IRS Announces 871(m) Phase-In Rules

On Friday, 2 December 2016, the IRS published Notice 2016-76 which provides for the phase-in application of the section 871(m) dividend equivalent regulations.

Some quick key highlights:

  • Withholding during 2017 will apply to 871(m) transactions that have a delta of one (including combined transactions).  All other 871(m) transactions will be subject to withholding beginning in 2018.
  • For enforcement purposes during 2017 and 2018, the IRS will consider the extent to which a withholding agent makes a good faith effort to comply
  • Taxes withheld for 871(m) during 2017 can be deposited quarterly
  • If a withholding agent underwithholds 871(m) tax, the withholding agent is permitted to adjust the underwithholding without penalty as long as such underwithholding is corrected before the following March 15 (i.e., the deadline for Form 1042)
  • The combination rule is simplified for 2017 to apply only to over-the-counter transactions that are priced, marketed or sold in connection with each other (listed securities transactions are not required to be combined for 2017)

We will continue to analyze the notice and follow up with you when we have more information.

Published by

Christoph Schärer

Christoph Schärer
Birchstrasse 160
Postfach, 8050 Zurich
+41 58 792 42 82

Christoph is a member of the PwC international FATCA working group and co-leads the Swiss FATCA initiative. He has considerable FATCA tax project experience with a range of investment, cantonal, regional, retail and private banks, as well as with life insurance companies and banking service providers.