Playin’ the Hits: Yet Another Postponement to the §871(m) Dividend Equivalent Withholding Regime

On 21 September, the IRS released Notice 2026-61, further extending the current lite version of the §871(m) regime, which has been in effect since the issuance of Notice 2016-76 (and was further prolonged via Notices 2018-72, 2020-2, 2022-37 and 2024-44). Per the terms of the new Notice, the “§871(m) Lite” regime shall remain in effect for at least another two years.

​The lite version of §871(m) relaxes the following key elements of the §871(m) regime, each of which was prolonged per the new Notice–

• Only derivative instruments with a delta equal to one at the time of issuance will be in-scope for §871(m) withholding.
• The simplification of the “combination transaction” anti-abuse rule so that only products that are deliberately packaged together must be treated as a single derivative instrument under §871(m) Lite.
• The extension of a “good faith” defense for Withholding Agents and taxpayers in cases of non-compliance.
• The allowance for Qualified Derivatives Dealers (QDDs) qua QDDs to continue to receive dividend payments gross (i.e. not just synthetic ones), thereby allowing QDDs to continue to hedge their exposures as derivative issuers with physical equities, rather than only with derivative instruments.
• The relief for QDDs until 2029 to satisfy the full set of compliance duties prescribed by the Qualified Intermediary Agreement, such as periodic reviews and the determination of their so-called “net delta” exposure.
  

Once again, the new extension is welcome news. Few affected parties were ready to revamp their withholding mechanisms and other system requirements in time to fulfill their duties under a revised §871(m) regime (or, worse, under an unwelcome reversion to the seemingly unworkable 2015 §871(m) Treasury Regulations). Moreover, after a decade of postponements under a well-functioning regime, even fewer parties would regard any material changes as necessary or beneficial. Thanks to Notice 2026-61, all affected parties will enjoy another full two-year period to implement any changes to the §871(m) regime. The problem now is not knowing what those changes are.

The US Treasury Department has indicated that it will release new §871(m) regulations in 2026 and that reportedly there will be no more extension Notices, so perhaps we will find out soon. Until then, we can safely draw two conclusions about the future of §871(m): It will neither remain in its Lite form nor revert to the regime described in the 2015 Treasury Regulations. If either of those outcomes were its permanent destiny, then presumably the IRS would have said so by now. Instead, we must wait and wonder when and what regime change will come.