• New IRS Audit Guidelines Target Equity Swaps with Non-U.S. Counterparties
  • January 26, 2010 | Author: Mark H. Leeds
  • Law Firm: Greenberg Traurig, LLP - New York Office
  • For over 20 years, applicable Treasury regulations have provided that income from an equity swap, including dividend equivalent payments, is foreign-source income in the hands of a non-U.S. person who did not enter into the swap in connection with the conduct of a United States trade or business. In addition, swap income paid to such non-U.S. persons is not subject to withholding or information reporting. Given that actual dividends paid to non-U.S. persons who hold U.S. stocks not in connection with a U.S. trade or business are subject to withholding, reporting and U.S. tax at up to a 30 percent rate without reduction for any deductions, non-U.S. persons investing in U.S. stocks had a strong incentive to obtain exposure to U.S. equities through swaps rather than rather acquire the stocks directly.