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Tax Provision

IRS Delays Effective Date of Final Rules on Dividend Equivalents From U.S. Sources

Thomson Reuters Tax & Accounting  

Thomson Reuters Tax & Accounting  

The IRS has announced that it will extend the phase-in period for Section 871(m) regulations through 2024.

Background.

In Notice 2018-72, 2018-40 IRB 522, the IRS extended the effective/applicability date for Reg. §1.871-15(d)(2) and Reg. § 1.871-15(e) to provide that those rules won’t apply to any payment made with respect to any non-delta-one transaction issued before January 1, 2021 (phase-in period). In Notice 2020-2, 2020-3 IRB 327, the IRS extended the phase-in period through 2022.

Note. The “Section 871(m) regs” include final rules relating to dividend equivalents under Code Sec. 871(m)Code Sec. 1441Code Sec. 1461, and Code Sec. 1473.

Another extension of the phase-in period.

The IRS has announced it will again extend the phase-in period, this time through 2024. (Notice 2022-37)

Notice 2022-37 also further extends the period during which the simplified standard for combined transactions applies to include 2023 and 2024. Transactions that are entered into between 2017 and 2024 that are combined under this simplified standard will continue to be treated as combined transactions for future years and will continue to be combined transactions as a result of applying Reg §1.871-15(n) or disposing of less than all of the potential Section 871(m) transactions that are combined under this rule.

In addition, Notice 2022-37 provides that withholding agents may also apply the QSL transition rules described in Notice 2010-46, Part III, for payments made in 2023 and 2024. (Notice 2022-37, Sec. 6)

However, the anti-abuse rule provided in Reg §1.871-15(o) will continue to apply during the phase-in years as described in the Notice. As a result, a transaction that would not otherwise be treated as a Section 871(m) transaction (including as a result of the Notice) may be a Section 871(m) transaction under Reg §1.871-15(o).

Reliance guidance.

Before the IRS amends the Section 871(m) regs or issues other guidance, taxpayers may rely on the provisions in Notice 2022-37 regarding the proposed amendments described in sections III and V. Withholding agents may rely on the simplified standard for determining whether transactions are combined transactions as described in section IV and may apply the QSL transition rules described in section VI.

For more information on source of dividend equivalents, see Checkpoint’s Federal Tax Coordinator ¶O-10930.

 

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