Dividend Treatment Exception

§ 4501. Repurchase of corporate stock(a) General ruleThere is hereby imposed on each covered corporation a tax equal to 1 percent of the fair market value of any stock of the corporation which is repurchased by such corporation during the taxable year. (b) Covered corporationFor purposes of this section, the term “covered corporation” means any domestic corporation the stock of which is traded on an established securities market (within the meaning of section 7704(b)(1)). (c) RepurchaseFor purposes of this section—(1) In generalThe term “repurchase” means—(A) a redemption within the meaning of section 317(b) with regard to the stock of a covered corporation, and (B) any transaction determined by the Secretary to be economically similar to a transaction described in subparagraph (A). (2) Treatment of purchases by specified affiliates(A) In generalThe acquisition of stock of a covered corporation by a specified affiliate of such covered corporation, from a person who is not the covered corporation or a specified affiliate of such covered corporation, shall be treated as a repurchase of the stock of the covered corporation by such covered corporation. (B) Specified affiliateFor purposes of this section, the term “specified affiliate” means, with respect to any corporation—(i) any corporation more than 50 percent of the stock of which is owned (by vote or by value), directly or indirectly, by such corporation, and (ii) any partnership more than 50 percent of the capital interests or profits interests of which is held, directly or indirectly, by such corporation. (3) AdjustmentThe amount taken into account under subsection (a) with respect to any stock repurchased by a covered corporation shall be reduced by the fair market value of any stock issued by the covered corporation during the taxable year, including the fair market value of any stock issued or provided to employees of such covered corporation or employees of a specified affiliate of such covered corporation 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. (d) Special rules for acquisition of stock of certain foreign corporations(1) In generalIn the case of an acquisition of stock of an applicable foreign corporation by a specified affiliate of such corporation (other than a foreign corporation or a foreign partnership (unless such partnership has a domestic entity as a direct or indirect partner)) from a person who is not the applicable foreign corporation or a specified affiliate of such applicable foreign corporation, for purposes of this section—(A) such specified affiliate shall be treated as a covered corporation with respect to such acquisition, (B) such acquisition shall be treated as a repurchase of stock of a covered corporation by such covered corporation, and