MoFo Tax Talk, Volume 4, Issue 4
Mondaq Business Briefing › United States Law Articles in English (2012)
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MoFo Tax Talk, Volume 4, Issue 4
Editor's Note
As we were waiting for the Treasury Department's ("Treasury") Foreign Account Tax Compliance Act ("FATCA") regulations to spoil our holidays, Treasury officials gave us a gift of sorts and said the regulations would be out sometime "early" this year. Hopefully, they will be published prior to FATCA's next effective date of March 18. Even without the FATCA regulations, Q4 2011 had a number of important tax developments affecting the capital markets. Treasury released the final version of the specified foreign financial asset reporting form, along with temporary and proposed regulations. The Tenth Circuit affirmed the Tax Court's ruling in Anschutz Co. v. Commissioner on whether a prepaid variable forward plus a stock loan is a sale for federal income tax purposes. The Internal Revenue Service (the "IRS") issued various pieces of private guidance addressing the tax consequences of a number of transactions including modifications of debt instruments, worthless stock deductions for affiliated corporations and accreting dividends on preferred stock. These are discussed below. In addition, to kick-off Q1 2012, Treasury released temporary and proposed regulations addressing dividend equivalents. To conclude this edition, we have our regular features, The Classroom and MoFo in the News. Treasury Releases Temporary and Proposed Regulations on Withholding under Equity Swaps On March 18, 2010, President Obama signed into law the Hiring Incentives to Restore Employment Act (the "Hire Act").1 The Hire Act, by enacting Section 871(m),2 imposes a withholding tax on "dividend equivalents" paid under equity swaps by treating such amounts as U.S. source dividends.3 On January 19, 2012, Treasury released temporary and proposed regulations addressing dividend equivalents. Background Pursuant to Section 871(m), a dividend equivalent is (i) any substitute dividend (made pursuant to a securities-lending or "repo" transaction), (ii) any amount paid pursuant to a "specified notional principal contract," and that is contingent on, or determined by reference to, the payment of a U.S.-source dividend, and (iii) any amount that the Treasury determines is substantially similar to a payment described in (i) and (ii) (i.e., substantially similar to dividend equivalents). A specified notional principal contract is any notional principal contract if (i) in connection with entering into the contract, any long party (i.e., the party entitled to receive the dividend related payment) transfers the underlying security, (ii) in connect...See the full content of this document
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