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U.S. IRS Provides Further Delay for Certain Dividend Equivalent Rules — Orbitax Tax News & Alerts

The U.S. IRS has issued Notice 2022-37 announcing that Treasury and the IRS intend to amend the section 871(m) regulations to delay the effective/applicability date of certain rules in those regulations by a further two years. In particular, this includes:

  • An extension of the phase-in year for delta-one and non-delta-one transactions, including that section 871(m) regulations will not apply to non-delta-one transactions issued before 1 January 2025, and that the good faith efforts standard will be applied for any delta-one transactions in 2017 through 2024 and to any non-delta-one transactions in 2025,
  • An extension through 2024 of the period during which the IRS will take into account the extent to which a qualified derivatives dealer (QDD) made a good faith effort to comply with the section 871(m) regulations and the relevant provisions of the 2017 Qualified Intermediary (QI) Agreement and the anticipated 2023 QI Agreement;
  • An extension of the simplified standard for determining whether transactions are combined transactions to include 2023 and 2024;
  • An extension of the phase-in relief for QDDs, including that a QDD will not be subject to tax on dividends and dividend equivalents received in 2023 and 2024 in its equity derivatives dealer capacity or withholding on dividends (including deemed dividends), a QDD will not be required to compute its section 871(m) amount using the net delta exposure method until 2025, and a QDD is not required to perform a periodic review with respect to its QDD activities for 2023 or 2024; and
  • An extension of the qualified securities lender (QSL) transition rules described in Notice 2010-46 so that withholding agents may apply the QSL transition rules for payments made in 2023 and 2024.

Before the promulgation of the amendments to the section 871(m) regulations or the issuance of other guidance, taxpayers may rely on the provisions of the Notice.

Notice 2022-37 is scheduled to be published on 12 September 2022 in Internal Revenue Bulletin (IRB) 2022-37.