The Treasury Department and the IRS extended dividend equivalent withholding relief under Section 871(m) through 2028, issuing Notice 2026-61 on September 21, 2026. The extension gives taxpayers and withholding agents two additional years under transition rules.
The relief applies across five areas. It is the sixth extension in more than a decade.
The rules treat certain dividend equivalents paid or deemed paid under contracts as U.S.-source dividends when they go to non-U.S. persons. That treatment can trigger withholding.
The notice preserves transition measures. It does not eliminate the underlying tax and withholding requirements.
Taxpayers and withholding agents may rely on the announced relief before Treasury and the IRS amend regulations or issue further guidance. Most of the measures continue the approach in Notice 2024-44, with clarifications affecting qualified derivatives dealers and securities lenders.
Five groups retain distinct transition protections
| Relief area | What continues | Boundary or condition |
|---|---|---|
| Non-delta-one transactions | Phase-in treatment for covered transactions | Generally, transactions issued through 2028; exceptions apply |
| Enforcement | IRS consideration of good-faith compliance efforts | Delta-one transactions in 2017 through 2028; non-delta-one transactions in 2029 |
| Combined transactions | Narrower combination standard for certain trades | Qualifying over-the-counter transactions |
| Qualified derivatives dealers (QDDs) | Specified tax, withholding and review relief | Includes a withholding-statement identification condition |
| Qualified securities lenders (QSLs) | Selected Notice 2010-46 transition rules | Parts C, D and E only |
Tax and reporting duties remain alongside the transition rules
The notice carries forward the non-delta-one phase-in treatment for transactions issued through 2028. Treasury and the IRS intend to amend the applicability dates in Treas. Reg. Sections 1.871-15(d)(2) and (e). The treatment can cover transactions that may be combined under Treas. Reg. Section 1.871-15(n).
A separate exception remains. The notice does not apply to transactions treated as specified notional principal contracts under Treas. Reg. Section 1.871-15(d)(1). The regulations continue to apply to potential transactions that are delta-one and were entered into on or after January 1, 2017.
The IRS will consider how far taxpayers and withholding agents made good-faith efforts when enforcing the rules for delta-one transactions in 2017 through 2028, and non-delta-one transactions in 2029. For QDDs, the agency will consider obligations met through 2028 if the dealer makes a good-faith effort to follow the QDD provisions in the 2023 qualified intermediary agreement.
That standard affects enforcement. It does not suspend applicable tax or withholding duties, waive liability or block the anti-abuse rule.
Withholding agents must combine transactions for testing only when over-the-counter trades are priced, marketed or sold in connection with one another. The notice extends that simplified standard through the end of 2028.
The QDD provisions carry a documentation condition. To receive relief from tax and withholding on dividends and deemed dividends received in an equity derivatives dealer capacity, a QDD must identify those dividends on its withholding statement as required by Revenue Procedure 2022-43, which sets out the 2023 qualified intermediary agreement.
Eversheds Sutherland’s analysis described the express condition as a clarification of a requirement that appears to have applied under earlier guidance. QDDs relying on the extended relief should make the identification.
The notice also continues relief from periodic reviews of QDD activities under the qualified intermediary agreement. A QDD must make a good-faith effort to comply with the agreement’s applicable provisions. A commentary on the extension says QDDs may continue receiving dividend payments gross in their QDD capacity, allowing them to hedge exposures with physical equities rather than only derivative instruments. It also says they have until 2029 to meet the full set of agreement duties, including periodic reviews and determining their “net delta” exposure.
Securities-lending relief has a narrower scope than a blanket extension of Notice 2010-46. The notice carries forward only Parts C, D and E of Part III.
Part C lets a withholding agent avoid withholding on a substitute dividend paid to a QSL if it receives a certification that the lender meets QSL criteria. Part D removes transition relief when a securities-lending transaction had a principal purpose of reducing or eliminating U.S. tax.
Part E allows a QSL to use reasonable, consistently applied methods to identify which securities in a fungible pool were borrowed and lent. Withholding agents must still report gross substitute-dividend amounts paid, and any withholding, on Forms 1042/1042-S.
The anti-abuse rule in Treas. Reg. Section 1.871-15(o) remains in force throughout the phase-in. It can treat a transaction as covered even if it otherwise would not qualify, including because of the notice.
Repeated extensions have left the final framework unsettled
The notice follows a series of extensions beginning with Notice 2016-76, followed by Notices 2018-72, 2020-2, 2022-37 and 2024-44. The new measure generally continues the previous approach for 2027 and 2028, while clarifying the QDD statement condition and the limited QSL provisions.
The transition framework followed final and temporary regulations published in the Federal Register on September 18, 2015, as TD 9734, 80 FR 56866. Earlier, Notice 2010-46, issued June 14, 2010, addressed overwithholding in securities-lending and sale-repurchase agreements.
Notice 2022-30 separately addressed the transition period for QDD reporting requirements under §1.6038A-2(b)(7)(ix). The succession of notices has prolonged temporary treatment while the longer-term requirements remain under review.
EY has said that implementing new requirements can generally take the industry at least 18 months. The notice does not preview substantive guidance on how withholding agents should prepare for requirements after the transition period.
Treasury has not set out the next compliance framework
Treasury and the IRS say they are continuing to evaluate the regulations. They will consider comments already received, as well as further comments about tax policy, legal authority and administrative feasibility. The agencies say they intend to provide taxpayers and withholding agents sufficient implementation time for future changes.
Mayer Brown’s analysis, citing public statements by Treasury officials, characterized this as potentially the final notice offering transition relief. It said Treasury could supplement or replace the regulations, while the scope and timing of any changes remained unknown.
Other commentary says Treasury has indicated it will issue new regulations in 2026, with no further extension notices expected. That analysis also says the regime is not expected to stay in its “Lite” form or return to the 2015 regulations. Those descriptions remain commentary, not a settled account of the agency’s next action.
This article is for informational purposes only and does not constitute tax advice. Consult a qualified tax professional or CPA about your specific situation.
