Should SPACs Be Spooked By the Excise Tax on Stock Buybacks?

“Should SPACs Be Spooked By the Excise Tax on Stock Buybacks?,” an article by Akin Gump tax partner Joshua Williams and senior counsel Michael Kliegman, has been published in Bloomberg Tax’s Tax Management Memorandum.

The article discusses a last-minute addition to the Inflation Reduction Act of 2022, which became law on August 16, that imposes a 1% excise tax on corporate share repurchases, also called a “stock buyback tax.”

The authors note that their focus is on how the law potentially applies to special purpose acquisition companies (SPACs), and they describe the principal relevant provisions of the new excise tax, describe the typical transactions in the “life cycle” of a SPAC, and look at how the excise tax might apply to those transactions.

They conclude by noting, “With strong arguments against application of the repurchase excise tax to liquidating distributions by SPACs, and legal responsibility of management not to hold back from shareholders any lawfully available funds, there are good reasons for these companies not to simply hand the money over to the IRS.”

(Reproduced with permission from Tax Management Memorandum, Copyright 2022 The Bureau of National Affairs, Inc.)

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