. First required
year means a specified foreign corpora-
tion’s first taxable year beginning after
November 30, 2025.
(3) Foreign net income tax. Foreign net
income tax means a foreign income tax (as
defined in §1.901-2(a)) that is computed
based on items of income, gain, deduc-
tion, and loss that arise in a foreign tax-
able year.
(4) Specified foreign income tax. Spec-
ified foreign income tax means a foreign
net income tax accrued by an affected cor-
poration in its first required year for which
the affected corporation is the taxpayer of
the tax under §1.901-2(f) (section 901 tax-
payer).
(5) Succeeding taxable year. Succeed-
ing taxable year means a specified foreign
corporation’s taxable year immediately
following its first required year.
.03 Taxes Not Subject to Sections 3.04
Through 3.06 of This Notice. (1) Other
foreign taxes taken into account by an
affected corporation. The rules of sections
3.04 through 3.06 of this notice apply
only to specified foreign income taxes. A
foreign tax, other than a specified foreign
income tax, that is taken into account by
an affected corporation in its first required
year or its succeeding taxable year con-
tinues to be taken into account in that
taxable year. For example, an affected
corporation’s distributive share of foreign
income taxes paid or accrued by a part-
nership, withholding taxes described in
section 901(k)(1)(B), and foreign income
taxes accrued in the succeeding taxable
year continue to be taken into account in
the year in which they ordinarily would
be taken into account for Federal income
tax purposes. The rules do not apply to a
distributive share of foreign income taxes
paid or accrued by a partnership in its first
required year because the affected corpo-
ration will take into account a distributive
share of partnership income at the same
time. See section 706(a) and §1.706-1(a).
Similarly, withholding taxes are not taken
into account because they generally accrue
close in time to the accrual of the income
on which these taxes are imposed. Finally,
while a foreign net income tax accrued in
the succeeding taxable year may relate to
income accrued in the first required year,
the Treasury Department and the IRS
expect that the administrative and com-
pliance burdens of allocating a portion of
that tax to the first required year would
exceed the benefits. In particular, such an
allocation would be difficult to perform
before the end of the succeeding taxable
year, which, unless the succeeding taxable
year is a short taxable year, will be after
the due date of the majority U.S. share-
holder’s income tax return for the taxable
year with which the affected corporation’s
first required year ends.
(2) Specified foreign corporations on
the cash method. If a specified foreign
corporation takes into account foreign
taxes under the cash method of account-
ing and, pursuant to section 70352(c) of
the OBBBA, changes its first taxable
year beginning after November 30, 2025,
any foreign tax taken into account by the
specified foreign corporation in its first
required year or its succeeding taxable
year will continue to be taken into account
in that year.
.04 Ordering Rule for the Allocation
of Specified Foreign Income Taxes. A
specified foreign income tax is allocated
between the affected corporation’s first
required year and its succeeding taxable
year and then taken into account in each
respective taxable year under the follow-
ing rules:
(1) First, specified foreign income
taxes are determined.
(2) Second, §1.861-20, as modified by
§1.960-1(d)(3)(ii)(B), is applied in the
first required year to allocate and appor-
tion any specified foreign income tax to
the income groups described in §1.960-
1(d)(2) and any PTEP group treated as
an income group under §1.960-1(d)(3)(ii)
(B) in that year, except that the tentative
gross tested income items described in
§1.951A-2(c)(7)(ii) are treated as income
groups instead of the tested income
groups described in §1.960-1(d)(2)(ii)
(C). Whether any item meets the high-tax
exception to foreign base company income
in §1.954-1(d) (high-tax exception) or the
high-tax exclusion from tested income in
§1.951A-2(c)(7) (high-tax exclusion) in

Bulletin No. 2025–51 843 December 15, 2025
either the first required year or the suc-
ceeding taxable year is determined under
section 3.04(4)(a) of this notice. See sec-
tion 3.07(3) (Example 3) of this notice.
(3) Third, the allocation rule in section
3.05 of this notice is applied to determine
the amount of specified foreign income
tax in each income group that is allocated
to the first required year and the succeed-
ing taxable year.
(4)(a) Fourth, except as provided in sec-
tion 3.04(4)(b) of this notice, the amounts
of a specified foreign income tax allocated
under section 3.04(3) of this notice to the
first required year and the succeeding tax-
able year are treated as accruing in each
respective year (assigned to the income
groups determined under section 3.04(2)
of this notice) for all purposes of the Code,
including for purposes of computing the
affected corporation’s items of subpart
F income and tested income (includ-
ing whether any item meets the high-tax
exception or the high-tax exclusion), earn-
ings and profits, and taxes deemed paid
under section 960(a), (b), or (d).
(b) The amount of specified foreign
income tax allocated to the succeeding
taxable year under section 3.04(3) of this
notice is not treated as accruing in the
succeeding taxable year for purposes of
sections 905(c) and 986(a). Section 3.06
of this notice describes the treatment of a
specified foreign income tax under those
provisions.
.05 Allocation of Specified Foreign
Income Tax Between the First Required
Year and the Succeeding Taxable Year.
(1) Amounts allocated to the first
required year.
(a) In general. Except as provided
in section 3.05(1)(b) of this notice, the
amount of a specified foreign income tax
assigned to each income group determined
under section 3.04(2) of this notice that is
allocated to the first required year is deter-
mined by multiplying the specified for-
eign income tax assigned to that income
group by the affected corporation’s allo-
cation percentage for the specified foreign
income tax. Except as provided in sections
3.05(1)(b) and 3.05(3) of this notice, the
allocation percentage for each specified
foreign income tax is equal to the portion
of taxable income, as determined under
foreign law, that is attributable under the
principles of §1.1502-76(b) to the first
required year (numerator) divided by
the total taxable income, as determined
under foreign law, for the foreign taxable
year with respect to which the specified
foreign income tax is imposed (denom-
inator). The principles of §1.1502-76(b)
allow taxpayers to use either a closing of
the books method or a ratable allocation
method in attributing the foreign tax base
to these periods. This approach reduces
the likelihood that foreign income taxes of
a specified foreign corporation in the first
required year could not be deemed paid
as a consequence of the repeal of section
898(c)(2) by matching an amount of speci-
fied foreign income tax accrued in the first
required year to associated income in that
first required year while also considering
administrability concerns similar to those
discussed in section 3.03 of this notice.
(b) Tax assigned to a PTEP group and
accompanying adjustments to the alloca-
tion percentage. The amount of a specified
foreign income tax assigned to any PTEP
group under section 3.04(2) of this notice
is allocated to the first required year. The
foreign law taxable income corresponding
to the amount of specified foreign income
tax described in the preceding sentence
is excluded in determining the allocation
percentage under section 3.05(1)(a).
(2) Amount allocated to the succeeding
taxable year. The amounts of the speci-
fied foreign income tax assigned to each
income group remaining after the applica-
tion of section 3.05(1) of this notice are
allocated to the succeeding taxable year.
(3) Interaction with §1.901-2(f)(5).
If an affected corporation is the section
901 taxpayer of a portion of a specified
foreign income tax due to the application
of §1.901-2(f)(5) and the affected corpo-
ration’s period of ownership began on or
before the beginning of the first required
year, the denominator of the fraction used
to compute the allocation percentage is
the total taxable income attributable to the
affected corporation’s period of owner-
ship (as determined under §1.901-2(f)(5)).
If the affected corporation is the section
901 taxpayer of a portion of a specified
foreign income tax due to the application
of §1.901-2(f)(5) and the affected corpo-
ration’s period of ownership began after
the beginning of the first required year,
the allocation percentage is deemed to be
100 percent.
.06 Application of Sections 905(c)
and 986(a) to Specified Foreign Income
Taxes. For purposes of sections 905(c)
and 986(a), a specified foreign income tax
accrues in the first required year, regard-
less of whether a portion of the specified
foreign income tax is allocated to the suc-
ceeding taxable year under section 3.05
of this notice. Therefore, the first required
year is the year to which the specified
foreign income tax relates for purposes
of sections 905(c)(1)(B) and 986(a). Any
change in the liability for a specified for-
eign income tax results in the following:
First, the amount of the specified foreign
income tax accrued in the first required
year is adjusted to reflect the change in
liability. Second, the rules under sec-
tions 3.04(1), 3.04(2), and 3.04(3) of this
notice are applied based upon the adjusted
amount of the specified foreign income
tax. Third, the amounts of specified for-
eign income tax that are treated as accru-
ing in the first required year and the suc-
ceeding taxable year under section 3.04(4)
of this notice are adjusted to reflect the
reapplication of sections 3.04(1) through
3.04(3) of this notice.
.07 Examples. The following examples
illustrate the application of this section 3.
(1) Example 1. Taxes subject to allocation. (a)
Facts. (i) CFCX is a specified foreign corporation.
(ii) CFCX’s first required year is from December
1, 2025, to December 31, 2025.
(iii) CFCX’s succeeding taxable year is from
January 1, 2026, to December 31, 2026.
(iv) CFCX takes foreign income taxes into
account under an accrual method of accounting.
(v) The functional currency of all qualified busi-
ness units is the u, and all foreign income taxes are
denominated in the u.
(vi) CFCX is subject to tax in Country X on the
basis of its items of income, gain, deduction, and
loss for its Country X taxable year, and the Coun-
try X tax is a foreign income tax within the meaning
of §1.901-2(a). CFCX’s Country X taxable year is
the calendar year. CFCX accrues Country X tax of
7,200u in its first required year.
(vii) CFCX owns a 40 percent interest in the
profits and capital of Partnership Y, an entity treated
as a partnership for Federal income tax purposes that
is organized and operated in Country Y. Partnership
Y’s U.S. taxable year is the calendar year. Partner-
ship Y is subject to tax in Country Y on the basis
of its items of income, gain, deduction, and loss
for its Country Y taxable year, and the Country Y
tax is a foreign income tax within the meaning of
§1.901-2(a). Partnership Y’s Country Y taxable year
is the calendar year. For its U.S. taxable year ending
December 31, 2025, Partnership Y accrues Country
Y tax of 10,000u. CFCX’s distributive share of the
Country Y tax is 4,000u.

December 15, 2025 844 Bulletin No. 2025–51
(viii) CFCX wholly owns DEZ, a disregarded
entity that is organized and operated in Country Z.
DEZ is subject to tax in Country Z on the basis of
its items of income, gain, deduction, and loss for its
Country Z taxable year, and the Country Z tax is a
foreign income tax within the meaning of §1.901-
2(a). DEZ’s Country Z taxable year ends on March
31. CFCX accrues 5,000u of Country Z tax in its suc-
ceeding taxable year.
(b) Analysis. The 7,200u of Country X tax is a
specified foreign income tax under section 3.02(4)
of this notice because it is a foreign net income tax
that accrued in CFCX’s first required year and CFCX
is the section 901 taxpayer of the tax. As such, the
7,200u of Country X tax is subject to the rules in
sections 3.04 through 3.06 of this notice. CFCX’s
4,000u distributive share of Country Y tax is not a
specified foreign income tax because CFCX is not
the section 901 taxpayer of the tax. CFCX is the sec-
tion 901 taxpayer of the 5,000u of Country Z tax;
however, because the tax accrues in the succeeding
taxable year, it is not a specified foreign income tax.
Because CFCX’s 4,000u distributive share of Coun-
try Y tax and the 5,000u of Country Z tax are not
specified foreign income taxes, both taxes continue
to be taken into account in the taxable year in which
they are ordinarily taken into account for Federal
income tax purposes under section 3.03(1) of this
notice.
(2) Example 2. Application of §1.861-20 and
allocation of specified foreign income tax. (a) Facts.
The facts are the same as in Example 1. In addition,
CFCX’s total taxable income under Country X law
for the 2025 calendar year is 45,000u. Applying the
principles of §1.1502-76(b), 3,750u of this income
is attributable to CFCX’s first required year. Under
§1.861-20, the 7,200u of Country X tax is allocated
and apportioned to the income groups described in
section 3.04(2) of this notice as follows: 5,400u to
general category tentative gross tested income attrib-
utable to the CFC tested unit (CFC income group)
and 1,800u to the general category foreign base
company services income group (FBCServ income
group).
(b) Analysis. Pursuant to the ordering rules in
section 3.04 of this notice, the 7,200u of Country
X tax is allocated and apportioned to the income
groups described in section 3.04(2) of this notice
prior to the application of the allocation rule in sec-
tion 3.05 of this notice. Under the rules of section
3.05 of this notice, the allocation percentage is then
computed and applied to the amount of Country X
tax in each income group. The amount of CFCX’s
taxable income under County X law that is attrib-
utable to the first required year (3,750u) is divided
by the total taxable income for the Country X tax-
able year (45,000u), which results in an allocation
percentage of 8.33%. The amount of Country X tax
in each income group that is allocated to the first
required year is determined by applying the alloca-
tion percentage to the amount of the specified foreign
income tax in each income group. Therefore, the fol-
lowing amounts of the Country X tax are allocated
to the first required year: 450u, which is assigned
to the CFC income group (8.33% of 5,400u); and
150u, which is assigned to the FBCServ income
group (8.33% of 1,800u). The remaining amount
of Country X tax in each income group is allo-
cated to CFCX’s succeeding taxable year: 4,950u,
assigned to the CFC income group (5,400u-450u)
and 1,650u, assigned to the FBCServ income group
(1,800u-150u).
(3) Example 3. Treatment of allocated amounts
of specified foreign income tax in the first required
year for purposes of the high-tax exclusion. (a)
Facts. The facts are the same as in Examples 1 and
2. In addition, an election under §1.951A-2(c)(7)
(viii) is in effect with respect to CFCX for the first
required year. Under §1.951A-2(c)(7)(ii), CFCX has
two tentative gross tested income items: 3,000u in
the CFC income group and 2,000u of general cat-
egory tentative gross tested income attributable to
the DEZ tested unit. CFCX accrues no expenses in
its first required year other than the specified foreign
income tax.
(b) Analysis. Pursuant to section 3.04(4) of this
notice, the portion of the Country X tax allocated
to the first required year is treated as the amount of
Country X tax accrued in that taxable year for all
purposes of the Code except sections 905(c) and
986(a). Therefore, in determining whether CFCX’s
tentative gross tested income items are excluded
from gross tested income under sections 954(b)(4)
and 951A(c)(2)(A)(i)(III), 450u of Country X tax is
treated as accrued in the first required year and allo-
cated and apportioned to the CFC income group, the
statutory grouping to which 3,000u of gross income
is assigned. If an election under §1.951A-2(c)(7)
(viii) is in effect with respect to CFCX for the suc-
ceeding taxable year, the 4,950u assigned to the CFC
income group would be taken into account in the
same manner in that year.
SECTION 4. REGULATIONS TO
BE ISSUED UNDER SECTION 987
.01 In General. The forthcoming pro-
posed section 987 regulations would pro-
vide the rules described in this section 4.
The forthcoming proposed section 987
regulations would modify the effect of
the amortization election to appropriately
take into account pretransition gain or loss
for short taxable years, including short
taxable years resulting from the repeal of
section 898(c)(2).
.02 Transition Period. If an election is
made under §1.987-10(e)(5)(ii)(A) to rec-
ognize pretransition gain or loss ratably
over the transition period, then each owner
to which the election applies recognizes
pretransition gain or loss with respect to
each section 987 QBU, original deferral
QBU, and outbound loss QBU ratably
over 120 months beginning with the first
day of the first taxable year in which the
section 987 regulations apply, subject to
the special rules provided in §1.987-10(e)
(5)(ii)(B) (related to transfers described
in section 381(a)) and section 4.03 of this
notice.
.03 Taxable Years Ending Before
November 25, 2025. For purposes of sec-
tion 4.02 of this notice, if an owner recog-
nized a ratable portion of its pretransition
gain or loss under §1.987-10(e)(5)(ii)(A)
in any taxable year to which the rules pro-
vided in section 4.02 of this notice did not
apply, each such taxable year is deemed
to contain twelve months. Thus, for exam-
ple, if the first taxable year of an owner in
which the section 987 regulations apply is
a short taxable year ending before Novem-
ber 25, 2025, and the owner recognized
one tenth of its pretransition gain or loss
in that taxable year under §1.987-10(e)(5)
(ii)(A), the owner recognizes its remain-
ing pretransition gain or loss ratably over
108 months beginning with the first day of
the next taxable year.
SECTION 5. APPLICABILITY
DATES AND RELIANCE
The forthcoming proposed section 898
regulations would apply to taxable years
of specified foreign corporations begin-
ning after November 30, 2025. A tax-
payer may rely on the rules described in
section 3 of this notice for foreign taxes
paid or accrued in taxable years of speci-
fied foreign corporations beginning after
November 30, 2025, and ending before
the forthcoming proposed section 898
regulations are published in the Federal
Register, provided the taxpayer applies
the rules in section 3 of this notice in
their entirety and in a consistent manner
for the first required year and succeeding
taxable year of a specified foreign corpo-
ration.
The forthcoming proposed section
987 regulations would apply to taxable
years beginning after December 31,
2024, and ending on or after Novem-
ber 25, 2025. A taxpayer may rely on
the rules described in section 4 of this
notice before the forthcoming proposed
section 987 regulations are published in
the Federal Register for a taxable year to
which the section 987 regulations apply,
provided the taxpayer applies the rules
described in section 4 of this notice in
their entirety and in a consistent manner
with respect to each section 987 QBU,
original deferral QBU, and outbound
loss QBU for that taxable year and each
subsequent taxable year.

Bulletin No. 2025–51 845 December 15, 2025
SECTION 6. REQUEST FOR
COMMENTS
The Treasury Department and the IRS
request comments on the rules described
in sections 3 and 4 of this notice. The Trea-
sury Department and the IRS specifically
request comments on whether the alloca-
tion rule provided in section 3.05 of this
notice should apply to any foreign taxes
other than specified foreign income taxes,
such as an affected corporation’s distribu-
tive share of foreign income taxes paid or
accrued by a partnership that is required
to change its taxable year because of the
change in taxable year of the affected
corporation. The Treasury Department
and the IRS also request comments on
whether there are other rules that, similar
to the amortization of pretransition gain
or loss described in section 2.04 of this
notice, apply over multiple years and may
warrant guidance to address their applica-
tion in light of short taxable years result-
ing from the repeal of section 898(c)(2).
Written comments should be submit-
ted by January 24, 2026. The subject line
for comments should include a reference
to Notice 2025-72. Comments may be
submitted electronically via the Fed-
eral eRulemaking Portal at https://www.
regulations.gov (type IRS-2025-0433 in
the search field on the regulations.gov
homepage to find this notice and sub-
mit comments). Written comments may
be mailed to Internal Revenue Service,
CC:PA:01:PR (Notice 2025-72), Room
5503, P.O. Box 7604, Ben Franklin Sta-
tion, Washington, D.C., 20044. All com-
menters are strongly encouraged to submit
comments electronically.
The Treasury Department and the IRS
will publish for public availability any
comment submitted electronically and on
paper to its public docket on regulations.
gov.
SECTION 7. DRAFTING AND
CONTACT INFORMATION
The principal authors of this notice are
Hayley Rassuchine and Raphael J. Cohen
of the Office of Associate Chief Counsel
(International). However, other person-
nel from the Treasury Department and
the IRS participated in its development.
For further information regarding the
allocation of foreign taxes, contact Hay-
ley Rassuchine at (202) 317-6936 (not a
toll-free number). For further informa-
tion regarding the modification of the
section 987 regulations, contact Raphael
J. Cohen at (202) 317-6938 (not a toll-
free number).
Update for Weighted
Average Interest Rates,
Yield Curves, and Segment
Rates
Notice 2025-73
This notice provides guidance on the
corporate bond monthly yield curve, the
corresponding spot segment rates used
under § 417(e)(3), and the 24-month aver-
age segment rates under § 430(h)(2) of the
Internal Revenue Code. In addition, this
notice provides guidance as to the inter-
est rate on 30-year Treasury securities
under § 417(e)(3)(A)(ii)(II) as in effect for
plan years beginning before 2008 and the
30-year Treasury weighted average rate
under § 431(c)(6)(E)(ii)(I).
YIELD CURVE AND SEGMENT
RATES
Section 430 specifies the minimum
funding requirements that apply to sin-
gle-employer plans (except for CSEC
plans under § 414(y)) pursuant to § 412.
Section 430(h)(2) specifies the inter-
est rates that must be used to determine
a plan’s target normal cost and funding
target. Under this provision, present
value is generally determined using three
24-month average interest rates (“seg-
ment rates”), each of which applies to
cash flows during specified periods. To
the extent provided under § 430(h)(2)(C)
(iv), these segment rates are adjusted by
the applicable percentage of the 25-year
average segment rates for the period end-
ing September 30 of the year preceding
the calendar year in which the plan year
begins.
1
However, an election may be
made under § 430(h)(2)(D)(ii) to use the
monthly yield curve in place of the seg-
ment rates.
Section 1.430(h)(2)-1(d) provides
rules for determining the monthly cor-
porate bond yield curve,
2
and § 1.430(h)
(2)-1(c) provides rules for determining
the 24-month average corporate bond
segment rates used to compute the target
normal cost and the funding target. Con-
sistent with the methodology specified in
§ 1.430(h)(2)-1(d), the monthly corporate
bond yield curve derived from September
2025 data is in Table 2025-9 at the end
of this notice. The spot first, second, and
third segment rates for the month of Sep-
tember 2025 are, respectively, 4.06, 5.12,
and 5.93.
The 24-month average segment rates
determined under § 430(h)(2)(C)(i)
through (iii) must be adjusted pursuant
to § 430(h)(2)(C)(iv) to be within the
applicable minimum and maximum per-
centages of the corresponding 25-year
average segment rates. Those percent-
ages are 95% and 105% for plan years
beginning in 2024, 2025 and 2026. For
this purpose, any 25-year average seg-
ment rate that is less than 5% is deemed
to be 5%. The 25-year average segment
rates for plan years beginning in 2024,
2025 and 2026 were published in Notice
2023-66, 2023-40 I.R.B. 992, Notice
2024-67, 2024-41 I.R.B. 726 and Notice
2025-47, 2025-40 I.R.B. 441, respec-
tively.
24-MONTH AVERAGE CORPORATE
BOND SEGMENT RATES
The three 24-month average corpo-
rate bond segment rates applicable for
October 2025 without adjustment for the
25-year average segment rate limits are
as follows:
1
Pursuant to § 433(h)(3)(A), the third segment rate determined under § 430(h)(2)(C) is used to determine the current liability of a CSEC plan (which is used to calculate the minimum amount
of the full funding limitation under § 433(c)(7)(C)).
2
For months before February 2024, the monthly corporate bond yield curve was determined in accordance with Notice 2007-81, 2007-44 I.R.B. 899. Section 1.430(h)(2)-1(d) generally adopts
the methodology for determining the monthly corporate bond yield curve under Notice 2007-81 but includes two enhancements to take into account subsequent changes in the bond market.
Those enhancements are described in the preamble to TD 9986 (89 FR 2127).

December 15, 2025 846 Bulletin No. 2025–51
24-Month Average Segment Rates Without 25-Year Average Adjustment
Applicable Month First Segment Second Segment Third Segment
October 2025 4.75 5.33 5.71
The adjusted 24-month average seg-
ment rates set forth in the chart below
reflect § 430(h)(2)(C)(iv) of the Code. The
24-month averages applicable for October
2025, adjusted to be within the applicable
minimum and maximum percentages of
the corresponding 25-year average seg-
ment rates in accordance with § 430(h)(2)
(C)(iv), are as follows:
Adjusted 24-Month Average Segment Rates
For Plan Years
Beginning InApplicable MonthFirst SegmentSecond SegmentThird Segment
2024October 20254.755.335.71
2025October 20254.755.315.71
2026October 20254.755.255.71
30-YEAR TREASURY SECURITIES
INTEREST RATES
Section 431 specifies the mini-
mum funding requirements that apply
to multiemployer plans pursuant to
§ 412. Section 431(c)(6)(B) specifies
a minimum amount for the full-fund-
ing limitation described in § 431(c)(6)
(A), based on the plan’s current liabil-
ity. Section 431(c)(6)(E)(ii)(I) provides
that the interest rate used to calculate
current liability for this purpose must
be no more than 5 percent above and
no more than 10 percent below the
weighted average of the rates of interest
on 30-year Treasury securities during
the four-year period ending on the last
day before the beginning of the plan
year. Notice 88-73, 1988-2 C.B. 383,
provides guidelines for determining the
weighted average interest rate. The rate
of interest on 30-year Treasury secu-
rities for September 2025 is 4.74 per-
cent. The Service determined this rate
as the average of the daily determina-
tions of yield on the 30-year Treasury
bond maturing in August 2055. For plan
years beginning in October 2025, the
weighted average of the rates of interest
on 30-year Treasury securities and the
permissible range of rates used to calcu-
late current liability are as follows:
Treasury Weighted Average Rates
For Plan Years Beginning In30-Year Treasury Weighted AveragePermissible Range 90% to 105%
October 20254.263.84 to 4.48
MINIMUM PRESENT VALUE
SEGMENT RATES
In general, the applicable interest rates
under § 417(e)(3)(D) are segment rates
computed without regard to a 24-month
average. Section 1.417(e)-1(d)(3) pro-
vides guidelines for determining the min-
imum present value segment rates. Pursu-
ant to that section, the minimum present
value segment rates determined for Sep-
tember 2025 are as follows:
Minimum Present Value Segment Rates
Month First Segment Second Segment Third Segment
September 2025 4.06 5.12 5.93
DRAFTING INFORMATION
The principal author of this notice
is Tom Morgan of the Office of Associ-
ate Chief Counsel (Employee Benefits,
Exempt Organizations, and Employment
Taxes). However, other personnel from
the IRS participated in the development
of this guidance. For further information
regarding this notice, contact Mr. Morgan
at 202-317-6700 or Tony Montanaro at
626-927-1475 (not toll-free calls).

Bulletin No. 2025–51 847 December 15, 2025
Table 2025-9
Monthly Yield Curve for September 2025
Derived from September 2025 Data
MaturityYieldMaturityYieldMaturityYieldMaturityYieldMaturityYield
0.54.1120.55.6640.55.9660.56.0880.56.14
1.04.0521.05.6741.05.9661.06.0881.06.14
1.54.0021.55.6941.55.9761.56.0881.56.14
2.03.9822.05.7042.05.9762.06.0982.06.14
2.53.9822.55.7142.55.9862.56.0982.56.14
3.04.0023.05.7243.05.9863.06.0983.06.15
3.54.0323.55.7343.55.9963.56.0983.56.15
4.04.0824.05.7444.05.9964.06.0984.06.15
4.54.1424.55.7544.55.9964.56.0984.56.15
5.04.2125.05.7645.06.0065.06.1085.06.15
5.54.2825.55.7745.56.0065.56.1085.56.15
6.04.3526.05.7846.06.0066.06.1086.06.15
6.54.4226.55.7846.56.0166.56.1086.56.15
7.04.5027.05.7947.06.0167.06.1087.06.15
7.54.5727.55.8047.56.0167.56.1087.56.15
8.04.6528.05.8048.06.0268.06.1188.06.16
8.54.7228.55.8148.56.0268.56.1188.56.16
9.04.7929.05.8249.06.0269.06.1189.06.16
9.54.8629.55.8349.56.0369.56.1189.56.16
10.04.9230.05.8350.06.0370.06.1190.06.16
10.54.9830.55.8450.56.0370.56.1190.56.16
11.05.0431.05.8551.06.0371.06.1291.06.16
11.55.0931.55.8651.56.0471.56.1291.56.16
12.05.1432.05.8652.06.0472.06.1292.06.16
12.55.1932.55.8752.56.0472.56.1292.56.16
13.05.2433.05.8853.06.0573.06.1293.06.16
13.55.2833.55.8853.56.0573.56.1293.56.16
14.05.3234.05.8954.06.0574.06.1294.06.17
14.55.3634.55.9054.56.0574.56.1394.56.17
15.05.3935.05.9055.06.0675.06.1395.06.17
15.55.4235.55.9155.56.0675.56.1395.56.17
16.05.4636.05.9256.06.0676.06.1396.06.17
16.55.4836.55.9256.56.0676.56.1396.56.17
17.05.5137.05.9357.06.0677.06.1397.06.17
17.55.5437.55.9357.56.0777.56.1397.56.17
18.05.5638.05.9458.06.0778.06.1398.06.17
18.55.5838.55.9458.56.0778.56.1498.56.17
19.05.6039.05.9559.06.0779.06.1499.06.17
19.55.6239.55.9559.56.0879.56.1499.56.17
20.05.6440.05.9660.06.0880.06.14100.06.18

December 15, 2025 848 Bulletin No. 2025–51
Update for Weighted
Average Interest Rates,
Yield Curves, and Segment
Rates
Notice 2025-74
This notice provides guidance on the
corporate bond monthly yield curve, the
corresponding spot segment rates used
under § 417(e)(3), and the 24-month aver-
age segment rates under § 430(h)(2) of the
Internal Revenue Code. In addition, this
notice provides guidance as to the inter-
est rate on 30-year Treasury securities
under § 417(e)(3)(A)(ii)(II) as in effect for
plan years beginning before 2008 and the
30-year Treasury weighted average rate
under § 431(c)(6)(E)(ii)(I).
YIELD CURVE AND SEGMENT
RATES
Section 430 specifies the minimum
funding requirements that apply to sin-
gle-employer plans (except for CSEC plans
under § 414(y)) pursuant to § 412. Section
430(h)(2) specifies the interest rates that
must be used to determine a plan’s target
normal cost and funding target. Under
this provision, present value is generally
determined using three 24-month average
interest rates (“segment rates”), each of
which applies to cash flows during speci-
fied periods. To the extent provided under
§ 430(h)(2)(C)(iv), these segment rates
are adjusted by the applicable percentage
of the 25-year average segment rates for
the period ending September 30 of the
year preceding the calendar year in which
the plan year begins.
1
However, an elec-
tion may be made under § 430(h)(2)(D)
(ii) to use the monthly yield curve in place
of the segment rates.
Section 1.430(h)(2)-1(d) provides
rules for determining the monthly cor-
porate bond yield curve,
2
and § 1.430(h)
(2)-1(c) provides rules for determining
the 24-month average corporate bond
segment rates used to compute the target
normal cost and the funding target. Con-
sistent with the methodology specified in
§ 1.430(h)(2)-1(d), the monthly corporate
bond yield curve derived from October
2025 data is in Table 2025-10 at the end
of this notice. The spot first, second, and
third segment rates for the month of Octo-
ber 2025 are, respectively, 4.01, 5.04, and
5.83.
The 24-month average segment rates
determined under § 430(h)(2)(C)(i)
through (iii) must be adjusted pursuant to
§ 430(h)(2)(C)(iv) to be within the appli-
cable minimum and maximum percent-
ages of the corresponding 25-year aver-
age segment rates. Those percentages are
95% and 105% for plan years beginning
in 2024, 2025 and 2026. For this purpose,
any 25-year average segment rate that is
less than 5% is deemed to be 5%. The
25-year average segment rates for plan
years beginning in 2024, 2025 and 2026
were published in Notice 2023-66, 2023-
40 I.R.B. 992, Notice 2024-67, 2024-41
I.R.B. 726 and Notice 2025-47, 2025-40
I.R.B. 441, respectively.
24-MONTH AVERAGE CORPORATE
BOND SEGMENT RATES
The three 24-month average corpo-
rate bond segment rates applicable for
November 2025 without adjustment for
the 25-year average segment rate limits
are as follows:
24-Month Average Segment Rates Without 25-Year Average Adjustment
Applicable Month First Segment Second Segment Third Segment
November 2025 4.67 5.28 5.69
The adjusted 24-month average seg-
ment rates set forth in the chart below
reflect § 430(h)(2)(C)(iv) of the Code. The
24-month averages applicable for Novem-
ber 2025, adjusted to be within the appli-
cable minimum and maximum percent-
ages of the corresponding 25-year average
segment rates in accordance with § 430(h)
(2)(C)(iv), are as follows:
Adjusted 24-Month Average Segment Rates
For Plan Years
Beginning InApplicable MonthFirst SegmentSecond SegmentThird Segment
2024November 20254.755.285.69
2025November 20254.755.285.69
2026November 20254.755.255.69
1
Pursuant to § 433(h)(3)(A), the third segment rate determined under § 430(h)(2)(C) is used to determine the current liability of a CSEC plan (which is used to calculate the minimum amount
of the full funding limitation under § 433(c)(7)(C)).
2
For months before February 2024, the monthly corporate bond yield curve was determined in accordance with Notice 2007-81, 2007-44 I.R.B. 899. Section 1.430(h)(2)-1(d) generally adopts
the methodology for determining the monthly corporate bond yield curve under Notice 2007-81 but includes two enhancements to take into account subsequent changes in the bond market.
Those enhancements are described in the preamble to TD 9986 (89 FR 2127).

Bulletin No. 2025–51 849 December 15, 2025
30-YEAR TREASURY SECURITIES
INTEREST RATES
Section 431 specifies the mini-
mum funding requirements that apply
to multiemployer plans pursuant to §
412. Section 431(c)(6)(B) specifies a
minimum amount for the full-fund-
ing limitation described in § 431(c)(6)
(A), based on the plan’s current lia-
bility. Section 431(c)(6)(E)(ii)(I) pro-
vides that the interest rate used to cal-
culate current liability for this purpose
must be no more than 5 percent above
and no more than 10 percent below
the weighted average of the rates of
interest on 30-year Treasury securities
during the four-year period ending on
the last day before the beginning of the
plan year. Notice 88-73, 1988-2 C.B.
383, provides guidelines for determin-
ing the weighted average interest rate.
The rate of interest on 30-year Treasury
securities for October 2025 is 4.64 per-
cent. The Service determined this rate
as the average of the daily determina-
tions of yield on the 30-year Treasury
bond maturing in August 2055. For plan
years beginning in November 2025, the
weighted average of the rates of interest
on 30-year Treasury securities and the
permissible range of rates used to calcu-
late current liability are as follows:
Treasury Weighted Average Rates
For Plan Years Beginning In30-Year Treasury Weighted AveragePermissible Range 90% to 105%
November 20254.293.86 to 4.50
MINIMUM PRESENT VALUE
SEGMENT RATES
In general, the applicable interest rates
under § 417(e)(3)(D) are segment rates
computed without regard to a 24-month
average. Section 1.417(e)-1(d)(3) pro-
vides guidelines for determining the min-
imum present value segment rates. Pursu-
ant to that section, the minimum present
value segment rates determined for Octo-
ber 2025 are as follows:
Minimum Present Value Segment Rates
Month First Segment Second Segment Third Segment
October 2025 4.01 5.04 5.83
DRAFTING INFORMATION
The principal author of this notice
is Tom Morgan of the Office of Associ-
ate Chief Counsel (Employee Benefits,
Exempt Organizations, and Employment
Taxes). However, other personnel from
the IRS participated in the development
of this guidance. For further information
regarding this notice, contact Mr. Morgan
at 202-317-6700 or Tony Montanaro at
626-927-1475 (not toll-free calls).

December 15, 2025 850 Bulletin No. 2025–51
Table 2025-10
Monthly Yield Curve for October 2025
Derived from October 2025 Data
MaturityYieldMaturityYieldMaturityYieldMaturityYieldMaturityYield
0.53.9820.55.5540.55.8660.55.9780.56.03
1.03.9521.05.5741.05.8661.05.9881.06.03
1.53.9321.55.5841.55.8761.55.9881.56.03
2.03.9322.05.5942.05.8762.05.9882.06.04
2.53.9422.55.6042.55.8762.55.9882.56.04
3.03.9723.05.6243.05.8863.05.9883.06.04
3.54.0223.55.6343.55.8863.55.9883.56.04
4.04.0724.05.6444.05.8964.05.9984.06.04
4.54.1224.55.6544.55.8964.55.9984.56.04
5.04.1925.05.6645.05.8965.05.9985.06.04
5.54.2525.55.6645.55.9065.55.9985.56.04
6.04.3226.05.6746.05.9066.05.9986.06.04
6.54.3926.55.6846.55.9066.55.9986.56.04
7.04.4627.05.6947.05.9167.06.0087.06.05
7.54.5327.55.7047.55.9167.56.0087.56.05
8.04.6028.05.7048.05.9168.06.0088.06.05
8.54.6728.55.7148.55.9268.56.0088.56.05
9.04.7329.05.7249.05.9269.06.0089.06.05
9.54.7929.55.7349.55.9269.56.0089.56.05
10.04.8530.05.7350.05.9270.06.0190.06.05
10.54.9130.55.7450.55.9370.56.0190.56.05
11.04.9631.05.7551.05.9371.06.0191.06.05
11.55.0131.55.7651.55.9371.56.0191.56.05
12.05.0632.05.7652.05.9472.06.0192.06.05
12.55.1032.55.7752.55.9472.56.0192.56.05
13.05.1533.05.7853.05.9473.06.0193.06.06
13.55.1933.55.7853.55.9473.56.0293.56.06
14.05.2234.05.7954.05.9574.06.0294.06.06
14.55.2634.55.8054.55.9574.56.0294.56.06
15.05.2935.05.8055.05.9575.06.0295.06.06
15.55.3235.55.8155.55.9575.56.0295.56.06
16.05.3536.05.8156.05.9576.06.0296.06.06
16.55.3836.55.8256.55.9676.56.0296.56.06
17.05.4137.05.8257.05.9677.06.0297.06.06
17.55.4337.55.8357.55.9677.56.0397.56.06
18.05.4538.05.8358.05.9678.06.0398.06.06
18.55.4838.55.8458.55.9778.56.0398.56.06
19.05.5039.05.8459.05.9779.06.0399.06.07
19.55.5239.55.8559.55.9779.56.0399.56.07
20.05.5340.05.8560.05.9780.06.03100.06.07

Bulletin No. 2025–51 851 December 15, 2025
Part IV
Deletions From Cumulative
List of Organizations,
Contributions to Which are
Deductible Under Section
170 of the Code
Announcement 2025-27
The Internal Revenue Service has
revoked its determination that the organi-
zations listed below qualify as organiza-
tions described in sections 501(c)(3) and
170(c)(2) of the Internal Revenue Code of
1986.
Generally, the IRS will not disallow
deductions for contributions made to a
listed organization on or before the date
of announcement in the Internal Revenue
Bulletin that an organization no longer
qualifies. However, the IRS is not pre-
cluded from disallowing a deduction for
any contributions made after an organiza-
tion ceases to qualify under section 170(c)
(2) if the organization has not timely filed
a suit for declaratory judgment under sec-
tion 7428 and if the contributor (1) had
knowledge of the revocation of the ruling
or determination letter, (2) was aware that
such revocation was imminent, or (3) was
in part responsible for or was aware of the
activities or omissions of the organization
that brought about this revocation.
If on the other hand a suit for declar-
atory judgment has been timely filed,
contributions from individuals and orga-
nizations described in section 170(c)(2)
that are otherwise allowable will continue
to be deductible. Protection under sec-
tion 7428(c) would begin on November
24, 2025, and would end on the date the
court first determines the organization is
not described in section 170(c)(2) as more
particularly set for in section 7428(c)(1).
For individual contributors, the maximum
deduction protected is $1,000, with a hus-
band and wife treated as one contributor.
This benefit is not extended to any indi-
vidual, in whole or in part, for the acts or
omissions of the organization that were
the basis for revocation.
Name Of OrganizationEffective Date of RevocationLocation
Dreams of Gratitude Foundation01/01/2021Fayetteville, NC
Overton Park Conservancy01/01/2022Memphis, TN
Odyssey Foundation01/01/2021Frisco, TX
Destiny Bound05/01/2022Lancaster, TX

December 15, 2025 852 Bulletin No. 2025–51
Notice of Proposed
Rulemaking
Furnishing Identifying
Number of Tax Return
Preparer
REG-124791-11
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Withdrawal of notice of pro-
posed rulemaking.
SUMMARY: This document withdraws a
notice of proposed rulemaking regarding
the eligibility of tax return preparers to
obtain a preparer tax identification num-
ber (PTIN). The proposed regulations
would have affected tax return preparers.
DATES: As of November 28, 2025, the
notice of proposed rulemaking that was
published in the Federal Register on
February 15, 2012 (77 FR 8753), is with-
drawn.
FOR FURTHER INFORMATION
CONTACT: Mark Shurtliff at (202) 317-
6845 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
On February 15, 2012, the Department
of the Treasury (Treasury Department)
and the IRS published a notice of pro-
posed rulemaking (REG-124791-11) in
the Federal Register (77 FR 8753) under
section 6109 of the Internal Revenue Code
(Code) relating to the identifying number
of tax return preparers (proposed regula-
tions). The proposed regulations would
have provided for two additional catego-
ries of tax return preparers eligible for a
PTIN under a regulatory scheme in which
the IRS sought to impose minimum qual-
ification requirements on who could be a
tax return preparer.
Following publication of the proposed
regulations, on February 11, 2014, the
United States Court of Appeals for the
District of Columbia Circuit issued its
opinion in Loving v. Internal Revenue
Service, 742 F.3d 1013 (D.C. Cir. 2014),
which upheld an injunction against the
IRS from regulating tax return preparers.
In light of Loving, the IRS is prohibited
from regulating tax return preparers and,
therefore, the Treasury Department and
the IRS are withdrawing the proposed
regulations.
Drafting Information
The principal author of this notice is
Mark Shurtliff of the Office of Associate
Chief Counsel (Procedure and Adminis-
tration). However, other personnel from
the Treasury Department and the IRS par-
ticipated in its development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and record-
keeping requirements.
Withdrawal of Proposed Amendments
to the Regulations
Under the authority of 26 U.S.C. 7805,
the notice of proposed rulemaking (REG-
124791-11) that was published in the Fed-
eral Register on February 15, 2012 (77
FR 8753), is withdrawn.
Frank J. Bisignano,
Chief Executive Officer.
(Filed by the Office of the Federal Register Novem-
ber 26, 2025, 8:45 a.m., and published in the issue
of the Federal Register for November 28, 2025, 90
FR 54604)

Bulletin No. 2025–51 i December 15, 2025
Definition of Terms
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”) that
have an effect on previous rulings use the
following defined terms to describe the
effect:
Amplified describes a situation where
no change is being made in a prior pub-
lished position, but the prior position is
being extended to apply to a variation of
the fact situation set forth therein. Thus,
if an earlier ruling held that a principle
applied to A, and the new ruling holds that
the same principle also applies to B, the
earlier ruling is amplified. (Compare with
modified, below).
Clarified is used in those instances
where the language in a prior ruling is
being made clear because the language
has caused, or may cause, some confu-
sion. It is not used where a position in a
prior ruling is being changed.
Distinguished describes a situation
where a ruling mentions a previously pub-
lished ruling and points out an essential
difference between them.
Modified is used where the substance
of a previously published position is being
changed. Thus, if a prior ruling held that a
principle applied to A but not to B, and the
new ruling holds that it applies to both A
and B, the prior ruling is modified because
it corrects a published position. (Compare
with amplified and clarified, above).
Obsoleted describes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transactions.
This term is most commonly used in a ruling
that lists previously published rulings that
are obsoleted because of changes in laws or
regulations. A ruling may also be obsoleted
because the substance has been included in
regulations subsequently adopted.
Revoked describes situations where the
position in the previously published ruling
is not correct and the correct position is
being stated in a new ruling.
Superseded describes a situation where
the new ruling does nothing more than
restate the substance and situation of a
previously published ruling (or rulings).
Thus, the term is used to republish under
the 1986 Code and regulations the same
position published under the 1939 Code
and regulations. The term is also used
when it is desired to republish in a single
ruling a series of situations, names, etc.,
that were previously published over a
period of time in separate rulings. If the
new ruling does more than restate the sub-
stance of a prior ruling, a combination of
terms is used. For example, modified and
superseded describes a situation where the
substance of a previously published ruling
is being changed in part and is continued
without change in part and it is desired to
restate the valid portion of the previously
published ruling in a new ruling that is
self contained. In this case, the previously
published ruling is first modified and then,
as modified, is superseded.
Supplemented is used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and that
list is expanded by adding further names
in subsequent rulings. After the original
ruling has been supplemented several
times, a new ruling may be published that
includes the list in the original ruling and
the additions, and supersedes all prior rul-
ings in the series.
Suspended is used in rare situations
to show that the previous published rul-
ings will not be applied pending some
future action such as the issuance of new
or amended regulations, the outcome of
cases in litigation, or the outcome of a
Service study.
Abbreviations
The following abbreviations in current
use and formerly used will appear in
material published in the Bulletin.
A—Individual.
Acq.—Acquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank.
B.T.A.—Board of Tax Appeals.
C—Individual.
C.B.—Cumulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Cooperative.
Ct.D.
—Court Decision.
CY—County.
D—Decedent.
DC—Dummy Corporation.
DE—Donee.
Del. Order—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Employer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduciary.
FC—Foreign Country.
FICA—Federal Insurance Contributions Act.
FISC—Foreign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Federal Unemployment Tax Act.
FX—Foreign corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grantee.
GP—General Partner.
GR—Grantor.
IC—Insurance Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited Partner.
LR—Lessor.
M—Minor.
Nonacq.—Nonacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Personal Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Partnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Real Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsidiary.
S.P.R.—Statement of Procedural Rules.
Stat.—Statutes at Large.
T—Target Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Transferee.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpayer.
TR—Trust.
TT—Trustee.
U.S.C.—United States Code.
X—Corporation.
Y—Corporation.
Z—Corporation.

December 15, 2025 ii Bulletin No. 2025–51
Numerical Finding List
1
Bulletin 2025–51
Announcements:
2025-19, 2025-29 I.R.B. 191
2025-20, 2025-31 I.R.B. 271
2025-21, 2025-32 I.R.B. 312
2025-24, 2025-36 I.R.B. 359
2025-25, 2025-36 I.R.B. 360
2025-26, 2025-40 I.R.B. 444
2025-22, 2025-50 I.R.B. 783
2025-23, 2025-50 I.R.B. 784
2025-29, 2025-50 I.R.B. 785
2025-27, 2025-51 I.R.B. 851
Notices:
2025-32, 2025-27 I.R.B. 1
2025-33, 2025-27 I.R.B. 4
2025-34, 2025-27 I.R.B. 6
2025-35, 2025-27 I.R.B. 8
2025-31, 2025-28 I.R.B. 14
2025-36, 2025-30 I.R.B. 192
2025-37, 2025-30 I.R.B. 198
2025-40, 2025-31 I.R.B. 266
2025-39, 2025-32 I.R.B. 308
2025-28, 2025-34 I.R.B. 316
2025-41, 2025-34 I.R.B. 325
2025-42, 2025-36 I.R.B. 351
2025-43, 2025-36 I.R.B. 356
2025-44, 2025-37 I.R.B. 386
2025-45, 2025-37 I.R.B. 388
2025-38, 2025-38 I.R.B. 392
2025-47, 2025-40 I.R.B. 441
2025-51, 2025-41 I.R.B. 448
2025-52, 2025-41 I.R.B. 474
2025-54, 2025-41 I.R.B. 479
2025-46, 2025-43 I.R.B. 533
2025-50, 2025-43 I.R.B. 542
2025-53, 2025-43 I.R.B. 624
2025-55, 2025-43 I.R.B. 625
2025-49, 2025-44 I.R.B. 627
2025-57, 2025-45 I.R.B. 692
2025-61, 2025-45 I.R.B. 693
2025-63, 2025-46 I.R.B. 709
2025-65, 2025-47 I.R.B. 717
2025-62, 2025-48 I.R.B. 740
2025-67, 2025-49 I.R.B. 761
2025-69, 2025-50 I.R.B. 766
2025-70, 2025-50 I.R.B. 773
2025-71, 2025-50 I.R.B. 779
2025-72, 2025-51 I.R.B. 840
2025-73, 2025-51 I.R.B. 845
2025-72, 2025-51 I.R.B. 848
Proposed Regulations:
REG-125710-18, 2025-30 I.R.B. 263
REG-107459-24, 2025-32 I.R.B. 313
REG-132805-17, 2025-35 I.R.B. 342
REG-108822-25, 2025-36 I.R.B. 361
REG-129260-16, 2025-39 I.R.B. 410
REG-108673-25, 2025-42 I.R.B. 494
REG-110032-25, 2025-42 I.R.B. 495
REG-112261-24; REG-116085-23, 2025-42
I.R.B. 522
REG-109742-25, 2025-46 I.R.B. 712
REG-124791-11, 2025-51 I.R.B. 852
Revenue Procedures:
2025-22, 2025-30 I.R.B. 200
2025-24, 2025-31 I.R.B. 273
2025-25, 2025-32 I.R.B. 311
2025-26, 2025-33 I.R.B. 315
2025-28, 2025-38 I.R.B. 393
2025-30, 2025-42 I.R.B. 489
2025-27, 2025-44 I.R.B. 646
2025-32, 2025-45 I.R.B. 695
2025-31, 2025-48 I.R.B. 743
Revenue Rulings:
2025-13, 2025-28 I.R.B. 11
2025-14, 2025-32 I.R.B. 300
2025-15, 2025-32 I.R.B. 302
2025-16, 2025-35 I.R.B. 342
2025-17, 2025-36 I.R.B. 349
2025-18, 2025-37 I.R.B. 365
2025-19, 2025-41 I.R.B. 445
2025-20, 2025-41 I.R.B. 447
2025-21, 2025-45 I.R.B. 690
2025-22, 2025-48 I.R.B. 719
2025-23, 2025-48 I.R.B. 749
2025-24, 2025-50 I.R.B. 764
Treasury Decisions:
10021, 2025-31 I.R.B. 264
10031, 2025-32 I.R.B. 304
10033, 2025-40 I.R.B. 411
10035, 2025-42 I.R.B. 484
10034, 2025-43 I.R.B. 523
10036, 2025-43 I.R.B. 525
10037, 2025-51 I.R.B. 788
10038, 2025-51 I.R.B. 838
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2025–27 through 2025–52 is in Internal Revenue Bulletin
2025–52, dated December 22, 2025.

Bulletin No. 2025–51 iii December 15, 2025
Finding List of Current Actions on
Previously Published Items
1
Bulletin 2025–51
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2025–27 through 2025–52 is in Internal Revenue Bulletin
2025–52, dated December 22, 2025.

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