Update on Dividend Equivalent Tax Withholding – Sec. 871(m) Rules

By Anthony Tuths, JD, LLM – Partner – WithumSmith+Brown, PC

The IRS plans to issue the final version of proposed rules for dividend equivalents together with a notice providing additional guidance and transition relief. It is expected that 871(m) will take effect on January 1, 2017, only with respect to delta 1 transactions (e.g., total return swaps, forwards and futures). Non-delta one transactions (many options and structured notes), will not feel the effect of Section 871(m) until one year later. It is also expected that the requirements for combining transactions will be simplified as part of the transitional relief. Speaking at a SIFMA tax symposium on Oct. 21, Peter Merkel, a senior technical reviewer in Branch 5 of the Office of Associate Chief Counsel (International), released the news. The Section 871(m) rules, aimed at stopping foreign investors from avoiding U.S. withholding tax, set withholding and reporting requirements for dividend-like payments in equity swaps or other derivatives.

If you would like more information on Section 871(m) or the new transitional rules, please feel free to reach out to me.


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