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Guidance Issued By IRS & Treasury On Reporting Of Foreign Dividends

by Mike Godfrey, Tax-News.com, Washington

28 November 2003


On Wednesday, the Treasury Department and the IRS issued guidance on information reporting on dividends from foreign corporations under the provisions of the Jobs and Growth Tax Relief Reconciliation Act of 2003, which provides for a 15% (5% for taxpayers in the 10% and 15% tax brackets) tax rate for certain dividends received by individuals.

By reducing the rate of tax for individuals on certain dividends, the 2003 Act reduces the double tax on dividends. Notice 2003-79 provides guidance for persons required to prepare Form 1099-DIV and other information reporting with respect to dividends from foreign corporations and for individuals receiving such forms.

The Form 1099-DIV for 2003 includes a separate box identifying the amount of dividends eligible for the 15% (or 5%) tax rate. A dividend paid by a foreign corporation is eligible for the reduced tax rate if it satisfies the special rules applicable to foreign dividends under the 2003 Act. For 2003 information reporting, the Notice provides simplified procedures for applying these special rules in connection with the reporting of foreign dividends on Form 1099-DIV.

The Notice also provides that an individual who receives a Form 1099-DIV with respect to a foreign dividend generally may rely on that form, unless the individual knows or has a reason to know that the dividend did not in fact satisfy the special rules applicable to foreign dividends for purposes of qualification for the reduced tax rate.

The simplified procedures described in the Notice apply to information reporting for 2003. In addition, the Notice briefly describes the certification procedure Treasury and the IRS intend to develop for use for information reporting with respect to foreign dividends beginning in 2004 and requests comments on that proposal.

The Notice also describes for 2003 when a security (or an American depositary receipt in respect of such security) issued by a foreign corporation that is not ordinary or common stock (such as preferred stock) will be considered readily tradable on an established securities market in the United States for purposes of the 2003 Act rules regarding qualification for the reduced tax rate applicable to certain dividends. (Notice 2003-71 provides guidance on when ordinary or common stock issued by a foreign corporation is considered readily tradable on an established securities market in the United States.)


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