December 31, 1992
TO: TAX MEMBERS NO. 82-92
ACCOUNTING/TREASURERS MEMBERS NO. 47-92
OPERATIONS MEMBERS NO. 53-92
TRANSFER AGENT ADVISORY COMMITTEE NO. 77-92
RE: NOTICE CLARIFIES INCREASE IN BACKUP WITHHOLDING RATE
__________________________________________________________
As the Institute previously informed you, H.R. 776, the
Energy Policy Act of 1992, passed in October, increased the
backup withholding rate from 20 percent to 31 percent, effective
for amounts paid after December 31, 1992. (See Institute
Memorandum to Tax Members No. 68-92, Operations Members No. 40-
92, Transfer Agent Advisory Committee No. 63-92, and
Institutional Funds Committee No. 24-92, dated October 16, 1992.)
There had been some uncertainty as to the withholding rate to be
applied to dividends paid under the provisions of Internal
Revenue Code section 852(b)(7). That section provides that
dividends declared in October, November or December to
shareholders of record on a specified date in such month shall be
deemed to have been received by the shareholders and paid by the
regulated investment company on December 31, so long as the
dividend is actually paid during the following January. It had
been unclear whether such dividends would be considered paid on
December 31, 1992, pursuant to Code section 852(b)(7), and thus
subject to a 20 percent backup withholding rate, or as paid in
1993, when the actual cash distribution is made, and thus subject
to a 31 percent backup withholding rate.
Notice 93-1 provides that the rate at which backup
withholding applies for dividends payable under Code section
852(b)(7) is 20 percent for dividends deemed paid on December 31,
1992, but actually distributed in January, 1993. However, the
Notice states that there is no penalty if withholding is done at
a 31 percent rate.
We will keep you informed of further developments.
David J. Mangefrida Jr.
Assistant Counsel - Tax
Attachment