871(m)

Treatment of dividend equivalent payments
(1) In general
For purposes of subsection (a),sections 881 and 4948 (a), and chapters 3 and 4, a dividend equivalent shall be treated as a dividend from sources within the United States.
(2) Dividend equivalent
For purposes of this subsection, the term “dividend equivalent” means—
(A) any substitute dividend made pursuant to a securities lending or a sale-repurchase transaction that (directly or indirectly) is contingent upon, or determined by reference to, the payment of a dividend from sources within the United States,
(B) any payment made pursuant to a specified notional principal contract that (directly or indirectly) is contingent upon, or determined by reference to, the payment of a dividend from sources within the United States, and
(C) any other payment determined by the Secretary to be substantially similar to a payment described in subparagraph (A) or (B).
(3) Specified notional principal contract
For purposes of this subsection, the term “specified notional principal contract” means—
(A) any notional principal contract if—
(i) in connection with entering into such contract, any long party to the contract transfers the underlying security to any short party to the contract,
(ii) in connection with the termination of such contract, any short party to the contract transfers the underlying security to any long party to the contract,
(iii) the underlying security is not readily tradable on an established securities market,
(iv) in connection with entering into such contract, the underlying security is posted as collateral by any short party to the contract with any long party to the contract, or
(v) such contract is identified by the Secretary as a specified notional principal contract,
(B) in the case of payments made after the date which is 2 years after the date of the enactment of this subsection, any notional principal contract unless the Secretary determines that such contract is of a type which does not have the potential for tax avoidance.
(4) Definitions
For purposes of paragraph (3)(A)—
(A) Long party
The term “long party” means, with respect to any underlying security of any notional principal contract, any party to the contract which is entitled to receive any payment pursuant to such contract which is contingent upon, or determined by reference to, the payment of a dividend from sources within the United States with respect to such underlying security.
(B) Short party
The term “short party” means, with respect to any underlying security of any notional principal contract, any party to the contract which is not a long party with respect to such underlying security.
(C) Underlying security
The term “underlying security” means, with respect to any notional principal contract, the security with respect to which the dividend referred to in paragraph (2)(B) is paid. For purposes of this paragraph, any index or fixed basket of securities shall be treated as a single security.
(5) Payments determined on gross basis
For purposes of this subsection, the term “payment” includes any gross amount which is used in computing any net amount which is transferred to or from the taxpayer.
(6) Prevention of over-withholding
In the case of any chain of dividend equivalents one or more of which is subject to tax under subsection (a) orsection 881, the Secretary may reduce such tax, but only to the extent that the taxpayer can establish that such tax has been paid with respect to another dividend equivalent in such chain, or is not otherwise due, or as the Secretary determines is appropriate to address the role of financial intermediaries in such chain. For purposes of this paragraph, a dividend shall be treated as a dividend equivalent.
(7) Coordination with chapters 3 and 4
For purposes of chapters 3 and 4, each person that is a party to any contract or other arrangement that provides for the payment of a dividend equivalent shall be treated as having control of such payment.

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