mayo 23 2024

Section 871(m) and BEAT Qualified Derivative Payment Reporting Phase-Ins Extended Two More Years


On May 22, 2024, the US Department of Treasury and the IRS issued two important notices—one delaying the full implementation of the withholding rules on dividend equivalent payments, and the other on derivative reporting for BEAT purposes. Notice 2024-44 (the “Notice”) extends—until 2027—the phase-in of regulations under Section 871(m) of the Code (the “Regulations”) and related provisions. As background, Section 871(m) and the Regulations treat “dividend equivalents,” paid or deemed paid under certain contracts, as US source dividends that are subject to withholding tax if deemed paid to a non-US person.

However, the full scope and application of the Regulations have thus far been curtailed by several IRS notices that have provided transition rules, phase-in periods, and deferred effective dates. Taxpayers have—reasonably—come to rely on the softened version of the rules, which were set to expire at the end of this year. With the Notice, these rules have now been extended five times, for a period that covers a decade.1 For perspective, the applicable portions of the Section 871(m) regulations were in the same transitionary phase when TikTok was launched, and TikTok phenoms who were teenagers when the platform launched are now pushing thirty.

The Notice further extends (i) the phase-in for non-delta-one transactions; (ii) use of the simplified standard for determining whether transactions are “combined transactions” within the meaning of the Regulations; (iii) relief for qualified derivative dealers (“QDDs”); and (iv) the transition out of the qualified securities lender (“QSL”) regime. This Legal Update provides a summary of each.

Phase-in for Non-Delta-One Transactions

Under previous IRS guidance (i.e., Notice 2022-37), the Regulations generally did not apply to any payments made with respect to non-delta-one transactions issued before January 1, 2025.2 The Notice extends this date to January 1, 2027. Note, however, that the Regulations continue to apply to any potential Section 871(m) transaction that (i) is a delta-one transaction and (ii) was entered into on or after January 1, 2017.

The Notice also extends the periods for which enforcement standards established in prior IRS guidance (i.e., the good-faith effort standard) will apply. In other words, the IRS will take into account the extent to which taxpayers have made a good-faith effort to comply with the Regulations when enforcing the same, with respect to (i) any delta-one transactions in 2017 through 2026; and (ii) any non-delta-one transactions in 2027.3

Simplified Standard for “Combined Transactions”

Prior IRS guidance provided a simplified standard for withholding agents to determine whether transactions entered into in 2017 through 2024 were combined transactions. The simplified standard requires the withholding agent to combine transactions for purposes of Section 871(m) only when the transactions are over-the-counter transactions that are priced, marketed, or sold in connection with each other (i.e., providing significant relief to withholding agents otherwise responsible for determining if separate transactions are otherwise entered into “in connection with each other”). The Notice extends, through 2026, the application of this simplified standard for determining whether transactions are “combined transactions.”4

Relief for QDDs

The Notice further extends the three QDD phase-ins that had been delayed until 2025 by prior IRS guidance. Prior guidance provided that a QDD (i) will not be subject to tax on dividends and dividend equivalents received in 2017 through 2024 in its equity derivatives dealer capacity or withholding on those dividends, including deemed dividends; (ii) would be required to compute its Section 871(m) tax liability using the net delta exposure method beginning in 2025; and (iii) is not required to perform a periodic review with respect to QDD activities for 2017 through 2024. The Notice extends the withholding and periodic review moratoriums through 2026 and allows QDDs to avoid net-delta calculations until 2027.

QSL Transition

As background, Notice 2010-46 contained an early IRS solution to potential over-withholding on a chain of dividends and dividend equivalents (i.e., where an intermediary is withheld upon, and subsequently withholds on, the same payment stream). The QSL regime provides for (i) an exception to withholding for payments to a QSL and (ii) a framework to credit forward prior withholding on a chain of dividends and dividend equivalents. The Notice further extends the QSL transition rules described in Notice 2010-46 to include payments made through 2026.

Additional Derivative Guidance

Also on May 23, 2024, the Treasury Department and IRS released Notice 2024-43, which extends the transition period for the application of the base erosion and anti-abuse tax (the “BEAT”) to “qualified derivative payments” (“QDPs”) which are not subject to the BEAT. A QDP is, generally, a payment made pursuant to a derivative that the taxpayer treats as subject to the mark-to-market tax accounting.5 To claim the QDP exception to the BEAT, a taxpayer is required to report the aggregate amount of QDPs for the taxable year on IRS Form 8991 and make a representation that all payments satisfy the requirements of Treas. Reg. section 1.59A-6(b)(2). In Notice 2022-30, the IRS softened this reporting requirement for taxable years beginning before 2025, treating a taxpayer as having satisfied the QDP reporting requirements—to the

extent that the taxpayer reports the aggregate amount of QDPs on IRS Form 8991, Schedule A—provided that the taxpayer reports this amount in good faith. Notice 2024-43 extends this transition period to taxable years beginning before 2027.

Looking Ahead

The Notice also reiterates that Treasury and the IRS are continuing to evaluate Section 871(m) and the related provisions thereunder, and are still welcoming any additional comments regarding tax policy considerations, legal authority for, and the IRS administrative feasibility of, any suggested modifications to the Regulations. Taxpayers may rely on the Notice until (i) the Regulations are amended to reflect the extensions contained in the Notice or (ii) the issuance of other guidance.



1 The full suite of current IRS guidance on the Section 871(m) regulations is as follows:

  • Notice 2010-46 containing the qualified securities lender (the “QSL”) regime, published in June 2010;
  • Notice 2016-76 delaying the effective date of the Regulations, among other things, published in December 2016, and its corresponding final and temporary regulations published in January 2017;
  • IRS Notice 2017-42, providing a similar phase-in of the Regulations and related provisions, published in August 2017;
  • Notice 2018-72, providing a similar phase-in of the Regulations and related provisions, published in October 2018;
  • Notice 2020-2, providing a similar phase-in of the Regulations and related provisions, published in January 2020;
  • Notice 2022-37, providing a similar phase-in of the Regulations and related provisions, published in September 2022; and
  • Revenue Procedure 2022-43 containing the final Qualified Intermediary Agreement (the “2023 QI Agreement”), published in December 2022.

2 For purposes of the Regulations, delta is intended to represent the measurement of how closely the returns of a derivative contract correlate with the performance of the underlying asset(s) referenced by the derivative contract. For example, a delta of one represents a perfect correlation and a delta of zero represents no correlation at all.

3 Similarly, for purposes of IRS enforcement and administration of the QDD rules in the Regulations and the relevant provisions of the 2023 QI Agreement, the Notice extends through 2026 the period during which the IRS will consider the extent to which a QDD makes a good faith effort to comply with the Regulations and the relevant provisions of the 2023 QI Agreement.

4 Transactions entered into in 2017 through 2026 that are combined transactions under this simplified standard will continue to be treated as such in future years, regardless of whether (i) a different outcome is produced under the Regulations or (ii) any portion(s) of the combined transaction is disposed. Transactions entered into in 2017 through 2026 that are not combined transactions under this simplified standard will not become combined transactions in the future by virtue of the Regulations, unless a triggering event occurs that causes the transactions to be retested under the Regulations.

5 Treas. Reg. section 1.59A-6(b)(1).

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