(a) Scope. The examples in this section illustrate the application of section 4501 of the Code and the stock repurchase excise tax regulations other than the provisions of section 4501(d) and § 58.4501-7. See § 58.4501-7(n) and (o) for examples that illustrate the application of the rules in § 58.4501-7 related to section 4501(d).

(b) In general. For purposes of the examples in this section, unless otherwise stated: each of Corporation X and unrelated Target is a covered corporation that is a calendar-year taxpayer; the only outstanding stock of each of Corporation X and Target is a single class of common stock that is traded on an established securities market; any shareholder whose stock is redeemed in a section 317(b) redemption qualifies for sale or exchange treatment under section 302(a) of the Code; the de minimis exception does not apply; the covered corporation determines the fair market value of its stock repurchased or issued based on the trading price of the stock at the time it is repurchased or issued; the stock is not a non-stock instrument; and the facts set forth the only repurchases and issuances made during the taxable year.

(1) Example 1: Redemption of preferred stock not subject to an exception—(i) Facts. Corporation X has outstanding common stock that is traded on an established securities market. Corporation X also has outstanding mandatorily redeemable preferred stock issued on July 1, 2023, that is stock for Federal tax purposes but is not traded on an established securities market, is not additional tier 1 capital, and is not described in section 1504(a)(4) of the Code. On January 1, 2025, Corporation X redeems the preferred stock pursuant to its terms.

(ii) Analysis. The redemption by Corporation X of its mandatorily redeemable preferred stock is a repurchase because Corporation X redeems an instrument that is stock for purposes of the stock repurchase excise tax regulations (that is, preferred stock issued by Corporation X that is neither additional tier 1 capital nor described in section 1504(a)(4)), the redemption is a section 317(b) redemption, and the exception for mandatorily redeemable stock does not apply. See §§ 58.4501-1(b)(34) and 58.4501-2(e)(2)(i) and (e)(3)(iii).

(iii) Mandatorily redeemable preferred stock issued prior to August 16, 2022. The facts are the same as in paragraph (b)(1)(i) of this section (Example 1), except that Corporation X issues the mandatorily redeemable preferred stock on July 1, 2022. The redemption by Corporation X of such stock is not a repurchase. See § 58.4501-2(e)(3)(iii).

(2) Example 2: Debt-for-debt exchange—(i) Facts. Corporation X has outstanding securities with a principal amount of $100x. On January 1, 2024, Corporation X issues new securities with a principal amount of $100x to its security holders in exchange for the outstanding securities (debt-for-debt exchange). Neither the outstanding securities nor the new securities are treated as stock for Federal tax purposes.

(ii) Analysis. The debt-for-debt exchange is not subject to the stock repurchase excise tax because it is not a repurchase of stock. See §§ 58.4501-1(a) and (b)(34) and 58.4501-2(c)(1) and (e)(4)(i).

(3) Example 3: Valuation of repurchase—(i) Facts. On April 15, 2025, when the stock of Corporation X is trading at $0.70x per share, Corporation X purchases 50 shares of its stock for $35x from one of its shareholders on an established securities market. The shareholder is required to deliver the stock to Corporation X within the standard settlement cycle for the stock (a regular-way sale), which is one business day after execution of the sale (that is, the trade date of April 15, 2025). On April 17, 2025, the 50 shares are delivered to Corporation X.

(ii) Analysis. Corporation X's purchase of 50 shares of Corporation X stock is a repurchase, because the transaction is a section 317(b) redemption and no exception applies. See § 58.4501-2(e)(2)(i) and (e)(3). For purposes of computing Corporation X's stock repurchase excise tax base, the trade date of April 15, 2025, is the date of repurchase. See § 58.4501-2(g)(1) and (2). The fair market value of the 50 shares of stock repurchased on April 15, 2025, is the aggregate market price of those shares on the date of repurchase, or $35x ($0.70x per share × 50 shares = $35x). See § 58.4501-2(h)(1). Accordingly, the repurchase by Corporation X increases its stock repurchase excise tax base for the 2025 taxable year by $35x.

(iii) Application of netting rule. The facts are the same as in paragraph (b)(3)(i) of this section (Example 3), except that, on August 1, 2025, Corporation X issues 20 shares of its stock to an unrelated party, at which time ownership of the stock transfers to the unrelated party for Federal income tax purposes. On that date, the stock of Corporation X is trading at $0.50x per share. For purposes of computing Corporation X's stock repurchase excise tax base, Corporation X is treated as issuing the 20 shares of its stock on August 1, 2025 (that is, the date on which ownership of the stock transfers to the recipient for Federal income tax purposes). See § 58.4501-4(d)(1). The fair market value of that issued stock is its aggregate market price on the date of issuance by Corporation X, or $10x ($0.50x per share × 20 shares = $10x). See § 58.4501-4(e)(1). Accordingly, the net increase in Corporation X's stock repurchase excise tax base for its 2025 taxable year is $25x ($35x repurchase−$10x issuance = $25x). See § 58.4501-2(c)(1).

(4) Example 4: Acquisition partially funded by the target corporation—(i) Facts. On May 30, 2025, Corporation X acquires all of Target's outstanding stock (Target Stock Acquisition). To effectuate the Target Stock Acquisition, Corporation X causes the following transaction steps to occur. First, Corporation X contributes $40x to a newly formed corporation (Merger Sub). Second, Merger Sub merges into Target, with Target surviving the merger (Subsidiary Merger). At the time of the Subsidiary Merger, the stock of Target has an aggregate fair market value of $100x. In the Subsidiary Merger, Target's shareholders exchange all their Target stock for $100x of cash, of which $60x is funded by Target and $40x is funded by Corporation X. For Federal income tax purposes, the transitory existence of Merger Sub is disregarded, and Target is treated as if Target redeemed 60 percent of its outstanding stock for $60x as part of the Subsidiary Merger. (This treatment results from the fact that Target funded $60x of the consideration received by Target's shareholders in exchange for their Target stock.) All of Target's stock ceases to trade on an established securities market upon completion of the Target Stock Acquisition.

(ii) Analysis. Target ceases to be a covered corporation after the Target Stock Acquisition. See § 58.4501-1(b)(7). Target's redemption of 60 percent of its outstanding stock is a redemption within the meaning of section 317(b) with regard to the stock of a covered corporation. See § 58.4501-2(e)(2)(i). However, because Target's redemption occurs as part of a transaction in which Target ceases to be a covered corporation, it is not a repurchase. See § 58.4501-2(e)(3)(ii).

(5) Example 5: Pro rata stock split—(i) Facts. On October 1, 2025, Corporation X distributes three shares of Corporation X stock with respect to each existing share of its outstanding stock (Corporation X Stock Split).

(ii) Analysis. The stock distributed by Corporation X to its shareholders through the Corporation X Stock Split is disregarded for purposes of the netting rule because Corporation X distributed the stock to its shareholders with respect to its outstanding stock. See § 58.4501-4(f)(1). Accordingly, the Corporation X Stock Split is not taken into account in computing Corporation X's stock repurchase excise tax base for its 2025 taxable year. See § 58.4501-2(c)(1) (regarding the computation of the stock repurchase excise tax base).

(6) Example 6: Acquisition of a target corporation in an acquisitive reorganization—(i) Facts. On October 1, 2025, Target merges into Corporation X in a transaction that qualifies as a reorganization under section 368(a)(1)(A) of the Code (Target Merger). On the date of the Target Merger, the fair market value of Target's outstanding stock is $100x. In the Target Merger, Target's shareholders exchange their Target stock for Corporation X stock and cash.

(ii) Analysis. Target's acquisition of its stock from the Target shareholders in exchange for the consideration received in the Target Merger is not a repurchase by Target. See § 58.4501-2(e)(5)(v).

(7) Example 7: E reorganization—(i) Facts. On November 1, 2025, Corporation X issues shares of new stock, with a fair market value of $100x (New Common Stock), to its shareholders in exchange for their outstanding stock in Corporation X (Old Common Stock) pursuant to a plan of reorganization (Recapitalization). The Recapitalization qualifies as an E reorganization. At the time of the Recapitalization, the fair market value of Corporation X's Old Common Stock is $100x.

(ii) Analysis. The acquisition by Corporation X of its Old Common Stock solely in exchange for New Common Stock in the Recapitalization is not a repurchase. See § 58.4501-2(e)(4)(i). The issuance of the New Common Stock by Corporation X is disregarded for purposes of the netting rule. See § 58.4501-4(f)(3)(i).

(8) Example 8: E reorganization with non-qualifying property—(i) Facts. The facts are the same as in paragraph (b)(7)(i) of this section (Example 7), except that some shareholders receive solely shares of New Common Stock in exchange for their shares of Old Common Stock, and other shareholders receive both shares of New Common Stock and Corporation X securities in exchange for their shares of Old Common Stock. The aggregate fair market value of the New Common Stock is $80x, and the aggregate fair market value of the Corporation X securities is $20x. The distribution of the Corporation X securities is not treated as a distribution with respect to Corporation X's stock under § 1.301-1(j) of this chapter and is not treated as having the effect of a distribution of a dividend under section 356(a)(2) of the Code.

(ii) Analysis regarding repurchase treatment, timing, and amount. The acquisition by Corporation X of its Old Common Stock in exchange for New Common Stock in the Recapitalization is not a repurchase. See § 58.4501-2(e)(4)(i). The acquisition by Corporation X of its Old Common Stock for Corporation X securities is a repurchase by Corporation X because the securities would not be permitted to be received by Corporation X shareholders under section 354 of the Code without the recognition of gain. See id. The repurchase occurs on November 1, 2025 (that is, the date on which ownership of the Old Common Stock transfers to Corporation X for Federal income tax purposes). See § 58.4501-2(g)(1). The amount of the repurchase by Corporation X is $20x, which equals the fair market value of the Old Common Stock exchanged for Corporation X securities on the date of the repurchase. See § 58.4501-2(h)(1).

(iii) Analysis regarding impact of issuance of New Common Stock on Corporation X's stock repurchase excise tax base. Corporation X's issuance of the New Common Stock is disregarded for purposes of the netting rule. See § 58.4501-4(f)(3) (disregarding such types of issuances). Therefore, Corporation X does not take into account any of the New Common Stock issued to its shareholders in computing its stock repurchase excise tax base for its 2025 taxable year under § 58.4501-4(b)(1).

(9) Example 9: Cash paid in lieu of fractional shares—(i) Facts. The facts are the same as in paragraph (b)(7)(i) of this section (Example 7), except that, as part of the Recapitalization, Corporation X shareholders receive cash in lieu of fractional shares of New Common Stock. The payment by Corporation X of cash in lieu of fractional shares of New Common Stock was not separately bargained-for consideration (that is, the cash paid by Corporation X in lieu of the fractional shares represented a mere rounding off of the shares issued in the Recapitalization). In addition, the payment by Corporation X of cash in lieu of fractional shares of New Common Stock was carried out solely for administrative convenience (and, therefore, solely for non-tax reasons) and was for an amount of cash that did not exceed the value of one full share of New Common Stock.

(ii) Analysis. The payment by Corporation X of cash in lieu of fractional shares of New Common Stock is treated for Federal income tax purposes as though the fractional shares were distributed by Corporation X as part of the Recapitalization and then redeemed by Corporation X for cash. This deemed redemption is not a repurchase because the payment of cash in lieu of the fractional shares satisfies the requirements of § 58.4501-2(e)(3)(iv). In addition, Corporation X's deemed issuance of the fractional shares is disregarded for purposes of the netting rule. See § 58.4501-4(f)(5).

(10) Example 10: F reorganization—(i) Facts. Corporation X is a State A corporation. To reorganize under the laws of State B, on November 15, 2025, Corporation X forms New Corporation X (a State B corporation) and merges into New Corporation X in a transaction that qualifies as an F reorganization (Corporation X Redomiciliation). On the date of the Corporation X Redomiciliation, the fair market value of Corporation X's stock is $100x. Shareholder A owns $25x of Corporation X's outstanding stock. In the Corporation X Redomiciliation, Shareholder A transfers all its Corporation X stock in exchange for $25x of cash, which is treated for Federal income tax purposes as an unrelated, separate transaction from the Corporation X Redomiciliation to which section 302(a) applies (Shareholder A Redemption). See § 1.368-2(m)(3)(iii) of this chapter. The remaining Corporation X shareholders exchange their Corporation X stock for New Corporation X stock as part of the Corporation X Redomiciliation.

(ii) Analysis regarding repurchase treatment, timing, and amount. Corporation X and New Corporation X are treated as the same corporation for purposes of the stock repurchase excise tax regulations. See § 58.4501-1(e). The Shareholder A Redemption is a repurchase by Corporation X because it is a section 317(b) redemption. See § 58.4501-2(e)(2)(i). This repurchase occurs on November 15, 2025 (that is, the date on which Shareholder A's ownership of its Corporation X stock transfers to Corporation X as part of the transaction). See § 58.4501-2(g)(1). The acquisition by Corporation X of its Corporation X stock in exchange for New Corporation X stock pursuant to the plan of reorganization is not a repurchase because that exchange is not an economically similar transaction. See § 58.4501-2(e)(4). The total amount of the repurchase by Corporation X is $25x (the fair market value of the Corporation X stock redeemed in the Shareholder A Redemption on the date of the redemption). See § 58.4501-2(h)(1). New Corporation X's transfer of $75x of its stock to Corporation X in the Corporation X Redomiciliation is disregarded for purposes of the netting rule. See § 58.4501-4(f)(3) (disregarding such types of issuances). Therefore, New Corporation X's stock repurchase excise tax base for its 2025 taxable year is $25x ($25x gross repurchase amount unreduced by the $75x of New Corporation X stock issued in the Corporation X Redomiciliation).

(11) Example 11: Section 355 split-off—(i) Facts. Corporation X owns all the stock of a pre-existing subsidiary (Controlled). On December 1, 2025, Corporation X distributes all the stock of Controlled (with a fair market value of $80x) and $20x of cash to certain of Corporation X's shareholders (Participating Shareholders) in exchange for $100x of Corporation X stock in a split-off (Corporation X Split-Off).

(ii) Analysis regarding repurchase treatment, timing, and amount. The acquisition by Corporation X of its stock in exchange for Controlled stock is not a repurchase because the Controlled stock would be permitted to be received by the Participating Shareholders under section 355 without the recognition of gain. See § 58.4501-2(e)(4)(ii). The acquisition by Corporation X of its stock in exchange for Controlled stock and cash in the Corporation X Split-Off is a repurchase by Corporation X. See § 58.4501-2(e)(2)(ii) and (e)(4)(ii). This repurchase occurs on December 1, 2025 (that is, the date on which ownership of the Corporation X stock transfers to Corporation X for Federal income tax purposes). See § 58.4501-2(g)(1). The total amount of the repurchase by Corporation X is $100x, which equals the aggregate fair market value of the Corporation X stock on the date the stock is exchanged by the Participating Shareholders for Controlled stock and cash in the Corporation X Split-Off (that is, December 1, 2025). See § 58.4501-2(h)(1).

(iii) Analysis regarding impact of Corporation X Split-Off on Corporation X's stock repurchase excise tax base. Corporation X's gross repurchase amount for its 2025 taxable year is $100x on account of the Corporation X Split-Off. See § 58.4501-2(c)(1)(i). Under the reorganization exception, Corporation X may reduce its gross repurchase amount under § 58.4501-2(c)(1)(ii) by an amount equal to the aggregate fair market value of any Corporation X stock repurchased from a Participating Shareholder in the Corporation X Split-Off to the extent that the repurchase is for property permitted by section 355 to be received without the recognition of gain or loss. See § 58.4501-3(c). Accordingly, Corporation X's gross repurchase amount is reduced under § 58.4501-2(c)(1)(ii) by $80x as a result of the application of the reorganization exception. Consequently, Corporation X's stock repurchase excise base for its 2025 taxable year is $20x ($100x−$80x).

(12) Example 12: Section 355 split-off as part of a D reorganization—(i) Facts. The facts are the same as in paragraph (b)(11)(i) of this section (Example 11), except that Controlled is a newly formed corporation, and the Corporation X Split-Off is carried out as part of a transaction qualifying as a reorganization under section 368(a)(1)(D) in which Corporation X transfers assets to Controlled.

(ii) Analysis regarding Corporation X's stock repurchase excise tax base. The analysis regarding Corporation X's stock repurchase excise tax base is the same as in paragraphs (b)(11)(ii) and (iii) of this section (Example 11).

(iii) Analysis regarding Controlled's stock repurchase excise tax base. Controlled's transfer of $80x of its stock to Corporation X in the Corporation X Split-Off is disregarded for purposes of the netting rule. See § 58.4501-4(f)(9) (disregarding such types of issuances). Controlled's transfer of its stock to Corporation X also is disregarded for purposes of the netting rule because Controlled is not a covered corporation at the time of the transfer. See § 58.4501-2(d)(1). Therefore, Controlled does not take into account any of the $80x of its stock transferred to Corporation X in computing Controlled's stock repurchase excise tax base for its 2025 taxable year under § 58.4501-4(b)(1).

(13) Example 13: Section 355 spin-off—(i) Facts. The facts are the same as in paragraph (b)(11)(i) of this section (Example 11), except that Corporation X distributes the Controlled stock and cash to the Corporation X shareholders pro rata without the shareholders exchanging any Corporation X stock (Corporation X Spin-Off).

(ii) Analysis. The Corporation X Spin-Off is not a repurchase by Corporation X. See § 58.4501-2(e)(5)(iii).

(14) Example 14: Section 355 spin-off as part of a D reorganization—(i) Facts. The facts are the same as in paragraph (b)(13)(i) of this section (Example 13), except that Controlled is a newly formed corporation, the Corporation X Spin-Off is carried out as part of a transaction qualifying as a reorganization under section 368(a)(1)(D) in which Corporation X transfers assets to Controlled, and Corporation X receives the $20x of cash from Controlled and distributes the cash to certain of Corporation X's shareholders in exchange for Corporation X stock.

(ii) Analysis regarding Corporation X's stock repurchase excise tax base. The distribution by Corporation X of the $80x of stock of Controlled in the Corporation X Spin-Off is not a repurchase by Corporation X. See § 58.4501-2(e)(5)(iii)(A). The distribution by Corporation X of the $20x of cash in exchange for Corporation X stock is a repurchase. See § 58.4501-2(e)(5)(iii)(B).

(iii) Analysis regarding Controlled's stock repurchase excise tax base. The analysis regarding Controlled's stock repurchase excise tax base is the same as in paragraph (b)(12)(iii) of this section (Example 12).

(15) Example 15: Repurchase pursuant to an accelerated share repurchase agreement—(i) Facts. On October 10, 2022, Corporation X entered into an accelerated share repurchase (ASR) agreement with an investment bank (Bank). Under the terms of the ASR agreement, Bank agrees to deliver a number of shares of Corporation X stock to Corporation X during the term of the ASR, in an amount determined by reference to the price of Corporation X stock on specified days during the term of the ASR. Pursuant to the terms of the ASR agreement, Corporation X paid Bank a prepayment amount. Bank borrowed 80 shares of Corporation X stock from a party not related to Bank or Corporation X. Pursuant to the terms of the ASR agreement, Bank delivered 80 shares of Corporation X stock to Corporation X on October 12, 2022. On final settlement of the ASR, Bank may be required to deliver additional shares of Corporation X stock to Corporation X or Corporation X may be required to make a payment to Bank. The terms of the ASR agreement and the facts and circumstances cause ownership of the 80 shares to transfer from Bank to Corporation X for Federal income tax purposes at the time of delivery (that is, October 12, 2022). The agreement settled in 2023. On February 1, 2023, Bank delivers an additional 20 shares to Corporation X in final settlement of the ASR agreement. For Federal income tax purposes, ownership of those 20 shares is treated as transferring from Bank to Corporation X at the time of delivery (that is, February 1, 2023).

(ii) Analysis. Corporation X is treated as repurchasing 80 shares of Corporation X stock on October 12, 2022 (that is, the date on which ownership of the 80 shares delivered by Bank transferred from Bank to Corporation X for Federal income tax purposes). See § 58.4501-2(g)(1). However, the repurchase by Corporation X of the 80 shares of Corporation X stock does not increase Corporation X's stock repurchase excise tax base for its 2022 taxable year because the repurchase occurred prior to January 1, 2023. See § 58.4501-2(c)(3); see also section 10201(d) of the IRA (providing that the stock repurchase excise tax applies to repurchases after December 31, 2022). The delivery by Bank to Corporation X of 20 shares of Corporation X stock on February 1, 2023, constitutes a repurchase because, for Federal income tax purposes, the terms of the ASR agreement and the facts and circumstances cause ownership of those shares to transfer from Bank to Corporation X on that date. See § 58.4501-2(g)(1). Therefore, the repurchase by Corporation X of those 20 shares of Corporation X stock increases Corporation X's gross repurchase amount for its 2023 taxable year.

(16) Example 16: Distribution in complete liquidation of a covered corporation—(i) Facts. Corporation X adopts a plan of complete liquidation that becomes effective on March 1, 2025 (Corporation X Liquidation). Corporation X has 100 shares of stock outstanding. On April 1, 2025, all shareholders of Corporation X receive a liquidating distribution by Corporation X in full payment for their Corporation X stock. On the date on which Corporation X distributes all its corporate assets to its shareholders in complete liquidation (that is, April 1, 2025), Corporation X stock is trading at $1x per share. Each distribution in complete liquidation is subject to section 331 of the Code.

(ii) Analysis. A distribution in complete liquidation of a covered corporation (that is, Corporation X) to which section 331 applies is not a repurchase by the covered corporation. See § 58.4501-2(e)(5)(i). Therefore, none of the distributions by Corporation X in complete liquidation is a repurchase by Corporation X, and Corporation X's gross repurchase amount for its 2025 taxable year is not increased because of the Corporation X Liquidation.

(17) Example 17: Complete liquidation of a covered corporation to which sections 331 and 332(a) both apply—(i) Facts. The facts are the same as in paragraph (b)(16)(i) of this section (Example 16), except that one of Corporation X's shareholders (Corporation Z) is an 80-percent distributee (as defined in section 337(c) of the Code), and the liquidating distribution by Corporation X to Corporation Z as part of the Corporation X Liquidation qualifies as a complete liquidation under section 332(a).

(ii) Analysis. The analysis is the same as in paragraph (b)(16)(ii) of this section (Example 16).

(18) Example 18: Acquisition by disregarded entity—(i) Facts. Corporation X owns all the interests in LLC, a domestic limited liability company that is disregarded as an entity separate from its owner for Federal tax purposes (disregarded entity) under § 301.7701-3 of this chapter. On May 31, 2025, LLC purchases shares of Corporation X's stock for cash from an unrelated shareholder.

(ii) Analysis. Because LLC is a disregarded entity, the May 31, 2025, acquisition of Corporation X stock is treated as an acquisition by Corporation X. Accordingly, the acquisition is a section 317(b) redemption and therefore a repurchase. See § 58.4501-2(e)(2)(i). Section 301.7701-2(c)(2)(v) of this chapter (treating disregarded entities as corporations for purposes of certain excise taxes) does not apply to treat LLC as a corporation because neither chapter 37 of the Code nor section 4501 is described in § 301.7701-2(c)(2)(v)(A) of this chapter.

(19) Example 19: Multiple repurchases and contributions of same class of stock—(i) Facts. On January 15, 2025, Corporation X repurchases 100 shares of its Class A stock that have an aggregate fair market value of $1,000x ($10x per share). On September 16, 2025, Corporation X repurchases 50 shares of its Class A stock that have an aggregate fair market value of $200x ($4x per share). Corporation X contributes to its ESOP 75 shares of its Class A stock on March 15, 2025, and 75 shares of its Class A stock on October 15, 2025.

(ii) Analysis. Corporation X's gross repurchase amount for its 2025 taxable year is increased by $1,200x ($1,000x + $200x = $1,200x) as a result of the repurchases of its Class A stock. See § 58.4501-2(c)(1)(i). Under the exception for stock contributions to an employer-sponsored retirement plan, Corporation X's stock contributions reduce Corporation X's gross repurchase amount. See §§ 58.4501-2(c)(1)(ii) and 58.4501-3(d). The amount of the reduction is determined by dividing the aggregate fair market value of shares of Class A stock repurchased by the number of shares repurchased ($1,200x/150 shares = $8 per share) and multiplying the number of shares contributed by the average price of the repurchased shares (150 shares × $8 per share = $1,200x). See § 58.4501-3(d)(3)(i). Therefore, Corporation X's stock repurchase excise tax base for its 2025 taxable year is $0 ($1,200x repurchase−$1,200x exception = $0).

(20) Example 20: Multiple repurchases and contributions of different classes of stock—(i) Facts. The facts are the same as in paragraph (b)(19)(i) of this section (Example 19), except that Corporation X has Class B stock and contributes its Class B stock rather than its Class A stock to its ESOP. On October 15, 2025, Corporation X contributes to its ESOP 75 shares of its Class B stock that have an aggregate fair market value of $1,000x. On December 16, 2025, Corporation X contributes to its ESOP 25 shares of its Class B stock that have an aggregate fair market value of $500x.

(ii) Analysis. Corporation X reduces its gross repurchase amount by an amount equal to the sum of the fair market values of the different class of stock at the time the stock is contributed to the employer-sponsored retirement plan ($1,000x + $500x = $1,500x). However, the amount of the reduction may not exceed the aggregate fair market value of stock of a different class repurchased during the taxable year by Corporation X (that is, $1,200x). See § 58.4501-3(d)(4)(ii). Therefore, Corporation X's stock repurchase excise tax base for its 2025 taxable year is $0 ($1,200x repurchase−$1,200x exception = $0). The $300x excess of the contributions over the allowable reduction ($1,500x contributions−$1,200x allowable reduction) may not be carried forward or backward to preceding or succeeding taxable years of Corporation X. See § 58.4501-2(c)(2)(ii).

(21) Example 21: Treatment of contributions after the taxable year—(i) Facts. Corporation X repurchases 200 shares of its stock on December 31, 2025, for $200x ($1x per share). Corporation X has no other repurchases in 2025. On February 2, 2026, Corporation X contributes 200 shares of stock to its ESOP. Corporation X treats the contribution as if it had been received for the 2025 calendar year for plan allocation purposes. See § 58.4501-3(d)(5)(ii).

(ii) Analysis. Corporation X may use the contribution of the 200x shares of its stock on February 2, 2026, to reduce its $200x gross repurchase amount for 2025. See § 58.4501-3(d)(5)(ii).

(22) Example 22: Becoming a covered corporation—(i) Facts. As of January 1, 2025, all of Corporation X's stock is privately held (and, therefore, none of Corporation X's stock is traded on an established securities market). On February 15, 2025, Corporation X purchases 10 shares of its stock for $5x of cash ($.50x per share). On April 1, 2025, Corporation X issues 100 shares of its stock to the public (Public Shareholders), at which time Corporation X's stock begins trading on an established securities market. On November 15, 2025, when Corporation X stock is trading at $2x per share, Corporation X purchases 60 shares of its stock for $120x of cash.

(ii) Analysis regarding purchase on February 15, 2025. Corporation X becomes a covered corporation at the beginning of the day on April 1, 2025 (the initiation date). See § 58.4501-2(d)(1). Accordingly, Corporation X's purchase of 10 shares of its stock for $5x of cash on February 15, 2025, is not a repurchase. Thus, the purchase on February 15, 2025, is not included in Corporation X's gross repurchase amount for its 2025 taxable year.

(iii) Analysis regarding issuance on April 1, 2025. Corporation X is a covered corporation at the beginning of the day on April 1, 2025. See § 58.4501-2(d)(1). Accordingly, the Corporation X stock issued to the Public Shareholders on that date is stock of a covered corporation for purposes of the netting rule. See § 58.4501-4(b)(1). As a result, Corporation`s gross repurchase amount for its 2025 taxable year is reduced by $100x. See § 58.4501-2(c)(1)(iii).

(iv) Analysis regarding purchase on November 15, 2025. Corporation X is a covered corporation on November 15, 2025. Accordingly, Corporation X's purchase of 60 shares of its stock on that date is a repurchase because the transaction is a section 317(b) redemption (that is, a redemption within the meaning of section 317(b) with regard to the stock of a covered corporation). See §§ 58.4501-1(b)(31) and 58.4501-2(e)(2)(i). For purposes of computing Corporation X's gross repurchase amount, the fair market value of the 60 shares of stock repurchased on November 15, 2025, is the aggregate market price of those shares on that repurchase date, or $120x ($2x per share × 60 shares = $120x). See § 58.4501-2(g)(1). Accordingly, Corporation`s gross repurchase amount for its 2025 taxable year is increased by $120x. See § 58.4501-2(c)(1)(i).

(23) Example 23: Actual pro rata redemption in partial liquidation—(i) Facts. Corporation X is actively engaged in the conduct of Businesses A and B. Each business constitutes a qualified trade or business within the meaning of section 302(e)(3). On September 1, 2025, pursuant to a plan of partial liquidation adopted in the same taxable year, Corporation X sells Business B for $100x and distributes the proceeds to its shareholders pro rata in redemption of $100x of Corporation X stock. The transaction qualifies as a distribution in partial liquidation under section 302(b)(4) and (e).

(ii) Analysis. Corporation X's distribution in partial liquidation is a section 317(b) redemption. In addition, Corporation X's pro rata distribution in partial liquidation is not included in the exclusive list of transactions under § 58.4501-2(e)(3) that are a section 317(b) redemption but are not treated as a repurchase. Accordingly, the distribution in partial liquidation is a repurchase. See § 58.4501-2(e)(2)(i). Therefore, as a result of the distribution, Corporation X's gross repurchase amount for its 2025 taxable year is increased by $100x. See § 58.4501-2(c)(1)(i).

(24) Example 24: Constructive redemption in partial liquidation—(i) Facts. The facts are the same as in paragraph (b)(23)(i) of this section (Example 23), except that the shareholders of Corporation X surrender no stock in exchange for the proceeds from the sale of Business B. For Federal income tax purposes, a constructive redemption of stock is deemed to occur, and the transaction qualifies as a distribution in partial liquidation under section 302(b)(4) and (e).

(ii) Analysis. The analysis regarding Corporation X's gross repurchase amount is the same as in paragraph (b)(23)(ii) of this section (Example 23).

(25) Example 25: Non-pro rata redemption in partial liquidation—(i) Facts. The facts are the same as in paragraph (b)(23)(i) of this section (Example 23), except that Corporation X distributes the proceeds to Shareholder A in redemption of $100x of preferred Corporation X stock that is not described in § 58.4501-1(b)(34)(ii) or (iii).

(ii) Analysis. The analysis regarding Corporation X's gross repurchase amount is the same as in paragraph (b)(23)(ii) of this section (Example 23).

(26) Example 26: Physical settlement of call option contract—(i) Facts. On March 1, 2025, Corporation X issues an option that entitles the holder to buy 100 shares of Corporation X stock from Corporation X for $150x ($1.50x per share). On the date the option is issued, Corporation X stock is trading at $1x per share. On November 1, 2025, when Corporation X stock is trading at $2x per share, the holder pays $150x to Corporation X to exercise the option, and Corporation X issues 100 shares of Corporation X stock to the holder, at which time ownership of the shares transfers to the holder for Federal income tax purposes.

(ii) Analysis. For purposes of computing Corporation X's stock repurchase excise tax base, Corporation X is treated as issuing 100 shares of Corporation X stock on November 1, 2025. See § 58.4501-4(d)(1). The fair market value of that stock is its aggregate market price on the date of issuance by Corporation X, or $200x ($2x per share × 100 shares = $200x). See § 58.4501-4(e)(1). Accordingly, the issuance is a $200x reduction of $200x to Corporation X's gross repurchase amount in computing Corporation X's stock repurchase excise tax base for its 2025 taxable year. See § 58.4501-2(c)(1)(iii).

(27) Example 27: Net cash settlement of call option contract—(i) Facts. The facts are the same as in paragraph (b)(26)(i) of this section (Example 26), except that Corporation X net cash settles the option by paying the holder $50x.

(ii) Analysis. The net cash settlement is disregarded for purposes of the netting rule. See § 58.4501-4(f)(12) (disregarding the settlement of an option contract with respect to stock of a covered corporation using any consideration other than stock of the covered corporation). The net cash settlement also is not a repurchase. See § 58.4501-2(e)(5)(iv) (providing that net cash settlement of an option contract with respect to stock of a covered corporation generally is not a repurchase by the covered corporation).

(28) Example 28: Physical settlement of put option contract—(i) Facts. On April 1, 2025, Corporation X issues an option entitling the holder to sell 100 shares of Corporation X stock to Corporation X for $100x ($1x per share). On the date the option is issued, Corporation X stock is trading at $1.25x per share. On October 1, 2025, when Corporation X stock is trading at $0.75x per share, the holder exercises the option, and Corporation X purchases 100 shares of Corporation X stock for $100x, at which time ownership of the shares transfers to Corporation X.

(ii) Analysis. Corporation X's purchase on October 1, 2025, is a repurchase because it is a section 317(b) redemption that is not otherwise excluded. See § 58.4501-2(e)(2) and (3). For purposes of computing Corporation X's gross repurchase amount, the fair market value of the repurchased stock is its aggregate market price on the date on which ownership of the stock transfers to Corporation X for Federal income tax purposes (October 1, 2025), or $75x ($0.75x per share × 100 shares = $75x). See § 58.4501-2(g)(1) and (h)(1). Accordingly, the repurchase is an increase of $75x to Corporation X's gross repurchase amount for its 2025 taxable year. See § 58.4501-2(c)(1)(i).

(29) Example 29: Net cash settlement of put option contract—(i) Facts. The facts are the same as in paragraph (b)(28)(i) of this section (Example 28), except that Corporation X net cash settles the put option by paying the holder $25x.

(ii) Analysis. The net cash settlement is not a repurchase. See § 58.4501-2(e)(5)(vi) (providing that net cash settlement of an option contract with respect to stock of a covered corporation generally is not a repurchase by the covered corporation).

(30) Example 30: Indirect ownership—(i) Facts. Corporation X owns 60 percent of the only class of stock of Sub 1, a domestic corporation. Sub 1 owns 60 percent of the only class of stock of Sub 2, which also is a domestic corporation. On October 15, 2025, Sub 2 purchases stock of Corporation X with a market price of $100,000.

(ii) Analysis. Corporation X must determine at the time its stock is repurchased by Sub 2 (that is, on October 15, 2025) whether Sub 2 is a specified affiliate of Corporation X. See § 58.4501-2(f)(2)(i). Under § 58.4501-2(f)(2)(ii), Corporation X indirectly owns 36 percent (60% × 60% = 36%) of the stock of Sub 2. Sub 2 is not a specified affiliate of Corporation X, because Corporation X does not own, directly or indirectly, more than 50 percent of the stock of Sub 2. See § 58.4501-1(b)(32). Accordingly, Sub 2's purchase of Corporation X stock on October 15, 2025, is not a repurchase under § 58.4501-2(f)(1).

(31) Example 31: Restricted stock provided to a service provider—(i) Facts. Individual M provides services to Corporation X. In 2025, as compensation for Individual M's services, Corporation X transfers to Individual M 100 shares of Corporation X restricted stock with an aggregate fair market value of $500x ($5x per share). The shares vest in 2028. Individual M does not make an election under section 83(b) of the Code. In 2028, Corporation X withholds from Individual M's other wages amounts that are required to pay the income tax and employment tax withholding obligations arising from the stock transfer. The shares have a fair market value of $7x per share when they vest.

(ii) Analysis. Corporation X is treated as issuing 100 shares of stock to Individual M when they become substantially vested in 2028. See § 58.4501-4(d)(2)(i). The fair market value of the shares issued is $700x (100 shares × $7x per share = $700x). Accordingly, the issuance is a reduction of $700x in computing Corporation X's stock repurchase excise tax base for its 2028 taxable year.

(32) Example 32: Restricted stock provided to a service provider with section 83(b) election—(i) Facts. The facts are the same as in paragraph (b)(31)(i) of this section (Example 31), except that Individual M makes a valid election under section 83(b) to include the fair market value of the shares of restricted stock in gross income when the shares are transferred.

(ii) Analysis. Corporation X is treated as issuing 100 shares of stock to Individual M when the shares are transferred in 2025. See § 58.4501-4(d)(2)(iii). The fair market value of the shares issued is $500x (100 shares × $5x per share = $500x). Accordingly, the issuance is a reduction of $500x in computing Corporation X's stock repurchase excise tax base for its 2025 taxable year. Corporation X is not treated as issuing stock to Individual M when the shares vest in 2028.

(33) Example 33: Forfeiture of restricted stock provided to a service provider with section 83(b) election—(i) Facts. The facts are the same as in paragraph (b)(32)(i) of this section (Example 32), except that Individual M forfeits the 100 shares of restricted stock in 2027 because of a failure to meet the vesting conditions for the stock. At the time of the forfeiture, the fair market value of the 100 shares of stock is $600x (100 shares × $6x per share = $600x).

(ii) Analysis. The analysis regarding the timing and amount of Corporation X's issuance of stock is the same as in paragraph (b)(32)(ii) of this section (Example 32). See § 58.4501-4(d)(2)(iii). However, because Individual M made a valid election under section 83(b) with regard to the stock and the forfeiture resulted from Individual M failing to meet the vesting conditions for the stock, Individual M's forfeiture of the 100 shares of stock to Corporation X is a repurchase by Corporation X. See § 58.4501-2(e)(4)(iii). The stock is treated as repurchased in 2027. See § 58.4501-2(g)(1). The amount of the repurchase by Corporation X equals the fair market value of the stock (that is, $600x) on the date of the repurchase. See § 58.4501-2(h)(1).

(34) Example 34: Vested stock provided to a service provider with share withholding—(i) Facts. Individual N is an employee of Corporation X. In 2025, as compensation for Individual N's services, Corporation X grants Individual N 100 restricted stock units (RSUs). Pursuant to the RSUs, if Individual N remains employed by Corporation X through December 31, 2027, Corporation X will transfer 100 shares of Corporation X stock to Individual N in January 2028. Individual N remains employed by Corporation X through December 31, 2027. In January 2028, when the shares have a fair market value of $5x per share, Corporation X initiates the transfer of 60 shares of Corporation X stock to Individual N and withholds 40 shares to satisfy Corporation X's income tax and employment tax withholding obligations arising from Individual N vesting in the shares.

(ii) Analysis. Corporation X is treated as issuing 60 shares of stock to Individual N when the shares are transferred in 2028. See § 58.4501-4(d)(2)(i). The 40 shares of Corporation X stock withheld to satisfy Corporation X's withholding obligations are disregarded for purposes of the netting rule. See § 58.4501-4(f)(11)(i). The fair market value of the shares issued is $300x (60 shares × $5x per share = $300x). Accordingly, the issuance is a reduction of $300x in computing Corporation X's stock repurchase excise tax base for its 2028 taxable year.

(35) Example 35: Stock option net exercise—(i) Facts. Individual O is an employee of Corporation X. In 2025, in connection with the performance of services, Corporation X transfers to Individual O options to purchase 100 shares of Corporation X stock with an exercise price of $4x per share ($400x exercise price in total). The options are described in § 1.83-7 of this chapter and do not have a readily ascertainable fair market value. Individual O exercises the options to purchase 100 shares in 2026, when the fair market value is $5x per share. Corporation X withholds 80 shares to pay the $400x exercise price (80 shares × $5x per share = $400x).

(ii) Analysis. Corporation X is treated as issuing 20 shares of stock to Individual O when Individual O exercises the options in 2026. See § 58.4501-4(d)(2)(ii). The 80 shares of Corporation X stock withheld to pay the exercise price are disregarded for purposes of the netting rule. See § 58.4501-4(f)(11). The fair market value of the shares issued is $100x (20 shares × $5x per share = $100x). Accordingly, the issuance is a reduction of $100x in computing Corporation X's stock repurchase excise tax base for its 2026 taxable year.

(36) Example 36: Net share settlement not in connection with performance of services—(i) Facts. Corporation X issues a call option to Individual P that entitles Individual P to buy 100 shares of Corporation X stock for $100x ($1x per share) from Corporation X for a limited time. The terms of the option require or permit net share settlement. On the date the option is issued, Corporation X stock is trading at $1x per share. On the date the option is exercised, Corporation X stock is trading at $1.25x per share. To settle the option, Individual P makes no payment to Corporation X, and Corporation X issues 20 shares of Corporation X stock (worth $25x).

(ii) Analysis. Corporation X is treated as issuing 20 shares with a fair market value of $25x. See § 58.4501-4(f)(11).

(37) Example 37: Broker-assisted net exercise—(i) Facts. The facts are the same as in paragraph (b)(35)(i) of this section (Example 35), except that, instead of Corporation X withholding shares to pay the exercise price, a third-party broker pays an amount equal to the exercise price (that is, $400x) to Corporation X. Corporation X transfers 100 shares of Corporation X stock to the third-party broker, which deposits the 100 shares into Individual O's account. The third-party broker then immediately sells 80 shares to recover the $400x exercise price paid to Corporation X (80 shares × $5x per share = $400x).

(ii) Analysis. Corporation X is treated as issuing 100 shares of stock to Individual O when Individual O exercises the options in 2026. See § 58.4501-4(c)(2) and (d)(1)(i). The fair market value of the shares issued is $500x (100 shares × $5x per share = $500x). Accordingly, the issuance is a reduction of $500x in computing Corporation X's stock repurchase excise tax base for its 2026 taxable year.

(38) Example 38: Stock provided by a specified affiliate to an employee—(i) Facts. Individual Q is an employee of Corporation Y, which is a specified affiliate of Corporation X. In 2025, Corporation X transfers 100 shares of its stock to Individual Q, when the stock is valued at $9x per share, in connection with Individual Q's performance of services as an employee of Corporation Y.

(ii) Analysis. Under § 1.83-6(d) of this chapter, Corporation X is treated as contributing the stock to the capital of Corporation Y, which is treated as transferring the shares to Individual Q as compensation for services. Corporation Y is treated as providing 100 shares to Individual Q. See § 58.4501-4(b)(1)(ii) and (f)(2)(iv). The fair market value of the shares provided is $900x (100 shares × $9x per share = $900x). Accordingly, the provision is a reduction of $900x in computing Corporation X's stock repurchase excise tax base for its 2025 taxable year.

(39) Example 39: Stock provided by a specified affiliate to a non-employee—(i) Facts. The facts are the same as in paragraph (b)(38)(i) of this section (Example 38), except that Individual Q provides services as a non-employee service provider of Corporation Y.

(ii) Analysis. The analysis is the same as in paragraph (b)(38)(ii) of this section (Example 38).

(40) Example 40: Corporation treated as a domestic corporation under section 7874(b)—(i) Facts. Corporation FB is a corporation the stock of which is traded on an established securities market (within the meaning of section 7704(b)(1) of the Code) and that is created or organized in a foreign jurisdiction. Corporation FB is treated as a domestic corporation under section 7874(b) of the Code.

(ii) Analysis. Corporation FB is treated for purposes of this title as a domestic corporation under section 7874(b). Corporation FB is a covered corporation because it is treated for purposes of this title as a domestic corporation and its stock is traded on an established securities market. See § 58.4501-1(b)(7).