11.06.2025
4'
Notice 2024-44 and Form 1120-F
In this newsletter, we would like to inform about the Notice 2024-44 published by the IRS last year and remind financial institutions that act as QDD on their requirement to file Form 1120-F and Schedule Q (Form 1120-F) by June 16, 2025.
PQS is able to support QDDs with preparing Form 1120-F, Schedule Q (Form 1120-F), Form 1042, Schedule Q (Form 1042) and preparing and filing Forms 1042-S on behalf of the QDD.
Notice 2024-44 in brief:
On October 28, 2024, the IRS issued Notice 2024-44 extending, once again, the phase-in period for certain rules under Section 871(m), 1441, 1461 and 1473 of the Internal Revenue Code (the “Section 871(m) Regulations”).
Notice 2024-44 extends the transition relief which Notice 2022-37 provided for the years 2024 and 2025, and extends the deadlines for the implementation of the requirements under these regulations as follows:
The introduction of the withholding on non-delta-one transactions was delayed to January 1, 2027. Also, the "good faith period" for delta-one transactions was extended to 2026 and for non-delta-one transactions to 2027. Therefore, until January 1, 2027, only delta-one instruments and contracts referencing U.S. underlyings will be in scope for Section 871(m).
Furthermore, the IRS extended the simplified standard introduced with Notice 2016-76 to determine whether transactions are combined transactions to through 2026. The IRS also confirmed that transactions that are combined under the simplified standard shall remain combined until all transactions that were combined under this rule were disposed.
In addition, the IRS has extended the phase-in relief of several provisions applying to Qualified Derivatives Dealers (“QDDs”) to January 1, 2027:
QDDs shall determine their tax liability using the net delta exposure method as of January 1, 2027, onwards.
The IRS extended the tax exemption on dividends and dividend equivalents received by a QDD in its equity derivatives dealer capacity until January 1, 2027. However, the QDD shall remain liable for tax on dividends and dividend equivalents received in any capacity other than as equity derivatives dealer, and on any other U.S. source FDAP payment that it receives regardless of its capacity. Also, the QDD remains required to withhold on dividend equivalents paid to a non-U.S. person on a section 871(m) transaction.
A QI Periodic Review with respect to a QDD’s QDD activities for 2017 until 2026 is not required. The IRS will incorporate the transitional provisions regarding the waiver of the QI periodic review requirement for QDDs, as well as other transitional provisions for the tax years 2025 and 2026 into the QI Agreement.
Finally, the transition rules in Notice 2010-46 Part III, which introduced the Qualified Securities Lender regime in the context of securities lending and sale repurchase agreements, were extended to January 1, 2027. The credit forward system in Part II of Notice 2010-46 could still be used for reportable substitute payments until December 31, 2024, but has now become obsolete after January 1, 2025 onwards (ref. FAQ 26 under the General Compliance section of FATCA - FAQs General) available here.
QDD Requirement to file Form 1120-F and Schedule Q (Form 1120-F):
In addition to Forms 1042 and 1042-S, a QDD needs to submit Forms Schedule Q (Form 1042) and Schedule Q (Form 1120-F) when filing Form 1042 and Form 1120-F annually.
The deadline for filing 2025 Form 1120-F and the Schedule Q (Form 1120-F) is June 16, 2025. By filing Form 7004, the deadline of the submission of Form 1120-F can be extended up to six months provided that Form 7004 is submitted by June 16, 2025.
Electronic submission is possible through modernized e-File (MeF) platform. For filing Form 1120-F in paper, please use the following address:
Internal Revenue Service
P.O. Box 409101
Ogden, UT 84409
USA
Be sure to retain proof that you mailed the tax forms on time. By having proof of filing, you can avoid late filing penalties. If a private delivery service (e.g. DHL, FedEx etc.) is used, please utilize the following street address:
Ogden - Internal Revenue Submission Processing Centre
1973 Rulon White Blvd.
Ogden, UT 84201
USA