• IRS Industry Directive on Total Return Swaps Used to Avoid Dividend Withholding Tax
  • February 16, 2010
  • Law Firm: Shearman & Sterling LLP - New York Office
  • On January 14, 2010, the Large and Mid-Size Business Division of the Internal Revenue Service issued an industry directive (the “Directive”) to provide revenue agents conducting audits with guidance for developing cases involving the use of total return swaps (“TRSs”) to avoid tax on dividends on U.S. securities paid to foreign persons. The Directive is the latest development in the IRS’s ongoing efforts to enforce more aggressively the U.S. dividend withholding tax as it affects foreign persons, including offshore hedge funds. After a brief review of those efforts, this memorandum highlights key aspects of the Directive and comments on its implications.