Stock buybacks — which were already trending in 2025 toward an all-time high — are getting another boon. The Treasury Department & the IRS recently released final regulations, effective on November 24, 2025, that provide guidance on the application of the 1% excise tax on stock buybacks by public companies. As this Debevoise article explains, the final regulations pare back many provisions that attracted taxpayer comments on the 2024 proposal. For example:

Funding Rule: The Final Regulations limit the international reach of the Buyback Tax by removing a controversial “funding rule” which appeared nowhere in the statute and which applied the Buyback Tax to the repurchase of public foreign stock by a foreign issuer if the proceeds of the repurchase were sourced from its U.S. affiliates.

Comment: The removal of the “funding rule” is a welcome relief, as it might have applied to buybacks that were determined to be funded with distributions from U.S. subsidiaries and ordinary course cash management and treasury functions. However, the Buyback Tax still applies to purchases of public foreign corporation stock by the corporation’s U.S. affiliates.

Preferred Stock: While the Final Regulations continue to apply the Buyback Tax to repurchases of preferred stock, they exempt the redemption of nonvoting, debt-like preferred stock from the application of the Buyback Tax.  The Final Regulations also exempt the redemption of stock issued prior to the passage of the Buyback Tax on August 16, 2022, if such stock is subject to a mandatory redemption by the issuer or a unilateral put by the holder.

Comment: Public issuers of PIPEs or SPACs with redeemable shares that were issued prior to August 16, 2022, will now be able to redeem such shares without paying the Buyback Tax.

There’s other good news:

A corporation that has previously paid the Buyback Tax but would not be required to do so under the Final Regulations may receive a refund by filing an amended quarterly return after the effective date of the Final Regulations.

– Meredith Ervine