IRS Phases In Section 871(m) Dividend Equivalent Withholding

On December 2, the U.S. Internal Revenue Service issued Notice 2016-76, which phases in the application of withholding on dividend equivalent payments under section 871(m). Under the notice, withholding applies only to delta-one transactions in 2017, and applies to other U.S. equity transactions beginning after 2017. A delta-one transaction tracks the underlying on a dollar-for-dollar basis.

In addition, the notice generally provides that:

• When enforcing section 871(m) in 2017 (for delta-one transactions) and 2018 (for non-delta-one transactions), the IRS will take into account the extent to which the taxpayer or withholding agent made a good faith effort to comply with section 871(m).