IRS Instruction 7208 – In today’s corporate landscape, stock repurchases—commonly known as buybacks—have become a popular way for companies to return value to shareholders. However, with the introduction of the Inflation Reduction Act of 2022, these transactions now carry a federal excise tax implication. If you’re a corporate executive, tax professional, or business owner dealing with publicly traded stock, understanding IRS Form 7208 is essential. This form calculates the 1% excise tax on certain stock repurchases, and failing to comply can lead to significant penalties.
In this comprehensive guide, we’ll break down the IRS instructions for Form 7208, including who must file, how to compute the tax, filing deadlines, and more. Whether you’re searching for “IRS Form 7208 instructions” or details on the “excise tax on repurchase of corporate stock,” this article provides actionable insights based on the latest IRS guidelines as of February 2026.
What Is IRS Form 7208 and Its Purpose?
IRS Form 7208, titled “Excise Tax on Repurchase of Corporate Stock,” is a specialized tax form used to calculate and report the excise tax imposed under Internal Revenue Code Section 4501. Enacted as part of the Inflation Reduction Act, this tax targets repurchases of corporate stock by publicly traded companies, aiming to ensure corporations contribute fairly to federal revenues.
The tax rate is straightforward: 1% of the fair market value (FMV) of the repurchased stock. However, not all buybacks are taxable—various exceptions and adjustments can reduce or eliminate the liability. Form 7208 must be attached to Form 720, the Quarterly Federal Excise Tax Return, and is filed annually based on your corporation’s tax year. This form helps the IRS track these transactions and ensures accurate tax computation.
Key highlights from the form’s purpose:
- Applies to repurchases after December 31, 2022.
- Focuses on “covered corporations” with stock traded on established securities markets.
- Requires detailed record-keeping under IRS Regulations sections 58.6001-1 and 58.4501-1 through 58.4501-7.
If your company engaged in stock buybacks last year, reviewing Form 7208 instructions is crucial to avoid overpaying or underreporting.
Who Must File Form 7208?
Not every corporation needs to file Form 7208. The requirement hinges on whether you’re a “covered corporation” or related entity involved in qualifying repurchases. According to IRS guidelines:
- Covered Corporations: Domestic corporations whose stock is traded on an established securities market (e.g., NYSE, NASDAQ) must file if they repurchase their stock or if a specified affiliate acquires it from unrelated parties.
- Applicable Specified Affiliates of Foreign Corporations: If a foreign corporation’s stock is publicly traded, its U.S.-based affiliates may need to file for acquisitions of that stock.
- Expatriated Entities: Entities related to certain surrogate foreign corporations under Section 7874 must file for repurchases by the surrogate or its affiliates.
Exceptions to Filing:
- Regulated Investment Companies (RICs), Real Estate Investment Trusts (REITs), and non-RIC ’40 Act funds are exempt.
- If total repurchases are $1 million or less in FMV (aggregated for affiliates), you still attach the form to Form 720 but may owe no tax.
For foreign partnerships with less than 10% domestic ownership, they are not considered applicable specified affiliates, per recent regulations. Always consult the IRS website for entity-specific details.
What Transactions Are Covered Under Form 7208?
The excise tax applies to “repurchases,” defined broadly under Section 317(b) as redemptions or economically similar transactions. This includes:
- Open-Market Repurchases (OMR): Buying shares on public exchanges.
- Tender Offers: Formal offers to buy back shares from shareholders.
- Accelerated Share Repurchases (ASR): Agreements with investment banks to buy back shares quickly.
- Reorganizations and Split-Offs: Certain Section 368(a)(1)(E) recapitalizations or Section 355 distributions where shareholders receive non-qualifying property.
- Other Transactions: Forfeitures, clawbacks, or any deal deemed similar by the IRS (see Regulations section 58.4501-2(e)(4)).
Stock includes common shares, treasury stock, and certain instruments treated as stock for tax purposes, but excludes preferred stock qualifying as additional tier 1 capital or under Section 1504(a)(4).
Report these in Part I of Form 7208, including details like stock symbol, class, market, number of shares, and FMV. Aggregate multiple transactions under one plan on a single line for simplicity.
How to Calculate the Excise Tax on Stock Repurchases?
Computing the tax involves several steps, with deductions for exceptions and offsets. Here’s a step-by-step breakdown based on the IRS instructions:
- Total Repurchases (Part I): Sum the FMV of all repurchased stock (Line 3). If ≤ $1 million, stop here—no tax due.
- Exceptions (Part II): Subtract qualifying amounts, such as:
- Stock from Section 355 split-offs without gain recognition (Line 5a).
- Dividends under Sections 301(c)(1) or 356(a)(2) (Line 5b), with shareholder evidence.
- Dealer repurchases in ordinary course (Line 5d). Total on Line 5e.
- Retirement Plan Contributions (Part III): Deduct FMV of stock contributed to qualified plans like ESOPs (Line 8), but only if done by the Form 720 deadline.
- Stock Issued (Part IV): Offset with FMV of stock issued to employees (Line 9a), affiliates (Line 9b), or others (Line 9c).
- Net Taxable Amount (Part V): Subtract deductions from total repurchases (Line 10). Multiply by 1% to get the tax (Line 11), reported on Form 720 under IRS No. 150.
For affiliates, aggregate for the $1 million threshold but file separately if needed. Use continuation sheets for complex transactions.
Filing Deadlines for Form 7208
Form 7208 is attached to Form 720 and filed based on your tax year-end quarter:
| Tax Year-End Month | Form 720 Quarter | Due Date |
|---|---|---|
| January–March | 2nd Quarter | July 31 (same year) |
| April–June | 3rd Quarter | October 31 (same year) |
| July–September | 4th Quarter | January 31 (following year) |
| October–December | 1st Quarter | April 30 (following year) |
File electronically or by mail per Form 720 instructions. For amendments, use Form 720-X with “Amended” marked on Form 7208.
Penalties for Non-Compliance
The IRS enforces strict penalties for errors or delays:
- Late Filing: 5% of unpaid tax per month, up to 25%.
- Late Payment: 0.5% per month, up to 25%.
- Interest: Charged under Section 6621 from the due date.
- Negligence or Fraud: Additional penalties under Sections 6662 or 6663.
Reasonable cause may waive penalties—explain after receiving an IRS notice, not proactively.
Recent Updates to Form 7208 Instructions
The current revision is December 2025 (Rev. December 2025), with no major developments reported as of early 2026. Key changes include clarified rules for foreign affiliates and reserved lines for future exceptions (e.g., Line 5c). Always check IRS.gov/Form7208 for post-publication updates, such as new regulations under subpart B of part 58.
For prior versions, visit the IRS revisions page.
How to File Form 7208: Tips and Resources?
To file accurately:
- Gather records: Transaction details, FMVs, and exception proofs.
- Use IRS tools: Download Form 7208 PDF and instructions from IRS.gov.
- Consider software: Third-party platforms can simplify e-filing, but verify with official sources.
- Seek professional help: Consult a tax advisor for complex scenarios.
For more details, refer to related forms like Form 720 or IRS Publication on excise taxes.
By staying compliant with IRS Form 7208 instructions, corporations can navigate the excise tax on stock repurchases efficiently, minimizing risks and optimizing tax strategies. If you have questions, visit the official IRS website or contact a professional.