Daily Tax Update - September 17, 2015: Treasury and IRS Issue Final and Temporary Regulations Under Section 871(m)

Treasury and IRS Issue Final and Temporary Regulations Under Section 871(m): Today, Treasury and the IRS issued final and temporary regulations under section 871(m), which provides that “dividend equivalents” shall be treated as U.S.-source dividends.  The final regulations generally adopt the approach of 2013 proposed regulations and employ a “delta” threshold to determine whether a transaction is a section 871(m) transaction.  The final regulations adopt a delta threshold of 0.80, increased from the 0.70 threshold in the 2013 proposed regulations.  The final regulations provide that delta is determined only when the instrument is issued; it is not re-tested when the instrument is purchased or otherwise acquired in the secondary market.  In response to comments regarding the burden of withholding on dividend equivalents absent actual payments, the final regulations provide that a withholding agent is not obligated to withhold on a dividend equivalent until the later of when a payment is made with respect to a section 871(m) transaction or when the amount of a dividend equivalent is determined.  The preamble to the regulations states that Treasury and the IRS intend to implement the section 871(m) withholding and reporting requirements for dividend equivalents received and paid by brokers by amending the QI agreement to include new provisions that will permit an eligible QI to act as a qualified derivatives dealer (QDD). 

IRS Issues Notice Regarding Information Reporting on Minimum Essential Coverage: Today, the IRS issued Notice 2015-68, which states that Treasury and the IRS intend to propose regulations under section 6055 (1) providing that health insurance issuers must report coverage in catastrophic health insurance plans; (2) allowing electronic delivery of statements reporting coverage under expatriate health plans unless the recipient explicitly refuses consent or requests a paper statement; (3) allowing filers reporting on insured group health plans to use a truncated taxpayer identification number to identify the employer on the statement furnished to a taxpayer; and (4) specifying when a provider of minimum essential coverage is not required to report coverage.

Federal Court of Canada Addresses Arguments Challenging FATCA:  Today, the Federal Court of Canada rejected a challenge to Canada’s implementation of the intergovernmental agreement (IGA) between the United States and Canada.  According to the decision, “collection and automatic disclosure of account holder information about US reportable accounts…contemplated by Articles 2 and 3 of the IGA is legally authorized in Canada.”  Other issues raised in the litigation have not yet been decided by the court, including whether the IGA and related implementing legislation violate Canadian citizens’ constitutional rights.  The court stated, “[t]he declaratory and injunctive relief requested by the plaintiffs in their motion for summary judgment is denied, without prejudice to the plaintiffs’ right to pursue their claim that the impugned provisions are ultra vires or inoperative because they are unconstitutional or otherwise unjustifiably infringe Charter rights.”

Miscellaneous Guidance:
Revenue Ruling 2015-21 provides various prescribed rates for October 2015, including the applicable federal interest rates, the adjusted applicable federal interest rates, the adjusted federal long-term rate, and the adjusted federal long-term tax-exempt rate.  These rates are determined as prescribed by section 1274.  The rates are published monthly for purposes of sections 42, 382, 412, 1288, 1274, 7520, 7872, and various other sections of the Internal Revenue Code.