The New Excise Tax on Corporate Stock Buybacks

Eric Solomon of Steptoe & Johnson LLP discusses the new excise tax on corporate stock buybacks and examines the issues that the IRS and Treasury will need to tackle before its implementation.

Listen to our other episodes on the tax-related provisions in the Inflation Reduction Act:

• U.S. Tax Provisions Driving the Fight Against Climate Change
• $80 Billion in New Funding: What’s Next for the IRS?
• Analyzing the Corporate Alternative Minimum Tax

For additional coverage, read these articles in Tax Notes:

• IRS Officials Turn Attention and Increased Resources to IRA 
• Lawmakers Indefinite on SPAC Buyback Tax Relief
• New Trouble Ahead for SPACs: The Stock Buyback Tax
• Buyback Tax May Alter Equity Compensation and Retirement Plans

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Credits
Host: David D. Stewart
Executive Producers: Jasper B. Smith, Paige Jones
Showrunner and Audio Engineer: Jordan Parrish
Guest Relations: Alexis Hart

Transcript

David D. Stewart: Welcome to the podcast. I'm David Stewart, editor in chief of Tax Notes Today International. This week: excising stock buybacks.

We're continuing our deep dives into the important tax provisions of the Inflation Reduction Act, which was signed into law by President Biden in August. We've previously looked at the corporate alternative minimum tax, the new IRS funding, and the green tax provisions, which we'll link to in the show notes.

Now we're looking at the last minute — but still influential — addition to the law: the new excise tax on stock buybacks.

Joining me now to talk more about this is Tax Notes legal reporter Chandra Wallace. Chandra, welcome to the podcast.

Chandra Wallace: Thanks, David. It's good to be on.

David D. Stewart: Now I understand you recently talked to someone about this. Could you tell us about your guest?

Chandra Wallace: Of course. I talked to Eric Solomon, a partner at Steptoe and Johnson here in D.C., and an adjunct Professor of Law at Georgetown. Eric has served as assistant secretary for tax policy in the Treasury Department and also as Assistant Chief Council, Corporate, at the IRS.

David D. Stewart: What all did you talk about?

Chandra Wallace: We talked first about the basics of the new law and its purpose, and then we got into some of the questions and issues the Treasury and the IRS will need to tackle in order to implement it. There's not a lot of time to do that before it becomes effective January 1.

One reason I wanted to talk to Eric in particular about this is that he's been at Treasury and the IRS working out the kinks of new tax laws and developing guidance, and he's also been on the private sector side helping clients navigate the unknowns and new legislation before guidance is available. So I think he has a unique insight into the process moving forward.

David D. Stewart: All right. Let's go to that interview.

Chandra Wallace: So we're here today with Eric Solomon, who has agreed to talk with us about the new one percent stock buyback excise tax that was enacted as part of the Inflation Reduction Act (IRA).

So, Eric, can you tell us a little bit first about what we know about the purpose of this new tax?

Eric Solomon: Sure. Thanks for inviting me.

Well, like many recent enactments by Congress, there's very little or no legislative history and that's the case here too with respect to the excise tax on stock buybacks. But we do know from public statements for several years Democrats have expressed concerns about stock buybacks.

In September 2021, Senators [Sherrod] Brown (D-Ohio) and [Ron] Wyden (D-Ore.) proposed a two percent excise tax on buybacks and a revised version of that was included in the Build Back Better Act that was passed by the House in November 2021, but died in December 2021.

But now it is like a phoenix, it's back again and it's part of the IRA, which was enacted in August of this year. The revenue estimate is $74 billion over 10 years, so it's a very important paid for in the IRA.

As I said, there's no legislative history, that we only have some public comments from Senators Brown and Wyden. Putting all the pieces together from their comments, if you ask me what the purpose is, it's that corporations are buying back shares, but they're buying back shares and they're paying dollars to owners of capital. And owners of capital may be stockholders who are also managers, key executives of the company. And they're paying those dollars to owners of capital, but they're not reinvesting the dollars in the business and they're not paying wages to employees.

So in the view of Senators Brown and Wyden, the cash that should be used to reinvest in the business or pay more wages is being paid out to shareholders.

Furthermore, the payments are tax advantaged because you get capital gains rates. The recipient of the payment generally is going to get capital gain and there's basis offset. So it's paying the money to owners of capital and preferred tax rates. And unlike dividends, dividends are generally subject to withholding if they're paid to foreigners. Well this is unlike dividends, there's no withholding on payments to foreigners.

And finally, I think part of the objection is that by doing a buyback of shares, you're reducing the number of shares outstanding. And what that does, it boosts earnings per share, which boosts stock price.

So for all those reasons, I think Senators Brown and Wyden thought that there should be discouragement of stock buybacks and that's why we have the one percent buyback tax that's included in the IRA.

Chandra Wallace: So who do you think will be paying this excise tax? How does this new tax work and who do you think will be subject to it?

Eric Solomon: Well, it's very interesting that you say that, because it's not an excise tax on the shareholders, it's an excise tax on the corporation. And so, the corporation is going to have to take this into account in its cost benefit analysis when it considers doing a buyback.

Now, many companies have standard buyback programs, continuously running buyback programs, and the question is: is it going to influence that behavior? Is it going to cause companies to reconsider their buyback programs or is it going to be a speed bump? It's just going to raise the cost of doing the buyback programs and we're just going to have to wait and see.

But what it does, the basic explanation of it is, and you just go to the statute, it's in the excise tax sections of the code, because that's what it is, an excise tax imposed on the corporation. And just to quote from the statute, "It's a tax on each covered corporation," which is a defined term, "equal to one percent of the fair market value of any stock of the corporation which is repurchased by the corporation during the taxable year." So we have some important concepts, and like reading any statute, we've got to figure out what the key words are.

And then there are the questions about fair market value. There could be some questions about how you determine fair market value when you measure it. But let's just talk about the definitions of a covered corporation and what's a repurchase. Well, a covered corporation is a domestic corporation, the stock of which is traded on an established securities market. So that's what a covered corporation is, and there's a cross reference to section 7704(b).

Then, I think even more interesting is what's a repurchase. And a repurchase is defined in the statute as, "a redemption within the meaning of section 317(b) or any transaction determined by the secretary to be economically similar to a redemption." Now that latter clause, I don't know what it means.

Chandra Wallace: With no gloss on what "economically similar" means.

Eric Solomon: Exactly right.

Chandra Wallace: It's an addition to the 317(b). But other than that, we don't have any explanation. Right?

Eric Solomon: We don't have any explanation. And my only hope with respect to that, because as you point out we don't know what it means. So my only hope is that if, again, this can be left to Treasury because Treasury's going to have regulatory authority to figure out a transaction determined by the secretary to be "economically similar."

I just hope, if they do figure out that some transaction is "economically similar", that whatever guidance they put out that says it is that it's going to be perspective. Except maybe in the case of gross abuse, maybe they be retroactive.

But I would hope that any time that Treasury says, "Oh, this is economically similar to a redemption," that's not going to apply to past transaction.

Chandra Wallace: Yeah, I feel like with this level of uncertainty, looking backward, having retrospective effect would be really unpleasant.

Eric Solomon: As this develops, as the issues are identified, and as this develops, perhaps the secretary will identify some transactions they think are equivalent. But we'll need to wait and see.

But then it says it's a redemption within the meaning of 317(b), and 317(b) says "stock shall be treated as redeemed if the corporation acquires its stock from a shareholder in exchange for property." And property is pretty much anything except for stock from a corporation.

Chandra Wallace: For stock. Yeah.

Eric Solomon: So "property," as I said, it just doesn't include stock in the corporation or rights to acquire the stock of the corporation making the payment to the shareholder. So definition of "property" is pretty broad.

Now, the effective date of the excise taxes repurchases after December 31, 2022. So one question everybody's been asking, "Are corporations going to accelerate their repurchases?" And again, I think it all goes to the effect that companies think this is going to have. Perhaps some companies will accelerate their repurchases into 2022. And the excise tax is non-deductible.

Chandra Wallace: We looked at the revenue estimates by year, so we had— It's $74 billion over 10 years, but for the first year it was only a little over, I want to say between $5 and $6 billion. And then it ramps up, it's up a little higher for the next two years. And then for the remaining years over $8 billion per year.

So I was thinking that they were baking in an expectation that repurchases would be accelerated, and so in 2023 they wouldn't see as many.

Eric Solomon: Yeah. I think that's an excellent theory. And we might ask, at some point if we get the Joint Committee revenue estimators in front of us, we might ask them. Generally they don't talk about how they've derived their estimates, but maybe they might say why they thought that the amount in the first year. But to me that's a very logical theory.

Now in terms of Treasury's authority, Treasury, for example, can bring into the term redemption, something determined by the secretary to be economically similar to a redemption. That's just one of the regulatory grants of authority that Treasury has.

Treasury also has regulatory authority to provide regulations and other guidance, so that can include notices, necessary to carry out the provision and to prevent avoidance of it. So we can expect the Treasury's going to exercise its authority at some point in order to try to explain some of the ambiguous aspects of it.

One of the things I find particularly interesting is that regulatory authority is given to address special classes of stock and preferred stock. And some people have argued that buying back preferred stock shouldn't be covered by this, especially preferred stock that's mandatorily redeemable, which is like debt.

Chandra Wallace: Because that's not a decision that the corporation is making today. It's not one that's going to be influenced by a stock buyback tax, one percent, two percent or otherwise.

Eric Solomon: Exactly right. So you make an excellent point there that perhaps mandatory redeemable preferred stock really shouldn't be within the scope of this. And so Treasury has regulatory authority to consider that issue.

But what I find interesting about that is, if I look at the statute right now, I'd say it's covered. Now, so let's say someone has stock that's mandatory redeemable in January of 2023, should they—

Chandra Wallace: —and there's no guidance yet. We have a broad definition of what's covered. This would definitely, I think, fall within that definition without any other guidance coming from Treasury.

And so in the meantime, until some guidance comes out, corporations have to assume that those mandatory preferred redemptions are going to be covered by the excise tax.

Eric Solomon: Yeah, I would agree with you on that.

But before we got started here, we were talking about what IRS and Treasury might be doing right now. And they're collecting issues, both for this and the corporate alternative minimum tax (AMT).

Right now, as fast as they can, they are trying to figure, make lists of issues, and figure out what they need to answer before the effective date. The effective date for both the book AMT and for this is 2023. So they're making lists of issues and figuring out whether or not there is some form of guidance that they can issue before 2023 in order to answer some of the basic questions.

Now I would say, with respect to the book AMT, for whatever number of companies, 150 or 200 companies, it's not going to be optional. So there are going to be issues that need to be resolved, that Treasury and IRS need to give some guidance right away. And there's scuttlebutt that perhaps Treasury and IRS will issue a notice or two before 2023.

For the buyback tax. The question is, "OK, you collect a list of issues, what's urgent? Is there anything in this, among the many issues that we might spend hours discussing, are there any that are urgent that taxpayers need to know before 2023?"

I would expect if there are, then presumably IRS and Treasury would issue a notice that just says, "Here's our view of this particular issue and we intend to include an answer to that question, and here's the answer in regulations that we will prescribe."

Because eventually for both the book AMT and for this, they're going to presumably put out proposed regulations, get comments on and final regulations. But that takes time.

And they're going to follow the APA (Asset Purchase Agreement), clearly, notice and comment. In order to get answers out in a timely manner, they may pick some issues that they think are urgent and put out a notice with respect to that.

Chandra Wallace: When we talked about this earlier, you pointed out that there's not unlimited staff at Treasury, that there's not an unlimited pool of attorneys that are going to be able to look at these things, and they're going to have to be looking at the corporate AMT and this stock buyback tax at the same time, in addition to the other issues already on their plates.

Do you see anything in this stock buyback tax that is most likely to be a candidate for a notice sooner than 2023?

Eric Solomon: I would think that, contrasting this with the book AMT— book AMT for whatever the 150 or 200 corporations that are going to be subject to it, they got to have some answers. So there are going to be some things that Treasury and IRS, some basic questions that they're going to have to answer.

For this, generally buybacks are optional. Now in situations where, you and I discussed a couple of situations, for example, mandatory redeemable. Let's say something's mandatorily or redeemable in January. Or let's say a buyback has already been decided and publicly announced that it's going to happen early in 2023. That might present situations where people need guidance right away.

But I would think that the number of emergencies for this, for the buyback tax, might be fewer number than there are for the book AMT. And they will be identified as taxpayers and the representatives come forward and identify the issues.

Chandra Wallace: One other outstanding issue is that there's not really a path. There's not a reporting process — as far as I know — for this. I know other excise taxes, there's usually like a quarterly reporting, there's a form for it, all those kinds of things, and a process in place. But for this, that's another thing that IRS and Treasury are going to have to come up with. Is that right?

Eric Solomon: That's exactly right. And the IRS has an office that does forms.

And I got to give a shout out to them because when I was in the government and dealing with them, their understanding of the law and how to convert very complicated law into a form, always impressed me. And so I think that's what's going to happen here is that group, that office, is going to be brought in to create a form.

Now what I would expect is that it's going to be an annual return. It's not going to be a quarterly return. Because the way some of these rules work, for example: if you do a buyback, the amount subject to tax, subject to the excise tax, is reduced to the extent you issue shares within the same taxable year. So there are some rules that reduce the amount that you're going to owe because you issue shares in the same taxable year. It seems it can't be done on a quarterly report. It has to be done on an annual report.

Chandra Wallace: Right. And it would be messy to try to do it on a quarterly basis.

For other kinds of excise taxes, it makes sense. The cash flows are usually always going in one direction and so you're going to have less of a chance of needing an offset or a cleanup at the end of the year.

Whereas here, almost all of the decisions to be made are done on an annual basis.

Eric Solomon: What's interesting, there is one exception that seems to apply even if the offsetting action occurs in another tax year. The excise tax does not apply in any case in which the stock repurchase, or an amount of stock equal to the value of the stock repurchased is contributed to an employer sponsored retirement plan, ESOP, or similar plan. That exception seems to go beyond the end of the taxable year.

So I wonder how that would work. If you can get an offset even if the stuff is put into the retirement plan after the end of the year, how, administratively, would that work? I would think that Treasury might consider a rule that would cut off how long you could use the offset. That is to say, perhaps they would write a rule that says that what they offset here for stock put in a retirement plan has to occur in the same taxable year.

Chandra Wallace: And to cut off the beginning of it. Right? So could you go back to transactions that already occurred or had already been baked in but didn't actually pull the trigger in that same taxable year?

Eric Solomon: That's a good point because there is no limitation. We've just been assuming that it'll be put in the retirement plan afterwards, but you're absolutely right, it could occur before.

And other possibility is you do an annual return and then you amend the annual return if you later put stock into a retirement plan. Maybe what you do is have an annual return, and then three years later if you put something into a retirement plan, you get to go backwards and amend. All these questions need to be answered.

But I would speculate there'd be an annual return, not a quarterly return. And because of these notions about generally we use a taxable year and also because you can get it offset for things that might occur within the taxable year.

Chandra Wallace: So we raised one of the exceptions, but there are a number of exceptions to the application of this tax. You want to run through what those are?

Eric Solomon: The first exception is "the amount repurchased is reduced by the fair market value of any stock issued by the corporation during the taxable year. And it includes stock provided to employees during the taxable year, whether or not such stock is issued or provided in response to the exercise of an option to purchase such stock." So people are calling this the netting rule.

But what I was scratching my head was, OK, so you get to reduce it by stock issued to employees. Is that fully vested? What if it's subject to restrictions? Does that count? And what if the shareholder has made an 83b election, does that count?

So all the issues around compensation confuse me about that. And whether or not stock that's issued to employees that has a compensation taint to it is somehow included as stock issued to employees. I don't know. And that presumably needs clarification.

The second exception is the reorganization exception. Which one question just leads to another question with respect to the reorganization exception. "It applies if the repurchase is part of a 368 reorganization and no gain or loss is recognized on such repurchase by the shareholder." And that raises a whole host of issues about reorganizations, including those which, in fact, let's say there's boot in a reorganization. And what effect does having boot, because— In the first question I ask, it says "a repurchase by the shareholder." Does that mean this exception applies on a shareholder by shareholder basis? I'll just leave it at that, because it gets very complicated.

Chandra Wallace: Because that could be very complicated, right? And how is the corporation going to know, shareholder by shareholder, what's going on in each of their financial lives that's going to affect how these things are treated?

Eric Solomon: You're exactly right. Let's say a boot in a reorganization and you're a shareholder and you get $5 of boot.

Chandra Wallace: And boot, in regular non-tax world, is cash.

Eric Solomon: That's exactly right. And you're a shareholder and this says that "the excise tax doesn't apply if there's no gain gainer loss recognized by you."

Well, section 356 has a special rule that says if you don't have gain in your shares, then even if you get cash, you don't recognize it. Or what happens if you've lost, you have a high basis in those shares and you have a loss and you get cash? Well, you're not going to recognize gain or loss. Does the corporation somehow get to say, "Oh, you know, you didn't have gain or loss and therefore the excise tax doesn't apply to buy back from you"?

Chandra Wallace: Well, they have to show up with a clipboard at your office and get the information from you. Do you think it's likely that Treasury and the IRS will, when they're doing guidance, allow corporations to make certain assumptions?

Eric Solomon: You said it exactly right, they may be able to make certain assumptions, but I'm suspecting that Treasury will have to tell companies that there're going to be certain presumptions. That if there's boot, it'll just be presumed that the shareholders recognize gain or loss unless —

Chandra Wallace: To the extent of that.

Eric Solomon: — they prove otherwise. I don't know how else it'll be done.

Chandra Wallace: Well, and the other question on this would be the extent to which boot affects whether there is gain or loss. I think I'm not probably saying this right, but the extent to which boot affects the transaction.

Eric Solomon: If you have boot and their gain or loss is recognized. Now think of the construct of a reorganization, the way the code works. The way the code works is in a reorganization, the target company is, let's say it's a merger, is deemed to transfer its assets to the acquiring corporation in exchange for acquiring corporation stock, which then is paid out to the target shareholders in exchange for their target stock.

Well, that's a redemption. It's not using stock of the redeeming corporation, it's using stock of the other corporation. And so one might say, if there's boot, one might be afraid if there's a dollar of boot and gain is recognized that it's treated as redemption in the full amount that's paid out to the shareholders including both stock and cash—

Chandra Wallace: Is taxable.

Eric Solomon: —is a redemption because it's cash plus other property and that other property is the stock of the acquiring corporation.

I don't expect that should be the case. It would seem to me that the right answer is that to the extent cash is paid out, that should be the full extent of the redemption. But I'm just suggesting, under the construct that the code uses, it's as if the target corporation is using acquiring stock to buy back in the shares, which is property—

Chandra Wallace: That's property.

Eric Solomon: —and therefore it could be a redemption. But there I'm expecting there should be a successor notion that the acquiring corporation stock should be equivalent to stock of the target corporation, but that the Treasury have to write regulations.

Chandra Wallace: That would make sense. But we don't know.

Eric Solomon: We just don't know.

In addition, there's the Commissioner v. Clark case. And in the Commissioner v. Clark case, for purposes of determining whether a target shareholder is a dividend or capital gain, it's treated as if they got shares of the acquiring corporation and those were redeemed.

So does that put a whole different model on the treatment of boot in a reorganization? Do you treat it as if it's being redeemed by the acquiring corporation? Not that it's being redeemed by the target corporation under our first model, but it's really being redeemed by the acquiring corporation, and therefore that's how you would analyze this.

But if you analyze it that way, well then you may say, well if you get boot, that there is no redemption because under the model of Commissioner v. Clark it's as if the acquiring corporation issued shares which were bought back. And therefore you might fall in the netting exception.

Chandra Wallace: And then you've offset what you might be taxed on. And that's a whole different kettle of fish.

Eric Solomon: Exactly. And that's just a simple merger with boot. And we have not even peeled off all the layers of that onion.

Another exception is the de minimis exception if the buyback is less than $1 million in a year.

And then there's an exception for buybacks by a dealer in securities, an exception for Ricks v. Reed.

But then the final one I just wanted to get to is the excise tax does not apply to the extent that repurchase is treated as a dividend.

And that goes back to a point you made. How's a corporation supposed to know on a shareholder by shareholder basis whether or not it's a dividend? Section 302 has various rules about determining whether a redemption is a dividend or not. But that's the shareholders to figure out. But the corporation is supposed to know in order to decide whether it is subject to the excise tax?

Chandra Wallace: So one of the other things that we talked about as we were preparing was some fact patterns. We've talked theoretically about the questions, but what are specific fact patterns where taxpayers are going to have to navigate this new tax and figure out how these different things are going to be treated?

Eric Solomon: Well, it's interesting. It goes to the definition of what a redemption is.

And so a redemption is defined in section 317(b) as "corporation buys back shares for property." Which does not include giving out stock of the corporation exchange for the shareholder stock.

So there are various very simple fact patterns that we could go through and scratch our heads about. Some of them it seems kind of obvious that they would be covered. Others, it's not so clear.

The first example is where, what we call, it's named after a case called Zenz v. Quinlivan, where a shareholder had some shares bought back and sold the rest of its shares. So I own 100 shares, I want to dispose of my shares, I have the corporation buy back 40 of them and I sell the other 60 of them to a third party. Well presumably the buyback of those shares of the 40 shares by the corporation, that's a redemption.

And under the Zenz v. Quinlivan case, that's a capital gain transaction. So presumably that's picked up. Corporation buys back some shares, the shareholder sells the remaining shares, the buyback's presumably subject to it. So a simple Zenz v. Quinlivan transaction would be covered.

Another example is a leveraged acquisition. Many acquisitions of target corporations are done both supplying cash by the acquiring corporation, but at the same time pushing leverage into the target corporation. Essentially that the assets of the target corporation support debt that is used to do part of the acquisition.

Those are leveraged acquisitions and the leverage is stuffed into the target corporation. And thus the cash of the target corporation, through some sort of borrowing perhaps, is used to buy back some of the shares and the remainder of the shares is financing by the purchasing entity or individual.

Well it seems to me that any leveraged acquisition where the debt is shoved into the target corporation is a redemption.

Chandra Wallace: Because form matters, and where the debt ends up is important.

Eric Solomon: Exactly right. Exactly right. Where the debt ends up is important.

And it kind of makes sense, if the assets of the target corporation support the acquisition of the shares, the tax law and various authorities in the tax law say that's a redemption. So those leveraged acquisitions, I would think, are subject to this tax.

OK, but what do you do about it? You're a corporation, you're a target, you're thinking of different planning techniques. Well what you do is you figure out some structure for the transaction, put the debt somewhere else. You want to put the debt as close to the assets as possible.

Chandra Wallace: Corporations will make decisions based on other things besides tax, so it's not always—the things that they might do to avoid this tax might cause problems elsewhere.

Eric Solomon: So you might be able to structure the transaction in a way where the debt isn't exactly in the corporation where the assets are, but you put it close by, so creditors still have a priority position. So maybe you put the debt in a tier above where the corporation whose stock is being acquired.

So there may be ways to structure around it. But in every leverage acquisition now you're going to have to worry about whether there's going to be this and whether you can structure around it in such a way.

Just a couple of others. There's been a lot of talk in the press about SPACs and how various SPACs are having trouble finding target corporations at this time.

Well, generally, what happens if a SPAC can't find a target corporation, it liquidates. It's got to return the money to the shareholders.

Chandra Wallace: But now they might have to return it minus one percent.

Eric Solomon: Exactly.

Chandra Wallace: Even though this isn't a voluntary thing, they're not liquidating because they've chosen to, or they're trying to juice the stock price, they're just liquidating because that's baked in. We don't have a target so we give the shareholders their money back.

Eric Solomon: Exactly right. And a liquidation might follow the definition of redemption because it's buying back shares for cash. And so you're absolutely right. And could a SPAC-compelled liquidation be subject to this?

And then finally another one is a partial liquidation. Partial liquidations don't occur that often, but those can be capital gain transactions to individual shareholders where a company, basically a corporation sells big portion of its assets and distributes the cash. The corporation stays alive, but it distributes the cash from the sale of one of two businesses, for example, and distributes the cash to the shareholders. That could be a capital gain transaction under section 302. Presumably that's a redemption and therefore might be subject to the one percent exercise tax.

And so, in this conversation you and I are having, we are just scratching the surface.

Chandra Wallace: There's so many questions.

So what about a split off under section 355? If it's not a D reorganization and it doesn't fall into the 368 exception for reorganizations, then that's going to fall under this excise tax too, right?

Eric Solomon: It sort of seems that way, because in a split off, the distributing corporation is sending shares of a different corporation, a subsidiary, out to certain shareholders who are trading in their shares of the parent corporation.

So the shareholders are trading in shares of the parent corporation for stock of a subsidiary in a split off. That seems like a redemption to me because the stock of the subsidiary is property, because it's not stock of the distributing corporation. Could it be subject to it?

And then if you turn it into a D355, does that get you out of the excise tax? And, well, we were wondering if it does, because I wondered whether the D is just the drop and the 355 in which they trade in their shares is separate, and therefore perhaps if I make it into a D355, maybe somehow it doesn't get the exception for a tax free transaction—

Chandra Wallace: No, they wouldn't. Yeah.

Eric Solomon: —because the reorganization is only the drop.

Chandra Wallace: Because if they're separable— It's going to be fun to see what they come up with, that's for sure. Are you glad that you don't have to scratch your head over this and actually put out the answers?

Eric Solomon: We may have clients who want to know.

And so the question is, will we be able to answer the questions without guidance? And so we look forward to seeing what Treasury's going to do in the short term and what the proposed regulation's eventually going to say and how quickly they can get it done.

But I would just suggest that, like the Trump administration, getting guidance out on TCJA (Tax Cuts and Jobs Act) was their highest priority because of very important administration achievement. I would suggest the same thing for the Biden administration, that it's going to be very important to them to get out guidance with regard to the IRA. Because it helps implement what is, I think in the Biden administration's view, a very important achievement of the administration.

Chandra Wallace: Well, thank you very much for agreeing to talk with us about this, for giving us all of your wisdom. I'm very grateful.

Eric Solomon: Well, thank you for having me.

David D. Stewart: And now, coming attractions. Each week we highlight new and interesting commentary in our magazines. Joining me now is Executive Editor for Commentary Jasper Smith. Jasper, what will you have for us?

Jasper Smith: Thanks, Dave.

We are excited to announce that the winner of the 2022 Tax Notes Student Writing Competition is Arielle Zhivko. Arielle's paper, titled "Concealed Masterpieces: The Intersection of Taxation and the Art Market," explores how the collection of art has morphed into a highly appealing outlet for tax evasion and avoidance and examines the evolution of art-related tax reforms and their adverse effects. Her paper can be found in this week's edition of Tax Notes Federal, State, and International.

Emily Dace and Luke Kastenhuber received honorable mentions for their submissions.

Congratulations, Arielle, Emily, and Luke.

Also, in Tax Notes Federal, Calvin Johnson argues that the interest deduction should be limited to no more than the interest rate times adjusted basis. Jasper Cummings analyzes the statutory language of the new corporate alternative minimum tax and argues that guidance will likely change the statute's words. In Tax Notes State, Eric Tresh and Elizabeth Cha examine new market-sourcing regulations. Jared Walczak examines how some states could tax forgiven student loan debt. In Tax Notes International, Lorraine Eden considers the revised amount A concept in the OECD progress report, arguing that it is more flawed than its predecessor. Chris Sanchirico considers a potential compromise position for the United States, should pillar 1 fail and digital services taxes return in force. In Featured Analysis, Roxanne Bland reviews the details behind President Biden's student loan forgiveness plan and questions whether the president has the authority to forgive student debt. And finally, on the Opinions Page, Robert Goulder briefly breaks down the new excise tax on corporate stock buybacks and the Inflation Reduction Act.

David D. Stewart: That's it for this week. You can follow me online @TaxStew, that's S-T-E-W, and be sure to follow @TaxNotes for all things tax. If you have any comments, questions, or suggestions for a future episode, you can email us at podcast@taxanalysts.org. And as always, if you like what we're doing here, please leave a rating or review wherever you download this podcast. We'll be back next week with another episode of Tax Notes Talk.