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Meeting IRS Rule 302 Challenges in Securities Industry

Understand challenges of IRS Rule 302, client and IRS expectations, importance of taxability in investments, and what DTCC participants must do to overcome challenges. Learn about process improvements, system enhancements, and industry participation.

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Meeting IRS Rule 302 Challenges in Securities Industry

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  1. SEPTEMBER2008 IRS Rule 302 — Industry Operational Challenges Brian GoldmanManaging Director, US Securities Operations JPMorgan Chase Bank, N.A. STRICTLYPRIVATEANDCONFIDENTIAL

  2. IRS Rule 302 — Industry Operational Challenges • Challenges of IRS Rule 302 • Client Expectations • IRS Expectations • What DTCC Participants must do to meet the 302 challenges 1

  3. Taxpayer Perspective of What is Owed in Taxes 2

  4. IRS Perception of What is Owed in Taxes 3

  5. Securities Industry Perspective of Servicing Taxes 4

  6. Challenges of IRS Rule 302 • Multiple Event Types • Event by event confirmation process • Timing of Information • Monitoring requirements throughout the life of corporate events • Lack of Industry Standards • Non-standard processes and communication • Eligibility Rules • Always, Sometimes, Never 5

  7. Client Expectations • Identification of taxability at the time of Corporate Action announcement • Tax consequence critical to investment decisions • Confirmation of IRS Rule Applicability • Conflict of Information Resolution • Reporting and Tracking of 302 Events • Surprise elimination • Prompt refund of NRA Tax Withholding when appropriate • Reinvestment Opportunities 6

  8. IRS Expectations • 302 Proceeds reported as Income by Custodians • 35% Tax Withholding • NRA Tax Withholding by Custodians • Non-US Beneficial and Majority Shareholders • Tender Certification Forms • 302 Tax Withholding Avoidance or Refund 7

  9. What DTCC Participants Must do to Meet the 302 Challenges • Education • DTCC Participants and Staff • Industry Participation • Improvement in the 302 process is everyone’s responsibility • System Enhancements • Automation Opportunities • Account Coding • Process & Control Improvement • End to End Reviews • Inter-department Coordination 8

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