IRS Extends Dividend Equivalent Withholding Relief Through 2028

The Treasury Department and the IRS announced on September 21, 2026 that Section 871(m) dividend‑equivalent withholding relief will be extended through 2028 under Notice 2026‑61. The notice preserves the transition measures that treat certain dividend equivalents paid or deemed paid under contracts as U.S.‑source dividends when they go to non‑U.S. persons, which can trigger withholding. The relief covers five areas: transactions, enforcement, qualified derivatives dealers (QDDs), and certain qualified securities‑lender (QSL) rules. The extension is the sixth such extension in more than a decade and gives taxpayers and withholding agents two additional years under the transition rules. The notice keeps the non‑delta‑one phase‑in treatment for transactions issued through 2028 and clarifies that it does not apply to transactions treated as specified notional principal contracts. For QDDs, the agency will consider good‑faith efforts made to meet the 2023 qualified intermediary agreement provisions, and the notice requires QDDs to identify dividends on their withholding statements as specified in Revenue Procedure 2022‑43. The securities‑lending relief is limited to Parts C, D, and E of Part III, allowing withholding agents to avoid withholding on substitute dividends paid to a QSL with certification, removing transition relief for certain principal‑purpose transactions, and permitting reasonable methods to identify borrowed securities. The anti‑abuse rule remains in force throughout the phase‑in. The notice follows a series of earlier extensions and continues the approach used in Notice 2024‑44, with clarifications for QDDs and QSLs.