Internal Revenue Bulletin No. 2025–51

Executive Summary: Stock Buyback Final Rules & Foreign Tax Shakeups

This week's Internal Revenue Bulletin (IRB) delivers a dense mix of final regulations, notices, and administrative updates, demanding practitioners' attention. The marquee item is the release of final regulations under T.D. 10037, providing long-awaited guidance on Section 4501, which imposes a 1% excise tax on stock repurchases by publicly traded corporations. These regulations, stemming from the Inflation Reduction Act of 2022, significantly refine the scope of the tax and clarify its application. In the international tax arena, Notice 2025-72 addresses the complexities arising from the recent repeal of Section 898(c)(2) by the One, Big, Beautiful Bill Act (OBBBA), also known as Public Law 119-21, specifically focusing on the allocation of foreign taxes for Specified Foreign Corporations (SFCs). Additionally, the IRB includes T.D. 10038, which reduces the user fee for estate tax closing letters (IRS Letter 627) to $56, reflecting the IRS's updated cost calculations under OMB Circular A-25. Finally, REG-124791-11 formally withdraws proposed rulemaking regarding Preparer Tax Identification Numbers (PTINs) in the wake of the Loving v. IRS decision, signaling a retreat from broader regulation of tax preparers. This IRB signifies a pivotal moment in implementing key legislative changes and adjusting regulatory approaches, necessitating a thorough understanding of these developments for tax professionals.

Deep Dive: Final Stock Repurchase Excise Tax Regs (T.D. 10037)

Building on the estate tax closing letter fee adjustment and the PTIN rule withdrawal, this Internal Revenue Bulletin contains final regulations (T.D. 10037) providing guidance on Section 4501, which imposes a one percent excise tax on stock repurchases by publicly traded corporations. This tax, enacted as part of the Inflation Reduction Act of 2022, represents a significant shift in corporate tax policy. The final regulations address several key aspects, providing clarity and, in some instances, narrowing the scope of the tax.

The Rule

The final regulations provide operative rules regarding the application of the excise tax to corporations that repurchase their stock. These rules are codified in 26 CFR §§58.4501-1, 58.4501-2, 58.4501-3, 58.4501-4, 58.4501-5, 58.4501-6, and 58.4501-7.

The Context

Enacted as part of the Inflation Reduction Act (IRA) in 2022, Section 4501 aimed to curb corporate stock buybacks, which were perceived by some as benefiting shareholders and executives at the expense of long-term investment and worker wages. The tax has been politically controversial, with proponents arguing it incentivizes companies to invest in productive assets rather than manipulate stock prices, and opponents claiming it penalizes shareholders and reduces market efficiency. Prior to these final regulations, Notice 2023-2 and proposed regulations (REG-115710-22 and REG-118499-23) provided initial guidance, but left many questions unanswered. T.D. 10002 previously addressed procedural aspects.

The Implication

Tax practitioners must carefully analyze these final regulations to ensure compliance and to identify opportunities to minimize the tax burden for their clients. Key provisions include:

1. Netting Rule: Section 4501(c)(3) provides a 'Netting Rule' which allows covered corporations to reduce their excise tax base by the fair market value of stock issued during the same taxable year. The final regulations clarify how this rule applies. Crucially, issuances reduce the tax base, providing a direct offset to repurchases.
2. Preferred Stock: The treatment of preferred stock is nuanced. The final regulations exclude Section 1504(a)(4) stock from the definition of 'stock.' Section 1504(a)(4) defines certain preferred stock, often referred to as "plain vanilla" preferred stock, as stock that does not participate in corporate growth, has limited and preferred dividends, and is not convertible into common stock. Other preferred stock, however, remains subject to the excise tax. Transition relief is provided for mandatorily redeemable preferred stock or stock subject by its terms to a unilateral put option of the holder, if such stock was outstanding prior to August 16, 2022.
3. Funding Rule: One of the most significant aspects is the IRS's decision not to adopt the broad funding rule that was initially proposed for foreign affiliates. The proposed funding rule would have treated an applicable specified affiliate of an applicable foreign corporation as acquiring stock of the applicable foreign corporation to the extent the applicable specified affiliate funds, by any means, directly or indirectly, an applicable foreign corporation repurchase with a principal purpose of avoiding the Section 4501(d) excise tax. The absence of this rule is a major win for multinational corporations, significantly reducing the compliance burden and potential tax liability associated with cross-border transactions.
4. M&A Transactions: The IRS eliminated the 'no double benefit rule' that previously disallowed the netting of issuances in certain M&A transactions, especially acquisitive reorganizations. The proposed computational regulations contained a 'no double benefit rule' under which stock issued by a covered corporation as part of a transaction qualifying as a reorganization under Section 368(a) or a distribution under Section 355 would be disregarded for purposes of the netting rule. This removal simplifies the tax calculation for M&A deals and allows for more accurate reflection of a corporation's net repurchase activity.

Estate Tax: Closing Letter Fee Drops to $56 (T.D. 10038)

Building on regulatory streamlining evidenced by the modifications to the stock repurchase excise tax, T.D. 10038 finalizes another user fee adjustment. This Treasury Decision addresses the user fee for Estate Tax Closing Letters, officially known as Letter 627. The IRS issues these letters to authorized individuals, primarily executors or administrators of an estate, as confirmation that the estate tax return has been accepted.

The final regulations set the user fee at $56, a reduction from the previous fee of $67. This adjustment reflects the IRS's updated calculation of the cost to provide the closing letter service. This calculation is mandated by OMB Circular A-25, which requires agencies to recover the full cost of providing services that confer a special benefit on identifiable recipients beyond the general public.

The IRS received public comments regarding this user fee during the rulemaking process. Some commenters suggested eliminating the fee entirely, especially for small estates or low-income families. Other comments advocated for automating the process and issuing closing letters without charge to all estates filing estate tax returns. However, the IRS rejected these suggestions, citing the OMB Circular A-25 requirement to recover the full cost of services providing special benefits.

While the cost of processing the estate tax closing letter has decreased, it's unlikely the IRS will eliminate the charge entirely. Congress authorized user fees under the Independent Offices Appropriations Act of 1952 (IOAA), which allows federal agencies to implement user fees for services they provide. Unless an exception were specifically authorized, the IRS must charge a fee that covers the costs.

International Tax: The OBBBA & Foreign Tax Allocation (Notice 2025-72)

Following the reduction in estate tax closing letter fees, the IRS has issued Notice 2025-72, addressing international tax implications stemming from the 'One, Big, Beautiful Bill Act' (OBBBA) and modifications to Section 987.

1. The Rule: OBBBA Repeal of Section 898(c)(2) & Foreign Tax Allocation

Notice 2025-72 concerns forthcoming regulations under Section 70352 of the OBBBA, or Public Law 119-21. The OBBBA repealed Section 898(c)(2), which previously allowed a “specified foreign corporation” (SFC) to elect a taxable year beginning one month earlier than the majority U.S. shareholder’s taxable year (the one-month deferral election). Section 898 defines a specified foreign corporation as a Controlled Foreign Corporation (CFC) where U.S. shareholders own more than 50% of the stock. The notice directs the Treasury Department and the IRS to issue guidance on allocating foreign taxes of foreign corporations impacted by the repeal. Notice 2025-72 also announces proposed regulations under Section 987, governing gain or loss recognition for Qualified Business Units (QBUs). The proposed regulations would modify the election to recognize pretransition Section 987 gain or loss ratably over ten years.

2. The Context: Politics, Industry, & Recent IRC Changes

The repeal of Section 898(c)(2) is part of a broader trend towards simplifying international tax rules and reducing perceived opportunities for tax deferral. The OBBBA, while positioned as a revenue-neutral bill, includes several provisions designed to broaden the tax base. Prior to the OBBBA's passage, multi-national groups found the one-month deferral election useful for managing foreign tax credits and minimizing U.S. tax on subpart F income. Section 951(a)(1) dictates that U.S. shareholders must include their share of CFC's subpart F income in gross income. Similarly, section 951A(a) requires inclusion of GILTI. Repealing the one-month deferral means these inclusions and related foreign tax credits may accelerate. Simultaneously, final Section 987 regulations (T.D. 10016) were released in December 2024, significantly altering the taxation of foreign currency transactions between a U.S. parent and its foreign branches operating in a different functional currency. In addition to the OBBBA's repeal of section 898(c)(2), it also amended sections 951, 951A, and 960(d).

3. The Implication: Transition Rules & GILTI/Subpart F Interaction

Notice 2025-72 provides much-needed transition rules to ease the disruption created by the change. Key implications for practitioners include:

• Short Taxable Year: Affected corporations must now navigate a one-month short taxable year to align with their U.S. shareholder's year.
• Foreign Tax Allocation: The notice provides a transition rule, directing the Secretary to issue guidance allocating foreign taxes in the short taxable year. Taxpayers can elect to use the closing of the books method or the ratable allocation method to allocate the foreign tax base to the short year. Closing of the books bases the apportionment based on income recognized under foreign law as allocated under Section 1.1502-76(b). Foreign law income used in a ratable allocation is similarly allocated under Section 1.1502-76(b). Taxes allocated to a PTEP group get recognized immediately. Section 905(c) and 986(a) now see the specified foreign income tax in the first required year.
• GILTI & Subpart F: Because foreign taxes must be attributed to the proper year to be deemed paid under Section 960, accurate allocation of foreign taxes is critical for GILTI and Subpart F calculations. This is critical because Section 960(a) provides that when a domestic corporation includes Section 951(a)(1) income from a CFC, the domestic corporation is deemed to have paid the CFC's foreign income taxes properly attributable to the income. This calculation impacts the high-tax exclusion under Section 1.951A-2(c)(7) as well.
• Section 987 Modification: The notice also touches on forthcoming changes to Section 987 regulations. Taxpayers may elect to recognize pretransition gain or loss ratably over 120 months beginning with the first taxable year in which Section 987 regulations apply. If this election is chosen, each owner with a QBU recognizes pretransition gain or loss with respect to every QBU over 120 months beginning the first day of their first taxable year.
• Accrual Timing Critical: For foreign net income taxes (taxes computed on a net basis), the relevant date for determining the foreign tax credit is when the foreign tax liability becomes fixed and determinable (generally, the last day of the foreign tax year). Because of this, the short tax year of the CFC can make it seem as if only one month of income accrues.
• Comments Requested: The Treasury Department and the IRS are seeking comments on the allocation rules, particularly whether they should apply to other foreign taxes beyond specified foreign income taxes, and whether other multi-year regulations need to be addressed in light of the short taxable years.

Practitioners must carefully analyze the interaction of these international tax provisions to minimize their clients' tax burden while complying with these complex and newly adjusted regulations. The allocation election for foreign taxes during this short year period is crucial, so practitioners must weigh the pros and cons of each strategy carefully.

Administrative: IRS Withdraws PTIN Rules Post-Loving (REG-124791-11)

Following the complex adjustments to foreign tax allocation methods, the IRS is also addressing administrative rulemaking. This section concerns the formal withdrawal of proposed rulemaking REG-124791-11, initially introduced in 2012, regarding the eligibility criteria for tax return preparers to obtain a Preparer Tax Identification Number (PTIN).

The Rule (What is the IRS updating?)

The IRS is withdrawing proposed rulemaking REG-124791-11, which sought to establish specific eligibility requirements for tax return preparers to obtain a PTIN. This action effectively terminates the proposed regulations outlined in the 2012 notice.

The Context (Politics/Industry/History)

The regulatory backdrop shifted significantly following the court's decision in Loving v. IRS, 742 F.3d 1013 (D.C. Cir. 2014). In Loving, the D.C. Circuit Court of Appeals ruled that the IRS lacked the statutory authority to mandate minimum qualification requirements for all tax return preparers. The court determined that regulating tax preparers did not fall under the IRS's power. The court's reasoning stems from 31 U.S.C. § 330, which governs those who "practice" before the Treasury Department. The court in Loving held that merely preparing a tax return did not constitute practicing before the agency, thereby invalidating the IRS's attempt to broadly regulate the profession. This ruling effectively stripped the IRS of the legal basis to implement the proposed regulations tied to PTIN eligibility. Following the Supreme Court’s Loper Bright (2024) decision, the judiciary is now tasked with determining the “best” interpretation of a law rather than deferring to an agency’s “reasonable” interpretation, possibly increasing challenges to future agency regulations.

The Implication (What do practitioners need to know?)

Tax practitioners should be aware that the IRS is no longer pursuing regulations that would impose minimum qualification standards for PTIN holders. While the IRS can still require preparers to obtain a PTIN for identification purposes, it cannot use the PTIN as a tool for broader regulation of the tax preparation industry. Preparers are encouraged to remain compliant with existing regulations and ethical standards.

Practitioners following regulatory precedent should take note of the Loving decision as a benchmark case where a court challenged IRS overreach, and note that Chevron deference has weakened even further. Practitioners should be mindful of a trend that the courts are now considering the "best" reading of the code instead of merely a "reasonable" position taken by the IRS. Furthermore, cases such as YA Global (2025) suggest this concept of tax authority and deference may be re-evaluated frequently in the coming years. Finally, note that the withdrawal of these proposed rules does not prevent the IRS from pursuing other forms of enforcement against preparers, such as penalties for negligence or fraud.

Routine Updates: Interest Rates & Revocations

Continuing from the discussion of withdrawn PTIN rules and the evolving landscape of tax authority post-Loving, several routine items were also addressed in the latest Internal Revenue Bulletin.

Notices 2025-73 and 2025-74 provide updates regarding corporate bond yield curves and applicable segment rates, vital for defined benefit pension plan funding calculations under Section 417(e)(3)(D) and Section 430(h)(2)(C)(iv). Section 417(e)(3)(D) dictates the use of specific interest rates for determining the present value of certain benefits under qualified retirement plans, utilizing corporate bond yield curves and spot segment rates. Section 430(h)(2)(C)(iv) relates to the determination of 30-year Treasury rates for purposes of minimum funding standards for pension plans. Notice 2025-73 details these rates for September 2025, while Notice 2025-74 covers October 2025 and includes 24-month average segment rates applicable for November 2025. Practitioners advising on pension plan funding should carefully review these notices to ensure compliance with applicable funding requirements.

Announcement 2025-27 lists organizations that have had their Section 501(c)(3) status revoked for failing to meet the requirements of the Internal Revenue Code. Specifically, the announcement notes that contributions to organizations such as "Dreams of Gratitude" and "Overton Park" are no longer deductible under Section 170(b)(1)(A). Section 170(b)(1)(A) defines the types of organizations to which charitable contributions are deductible. The announcement also serves as a notification to donors that contributions made before the announcement's publication date generally qualify for a "protection period," meaning deductions claimed before the revocation date are typically honored. However, practitioners should advise clients to verify the specific revocation date for each organization and to exercise caution when claiming deductions for contributions made near the revocation date.