Today, Treasury and the IRS issued final and temporary regulations under section 871(m), which provides that “dividend equivalents” shall be treated as U.S.-source dividends.  The final regulations generally adopt the approach of 2013 proposed regulations and employ a “delta” threshold to determine whether a transaction is a section 871(m) transaction.  The final regulations adopt a delta threshold of 0.80, increased from the 0.70 threshold in the 2013 proposed regulations.  The final regulations provide that delta is determined only when the instrument is issued; it is not re-tested when the instrument is purchased or otherwise acquired in the secondary market.  In response to comments regarding the burden of withholding on dividend equivalents absent actual payments, the final regulations provide that a withholding agent is not obligated to withhold on a dividend equivalent until the later of when a payment is made with respect to a section 871(m) transaction or when the amount of a dividend equivalent is determined.  The preamble to the regulations states that Treasury and the IRS intend to implement the section 871(m) withholding and reporting requirements for dividend equivalents received and paid by brokers by amending the QI agreement to include new provisions that will permit an eligible QI to act as a qualified derivatives dealer (QDD).