The Internal Revenue Service (IRS) and the US Department of the Treasury (Treasury) on January 19, 2017 issued final, temporary, and proposed regulations (the 2017 Section 871(m) Regulations) under Section 871(m) of the Internal Revenue Code (Code). The 2017 Section 871(m) Regulations provide much anticipated guidance in response to comments provided with respect to the existing Section 871(m) regulations as well as additional guidance provided by the IRS in Notice 2016-76 and the new qualified intermediary agreement (2016 QI Agreement) provided in Revenue Procedure 2017-15. The 2017 Section 871(m) Regulations:
- consistently with Notice 2016-76, provide that Section 871(m) will apply to delta-one transactions only for 2017,
- consistently with the 2016 QI Agreement, provide for changes to the treatment of payments made to qualified derivatives dealers (QDDs) and calculation of their tax liability, and
- address a multitude of comments made with respect to the existing Section 871(m) regulations, including providing clarification with respect to the timing of the determination of delta, the ability for withholding agents to choose to withhold on the underlying dividend payment date, and the treatment of parties to Section 871(m) transactions.
Observation: These 2017 Section 871(m) Regulations were issued immediately prior to the memorandum issued by the White House Chief of Staff freezing the publication of new regulations. However, the 2017 Section 871(m) Regulations were subsequently published in the Federal Register on January 24, 2017 and therefore appear to be currently effective. However, future action may change the current status.
For more information, please refer to our PwC Tax Insights publication.