Temporary and Proposed Regulations Address Dividend Equivalents from U.S. Sources (T.D. 9648, NPRM REG-120282-10, Fact Sheet)

The IRS has released final regulations, proposed regulations and a fact sheet that relate to dividend equivalents for purposes of Code Sec. 871(m). The final regulations, which adopt temporary regulations (T.D. 9572 ) with minimal changes, and the proposed regulations, which withdraw previously proposed regulations, provide guidance to nonresident aliens and foreign corporations holding notional principal contracts (NPCs) providing for payments determined by reference to payment of dividends from sources within the United States. The final regulations generally apply to payments made after December 31, 2000, and are effective December 5, 2013.

Code Sec. 871(m) applies to securities loans, sale-repurchase transactions, certain NPCs defined as “specified notional principal contracts” (specified NPCs), and any similar transactions that provide for a payment contingent on or determined by reference to a U.S.-source dividend (dividend equivalent). Code Sec. 871(m) treats a dividend equivalent as a dividend from sources within the U.S. for purposes of various code sections, and applies to any dividend equivalent made after September 14, 2010.

The final regulations incorporate the definition of specified NPC from Code Sec. 871(m)(3)(A) and extend the applicability of the definition to payments made before January 1, 2016. These regulations also adopt the temporary regulations that clarify the application of Code Sec. 871(m) and to that end modify several existing regulations.

The proposed regulations better identify: (1) when a NPC “is of a type which does not have the potential for tax avoidance” and (2) other payments that are dividend equivalents because they are substantially similar to specified NPC payments and substitute dividend payments.

Comments & Hearing

Comments are requested on the new rules and should be received by March 5, 2014. A public hearing on the proposed regulations has been scheduled for April 11, 2014, beginning at 10:00 a.m. Requests to speak and outlines of topics to be discussed at the public hearing must be received by March, 5, 2014.

T.D. 9648, 2013FED ¶47,048

Proposed Regulations, NPRM REG-120282-10, 2013FED ¶49,597

Fact Sheet: Closing the Dividend Tax Loophole for Non-U.S. Investors, 2013FED ¶46,588

Other References:

Code Sec. 863

CCH Reference – 2013FED ¶27,171

Code Sec. 871

CCH Reference – 2013FED ¶27,341D

Code Sec. 881

CCH Reference – 2013FED ¶27,482

Code Sec. 892

CCH Reference – 2013FED ¶27,602G

Code Sec. 894

CCH Reference – 2013FED ¶27,641

Code Sec. 1441

CCH Reference – 2013FED ¶32,704

CCH Reference – 2013FED ¶32,706

CCH Reference – 2013FED ¶32,708

CCH Reference – 2013FED ¶32,712

CCH Reference – 2013FED ¶32,714

Code Sec. 1461

CCH Reference – 2013FED ¶32,821

Tax Research Consultant

CCH Reference – TRC INTL: 3,150

CCH Reference – TRC INTL: 3,558.25



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