In this Newsletter, we would like to inform that the IRS has published Notice 2026-61 and extended the transition relief which Notice 2024-44 has provided.
Notice 2026-61 in brief:
On September 21, 2026, the IRS issued Notice 2026-61 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 2026-61 extends the transition relief which Notice 2024-44 provided for the year 2026, 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, 2029. Also, the "good faith period" for delta-one transactions was extended to 2028 and for non-delta-one transactions to 2029. Therefore, until January 1, 2029, 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 2028. 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, 2029:
QDDs shall determine their tax liability using the net delta exposure method as of January 1, 2029, 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, 2029. 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 2027 and 2028 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 2027 and 2028 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, 2029. The credit forward system in Part II of Notice 2010-46 can still be used for reportable substitute payments until December 31, 2026.