United States: Notice 2017-42 Provides For One-Year Extension Of Existing Section 871(M) Rules

On August 4, 2017, the Treasury Department and the Internal Revenue Service (the "IRS") issued Notice 2017-42 (the "New Notice") providing taxpayers with relief from certain aspects of the final and temporary regulations under sections 871(m), 1441, 1461 and 1473 of the Internal Revenue Code (collectively referred to as the "section 871(m) regulations") and Revenue Procedure 2017-15 (which contains the final 2017 QI withholding agreement) for 2018 and 2019. The New Notice extends the effective date for certain rules in those final regulations and extends the phase-in period provided last December, in Notice 2016-76 (the "2016 Notice"), for certain other provisions of the section 871(m) regulations. Notwithstanding the extensions, the New Notice notes that the anti-abuse rule in Treas. Reg. 1.871-15(o) will continue to apply, potentially resulting in a transaction that otherwise would benefit from the provisions of the New Notice nevertheless being treated as a section 871(m) transaction in certain circumstances. Taxpayers and withholding agents may rely on the provisions of the New Notice prior to the promulgation of the amendments to the section 871(m) regulations and the final 2017 QI Agreement.

Extension of Effective Date for Non-Delta-One Transactions

Prior to the New Notice, section 871(m) would have applied to non-delta-one transactions issued on or after January 1, 2018. In order to grant taxpayers and withholding agents additional time to implement the section 871(m) regulations, the New Notice provides that the effective date of the section 871(m) regulations for non-delta-one transactions will be delayed such that the section 871(m) regulations will not apply to any payment made with respect to any non-delta-one transaction issued prior to January 1, 2019.

Extension of Good Faith Efforts Standard

The 2016 Notice previously provided a one-year good faith efforts standard for complying with the section 871(m) regulations. Specifically, the 2016 Notice provided that the IRS, when enforcing the section 871(m) regulations, would take into account the extent to which a taxpayer or withholding agent made a good faith effort to comply with the section 871(m) regulations with respect to delta-one transactions in 2017 and for non-delta-one transactions in 2018. 

The New Notice extends the good faith efforts standard provided in the 2016 Notice for an additional year. Thus, the good faith efforts standard will now apply to delta-one transactions in both 2017 and 2018 and to non-delta-one transactions in 2019. Similarly, the New Notice extends through 2018 the period during which the IRS will take into account the extent to which a qualified derivatives dealer (a "QDD") makes a good faith effort to comply with section 871(m) regulations and relevant provisions of the final 2017 QI Agreement. In addition, the IRS intends to revise the final 2017 QI Agreement to consider a QDD to satisfy the obligations specifically applying to a QDD under that agreement for 2018 so long as the QDD makes a good faith effort to comply with the relevant provisions of the final 2017 QI Agreement.

Extension of Relief for Withholding Agents with Respect to Combined Transactions

The 2016 Notice had provided a simplified standard for withholding agents to determine whether transactions entered into in 2017 must be combined for purposes of determining whether the transactions are "section 871(m) transactions" subject to withholding under the section 871(m) regulations. The New Notice extends the period, to include 2018, during which this simplified combination rule applies. Thus, a withholding agent is required to combine transactions entered into in 2017 and 2018 only when the transactions are over-the-counter transactions that are priced, marketed or sold in connection with each other. In general, transactions entered into in 2017 and 2018 that are combined under the simplified rule will continue to be treated as combined transactions for future years and transactions entered into in 2017 and 2018 that are not combined (from the perspective of the withholding agent) under the simplified rule will not become combined transactions in future years.

Extension of Relief for QDDs

The New Notice also extends several phase-in dates providing relief to QDDs.

Prior to the issuance of the New Notice, the final regulations and final 2017 QI Agreement provided that both dividends and dividend equivalents received by a QDD in its equity derivatives dealer capacity in 2017 will not be subject to tax, but that actual dividends received after 2017 would be subject to tax (even if the QDD makes offsetting payments with respect to its derivatives positions). The New Notice provides that a QDD will not be subject to withholding or income tax on dividends (including deemed dividends) received in both 2017 and 2018 in its equity derivatives dealer capacity.

With respect to the requirement provided under Rev. Proc. 2017-15 that a QDD will be required to compute its section 871(m) amount using the net delta approach beginning in 2018, the New Notice delays the requirement to calculate net delta until 2019.

Finally, a QDD will not be required to perform a periodic review with respect to its QDD activities for calendar years 2017 and 2018. Prior to the issuance of the New Notice, the final 2017 QI Agreement provided that such limitation on periodic reviews extended only to 2017.

A Ray of Hope for Further Relief

The New Notice states that, consistent with Executive Order 13777 (82 FR 12285), the Treasury Department and the IRS continue to evaluate the section 871(m) regulations and consider possible agency actions that may reduce unnecessary burdens imposed by the regulations.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.