Code Section 871(m) Archives - TAX CONTROVERSY 360

Treasury Releases Report on Reducing Tax Regulatory Burdens

On October 2, 2017, the US Department of the Treasury (Treasury) submitted a report (Report) to the President of the United States recommending the withdrawal, revocation or revision of eight Treasury Regulations in order to eliminate or otherwise mitigate the “burdens imposed on taxpayers.” This action springs from Executive Order 13789 issued by the President on April 21, 2017, calling on Treasury to identify and reduce tax regulatory burdens that impose undue financial burdens on US taxpayers or otherwise add undue complexity to federal tax laws.

The Report is largely consistent with Treasury’s interim report dated June 22, 2017, but sets forth in greater detail the specific actions recommended by Treasury. However, the Report also stated that Treasury is considering possible reforms of several recent regulations not identified in its interim report, such as regulations under Internal Revenue Code (Code) Section 871(m) (relating to payments treated as US source dividends) and the Foreign Account Tax Compliance Act. The Report also states that Treasury and the Internal Revenue Service (IRS) have initiated a comprehensive review of all regulations—regardless of when they were issued—that is coordinated by the Treasury Regulatory Reform Task Force and is a furtherance of executive orders adopting a PAYGO approach to regulations. (more…)

Proposed Regulations Address Applicable Adjustments to Stock and Stock Rights under Code Section 305(c)

In an apparent response to coordination questions raised by comments to proposed regulations under Code Section 871(m) (relating to certain cross-border dividend equivalent payments), the US Department of the Treasury issued proposed regulations on April 12, 2016, (the Proposed Regulations) addressing deemed distributions of stock and stock rights under Code Section 305(c). Among other stated goals, the Proposed Regulations attempt to “resolve ambiguities concerning the amount and timing of deemed distributions that are or result from adjustments to rights to acquire stock.” The Proposed Regulations also provide guidance to withholding agents regarding the current withholding and information reporting obligations under chapters three and four with respect to such deemed distributions.

In the latest issue of the Journal of Taxation of Financial Products, we have published an article outlining the Proposed Regulations, describing the types of transactions, including adjustment events, giving rise to deemed distributions with respect to stock rights, as well as describing the amount and timing thereof. A companion article in this issue of the Journal addresses the related withholding and information reporting considerations.

As discussed in the article, the Proposed Regulations, while not answering all pertinent questions, attempt to provide clarity on the question of whether certain adjustments with respect to stock rights result in deemed distributions for purposes of Code Sections 305(b) and 301. It will be interesting to see whether the regulations are finalized in their current form or will be subject to extensive comments and potentially re-proposed. It is worth noting that a number of comments to the Proposed Regulations have already been submitted, largely seeking clarifications on certain aspects of the Proposed Regulations. However, some of the comments submitted to date suggest that the regulations are inappropriate and should not be adopted, based largely on the notion that the adjustments at issue do not result in an accretion to wealth in many instances, and thus should not result in taxable income. A critical question regarding the timing and content of final regulations may ultimately depend on the views of withholding agents as to the withholding and reporting provisions.