On December 2, 2016, the Internal Revenue Service (“IRS”) released an advance version of Notice 2016-76 (the “Notice”) and followed through on its promise to provide taxpayers with guidance for complying with final and temporary regulations under Sections 871(m), 1441, 1461, and 1473 of the Internal Revenue Code (collectively, the “Section 871(m) regulations”). Section 871(m) is the Code provision that treats “dividend equivalents” paid under certain contracts as dividends from sources within the United States and therefore subject to U.S. withholding tax if paid to a non-U.S. person.

In the Notice, the Treasury Department and the IRS announced their intention to amend the Section 871(m) regulations to phase in the application of certain rules to facilitate implementation of the Section 871(m) regulations. The Notice acknowledged taxpayers’ challenges in complying with certain aspects of the Section 871(m) regulations and provides some relief. Most significantly, and as discussed below, the Notice announces the Treasury Department’s and the IRS’s intention that the effective date for the application of Section 871(m) will be January 1, 2017 for delta-one instruments and January 1, 2018 for non-delta-one instruments. Amendments to the Section 871(m) regulations will be forthcoming.