The IRS on Dec. 5 issued final (T.D. 9648) and proposed
(REG-120282-10) regulations under Section 871(m), which discusses
dividend equivalents.
Section 871(m)(1) provides that, for purposes of Sections
871(a), 881 and 4948(a), as well as under chapters 3 and 4 of the
Internal Revenue Code, a dividend equivalent is treated as a
dividend from sources within the United States.
Specifically, Section 871(m)(2) defines a dividend equivalent as
(1) a substitute dividend made pursuant to a securities lending or
sale-repurchase transaction that is directly or indirectly
contingent upon or determined by reference to, the U.S.-source
dividend, (2) any payment made pursuant to a "specified
notional principal contract" (NPC) that directly or indirectly
is contingent upon or determined by reference to a U.S.-source
dividend, and (3) any other payment that the Treasury Department
determines to be substantially similar to those types of
payments.
