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
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