26 U.S.C. § 4501 — Repurchase of corporate stock

(a) General rule. A covered corporation^* owes a tax equal to 1 percent of the fair market value of its stock^* that it repurchases during the taxable year^*.

(b) Covered corporation. “Covered corporation” means a domestic corporation whose stock is traded on an established securities market, as that term is defined in section 7704(b)(1). This section does not otherwise define that term.

(c) Repurchase. (1) “Repurchase” means a redemption described in section 317(b) involving a covered corporation's stock, and any transaction the Secretary^* determines is economically similar. (2)(A) If a specified affiliate buys covered-corporation stock from someone other than the covered corporation or its specified affiliate, the purchase is treated as the covered corporation's repurchase. (B) For a corporation, “specified affiliate” means a corporation whose stock is owned directly or indirectly by that corporation by more than 50 percent by vote or value, or a partnership^* in which that corporation directly or indirectly holds more than 50 percent of the capital or profits interests. (3) The amount counted under (a) is reduced by the fair market value of stock the covered corporation issues during the year, including stock issued or provided to its employees or specified-affiliate employees, whether or not it is provided after an option is exercised.

(d) Certain foreign corporations. (1) If a specified affiliate acquires stock of an applicable foreign corporation from anyone other than that corporation or its specified affiliate, then the affiliate is treated as a covered corporation, the acquisition is treated as its repurchase of covered-corporation stock, and the (c)(3) reduction considers only stock the affiliate issued or provided to its employees. This rule does not apply when the affiliate is a foreign corporation or foreign partnership, unless the partnership has a domestic entity as a direct or indirect partner^*. (2) For a repurchase by a covered surrogate foreign corporation, or an acquisition of its stock by its specified affiliate, the related expatriated entity is treated as the covered corporation; the transaction is treated as its repurchase; and the (c)(3) reduction considers only stock the expatriated entity issued or provided to its employees. (3)(A) “Applicable foreign corporation” means a foreign corporation whose stock is traded on an established securities market. (B) “Covered surrogate foreign corporation” means a surrogate foreign corporation determined under section 7874(a)(2)(B) by substituting September 20, 2021 for March 4, 2003 each time it appears, whose stock is traded on an established securities market, but only for taxable years including any part of its section 7874(d)(1) applicable period. (C) “Expatriated entity” has the meaning given in section 7874(a)(2)(A).

(e) Exceptions. Subsection (a) does not apply: (1) to the extent the repurchase is part of a section 368(a) reorganization and the shareholder^* recognizes no gain or loss under chapter 1 because of it; (2) when the repurchased stock, or stock equal in value, is contributed to an employer-sponsored retirement plan, employee^* stock ownership plan, or similar plan; (3) when total yearly repurchases do not exceed $1,000,000; (4) under regulations, when a securities dealer repurchases stock in its ordinary business; (5) to repurchases by a regulated investment company as defined in section 851 or by a real estate investment trust^*; or (6) to the extent the repurchase is treated as a dividend under this title.

(f) Regulations. The Secretary must issue regulations and other guidance needed or appropriate to carry out this section and prevent its avoidance, including guidance preventing abuse of (e)'s exceptions, addressing special and preferred stock, and applying (d).