Tax News
TD 9734: Treasury Releases Final and Temporary Section 871(m) Regulations
September 17, 2015
Administrative Actions

One of the issues that we previously touched upon on this website that is of significant interest for the investment fund industry is the treatment of publicly traded stock options and single stock futures (SSF). These instruments incorporate a price formula which includes in the calculations a dividend estimate. Based on this, the 2013 proposed regulations were to subject options and SSFs to withholding (for options, if the delta of the options was at least .7). This proposal was critiqued by OneChicago, SIFMA, and the U.S. Securities Markets Coalition. The industry argued that estimated or implicit formula dividends should be exempted from the scope of the regulations, due to for example, the fact that there is no actual payment. Regrettably, Treasury did not heed these suggestions. To the opposite, it concluded that the economic benefit of a dividend is present in transactions that implicitly incorporate estimated dividends to virtually the same extent as transactions that pay actual dividends. On the bright side, the delta threshold for ELIs went up from .7 to .8 so fewer options will fall within the regulations' net. Finally, the regulations will generally apply to transactions issued after January 1, 2017.
The regulations can be found here.
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