SECTION 1. OVERVIEW

The Jobs and Growth Tax Relief Reconciliation Act of 2003 (P.L. 108–27, 117 Stat. 752) (the “2003 Act”) was enacted on May 28, 2003. Subject to certain limitations, the 2003 Act generally provides that a dividend paid to an individual shareholder from either a domestic corporation or a “qualified foreign corporation” is subject to tax at the reduced rates applicable to certain capital gains. A qualified foreign corporation includes certain foreign corporations that are eligible for benefits of a comprehensive income tax treaty with the United States which the Secretary determines is satisfactory for purposes of this provision and which includes an exchange of information program. In addition, a foreign corporation not otherwise treated as a qualified foreign corporation is so treated with respect to any dividend it pays if the stock with respect to which it pays such dividend is readily tradable on an established securities market in the United States.

This notice provides guidance for persons required to make returns and provide statements under section 6042 of the Internal Revenue Code ( e.g., Form 1099–DIV) regarding distributions with respect to securities issued by a foreign corporation, and for individuals receiving such statements. The notice provides simplified procedures for persons required to make such returns and provide such statements for 2003. The notice also describes when a security (or an American depositary receipt in respect of such security) issued by a foreign corporation that is other than ordinary

role of the RRB is to administer the benefits under the railroad retirement system.

The taxes under the RRTA on compensation paid to railroad employees and employee representatives (a group unique to the railroad industry) are the primary source of funding for the railroad retirement system. There are two levels of taxes or “tiers.” Tier 1 provides equivalent social security and Medicare benefits, and tier 2 provides a private pension benefit.

Tier 1 benefits are financed by tier 1 taxes imposed under §§ 3201(a), 3211(a), and 3221(a). The same tax rates apply to employees and employers. The tier 1 tax rate is 7.65 percent (6.2 percent for railroad retirement and 1.45 percent for Medicare). Tier 1 uses the same annual contribution and benefit base as the social security wage base for earnings subject to the 6.2 percent rate. The contribution and benefit base is $87,900 for compensation paid in 2004. See 68 Fed. Reg. 60,437 (Oct. 22, 2003). There is no maximum on earnings subject to tier 1 tax at the 1.45 percent rate for Medicare. The tier 1 tax rates for employee representatives are 12.4 percent for railroad retirement and 2.9 percent for Medicare.

Tier 2 benefits are financed by tier 2 taxes imposed under §§ 3201(b), 3211(b), and 3221(b). A separate annual base applies to the tier 2 tax. The contribution and benefit base is $65,100 for compensation paid in 2004. See 68 Fed. Reg. 60,437 (Oct. 22, 2003). The tax rates for tier 2 differ from those applicable for tier 1 and tier 2 tax is not assessed equally on the employer and employee (the employer pays a significantly greater share of this tax).

The Railroad Retirement and Survivors’ Improvement Act of 2001 (Act), Pub. L. 107–90, 115 Stat. 878, set the tier 2 tax rates for 2002 and 2003. Under the Act, the tier 2 tax rates for employers were 15.6 percent for 2002 and 14.2 percent for 2003. The tier 2 tax rates for employee representatives were 14.75 percent for 2002 and 14.2 percent for 2003. The tier 2 tax rate for employees was 4.9 percent for 2002 and 2003. The Act also provided a means of determining future adjustments in the tier 2 tax rates, depending on railroad retirement fund levels. This change allows tier 2 tax rates to “be raised or lowered automatically, without further action by Congress, depending on the level of

funds available to pay benefits.” H.R. Rep. No. 82, 107 ^th Cong., 1 ^st Sess., 13 (2001).

Beginning with 2004, tier 2 tax rates will be based on an average account benefits ratio. Section 3241(c)(1) provides that the term “average account benefits ratio” means, with respect to any calendar year, the average determined by the Secretary of the Treasury of the account benefits ratios for the 10 most recent fiscal years ending before such calendar year. The account benefits ratios, used to determine the average account benefits ratio, are computed by the RRB. Pursuant to 45 U.S.C. § 231v, each year the RRB must compute the account benefits ratio for the fiscal year ending in such year and certify the account benefits ratio for such fiscal year to the Secretary of the Treasury. See 20 C.F.R. §§ 206.1 and 206.2 (2003) for information on how the account benefits ratios are computed.

Section 3241(b) provides the schedule for the tier 2 tax rates based on the average account benefits ratio. Depending on the average account benefits ratio, the tier 2 tax rate for employers and employee representatives will range between 8.2 percent and 22.1 percent, while the tier 2 tax rate for employees will be between 0 percent and 4.9 percent.

The average of the account benefits ratios certified by RRB for the 10 most recent fiscal years ending before 2004, increased to the next highest multiple of 0.1, is 5.9. Section 3241(b) provides that, if the average account benefits ratio is at least 4.0, but less than 6.1, the applicable percentage for employers and employee representatives under §§ 3221(b) and 3211(b), respectively, is 13.1 percent and the applicable percentage for employees under § 3201(b) is 4.9 percent.

TIER 2 TAX RATES

The tier 2 tax rate on employees will remain at 4.9 percent in 2004, but the tier 2 tax rates on employers and employee representatives will decrease to 13.1 percent in 2004. These rates were published in the Federal Register on November 25, 2003, as required by § 3241(d).

2003-50 I.R.B. 1206 December 15, 2003

the recipient of the distribution must satisfy the holding period test.

.02 Information Reporting In General . Any person that makes payments of dividends aggregating $10 or more during any calendar year, or any person that receives payments of dividends as a nominee and makes payments aggregating $10 or more in a calendar year to another person with respect to the dividends received, must report those payments to the IRS by filing an information return. Section 6042(a). In addition, a person filing such a return must furnish to every person with respect to whom such information is reported a statement of the aggregate amount of payments required to be shown on the information return. Section 6042(c). If a person furnishing such a statement is unable to determine the portion of the payment that constitutes a dividend or is paid with respect to a dividend, the person making the payment is required to treat it as a dividend or an amount paid with respect to a dividend. Section 6042(b)(3). ³ Information Returns . Information returns under section 6042 must be filed on Form 1099, which specifies that the aggregate amount of dividends (or, in the case of a nominee, amounts paid with respect to dividends) is reported on Form 1099–DIV. ⁴ Form 1099–DIV and its instructions have been revised to reflect the 2003 Act. The instructions require filers to enter in Box 1a of the form the aggregate amount of ordinary dividends paid and to enter in Box 1b the portion of dividends in Box 1a that qualifies for reduced rates under the 2003 Act (“qualified dividends”). The instructions direct filers to include in Box 1b dividends for which it is impractical to determine whether the holding period test has been met. As described above, a distribution with respect to a security issued by a foreign corporation must satisfy specific requirements under the 2003 Act in order to be considered a qualified dividend.

Regulations under section 6042 provide that a person required to make an information return under that section generally must do so not later than February

or common stock (such as preferred stock) will satisfy the readily tradable test (as described in Section 2.01 below). The notice also describes generally the certification process that Treasury and the IRS intend to develop for future years.

Section 2 of this notice describes the “qualified foreign corporation” determination under the 2003 Act and describes the information reporting requirements with respect to dividends generally. Section 3 addresses the determinations required under the 2003 Act for information reporting of a distribution with respect to a security of a foreign corporation, including how the readily tradable test applies to a security that is other than ordinary or common stock. Section 4 sets forth simplified procedures for information reporting for 2003. Section 5 briefly describes the certification procedure Treasury and the IRS intend to develop for use beginning in 2004.