As discussed in an article published by attorneys in Vedder’s Tax group, the Inflation Reduction Act of 2022 imposed a 1 percent excise tax on certain repurchases of publicly traded corporate stock made after December 31, 2022. The statute exempts repurchases made by a “regulated investment company” (RIC) or a “real estate investment trust” (REIT), as those terms are defined under the Internal Revenue Code, as amended (the Code). Investment companies that do not elect or that do not qualify to be treated as a RIC under the Code, typically due to their receipt of non-qualifying income (commonly known as “bad income”), did not fall within the scope of the exception.
Effective November 24, 2025, the U.S. Treasury Department and the Internal Revenue Service issued final regulations that extended the excise tax exemption available to RICs and REITs to also include investment companies that have not elected to be treated as a RIC and are either (i) an ‘‘open-end company’’ as defined under the Investment Company Act of 1940, or (ii) a “closed-end company” as defined under the Investment Company Act and where the repurchase occurs as part of a periodic repurchase offer made pursuant to Rule 23c-3 under the Investment Company Act (i.e., an interval fund). In the adopting release containing the final regulations, the Treasury Department and the IRS stated that “certain non-RIC funds are obligated 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 increasing share value.”
The adopting release containing the final regulations is available here.
