SECTION 7. CONTACT

INFORMATION

The principal author of this notice is Karen A. Rennie of the Office of Associate Chief Counsel (International). For further information regarding this notice, contact David Lundy at (202) 622–3880 (not a tollfree call).

Interim Guidance With Respect to the Application of Section 409A to Outstanding Stock Rights

Notice 2006–4

I. Background

Section 409A was added to the Internal Revenue Code as part of the American Jobs Creation Act of 2004, Pub. Law

treated as equity rather than debt for U.S. federal income tax purposes; and

2. either:

a. the security is considered “readily tradable on an established securities market in the United States”; ¹

b. the foreign corporation is organized in a possession of the United States; or

c. the foreign corporation is organized in a country whose income tax treaty with the United States is comprehensive, is satisfactory to the Secretary for purposes of section 1(h)(11), and includes an exchange of information program, ² and if the relevant treaty contains a limitation on benefits provision, the corporation’s common or ordinary stock is listed on an exchange covered by that limitation on benefits provision’s public trading test, unless the person required to file an information return knows or has reason to know that the corporation is not eligible for benefits under that treaty; and

3. the person required to file Form 1099DIV does not know or have reason to know that the foreign corporation is or expects to be, in the taxable year of the corporation in which the dividend was paid, or was, in the preceding taxable year, a foreign personal holding company (as defined in section 552), a foreign investment company (as defined in section 1246(b)), or a passive foreign investment company (as defined in section 1297); ³ and

4. the person required to make a return under section 6042 determines that the owner of the distribution has satisfied the holding period requirement of section 1(h)(11) or it is impractical for such person to make such determination.

The IRS will exercise its authority under section 6724(a) of the Code to waive penalties under sections 6721 and 6722 with respect to reporting of payments if persons required to file Form 1099-DIV make a good faith effort to report payments consistent with the rules summarized above and described in detail in sections 3.01 through 3.06 of Notice 2003–79. A person required to make a return under section 6042 may report a distribution in Box 1b as a qualified dividend even if the distribution does not satisfy these simplified information reporting procedures, subject to the applicable penalty provisions, as described in detail in section 3.07 of Notice 2003–79.

.03 Recipients of Form 1099-DIV.

For taxable years beginning in 2005 and future tax years, a recipient of Form 1099DIV may treat amounts reported in Box 1b as qualified dividends, unless and to the extent the recipient knows or has reason to know that such amounts are not qualified dividends, as described in detail in section 3.08 of Notice 2003–79.