The Problematic Delta Test for Dividend Equivalents

8 Pages Posted: 5 May 2015

Date Written: January 26, 2015


We present examples that show how the delta-based test of Prop. Reg. 1.871-15 can hinge upon superficial labeling of instruments rather than their underlying economics. We propose an alternative approach that eliminates the concept of a referenced number of shares and accurately reflects economic reality, but we also show how even an economically accurate test can be gamed because of administrative necessities, such as requiring that instruments be evaluated at only a single point in time.

Keywords: dividend equivalent taxation, cross-border taxation, delta test

JEL Classification: G13, H20, H24, K34

Suggested Citation

Brennan, Thomas J. and McDonald, Robert L., The Problematic Delta Test for Dividend Equivalents (January 26, 2015). Tax Notes, Vol. 146, No. 4, 2015, Available at SSRN:

Thomas J. Brennan (Contact Author)

Harvard Law School ( email )

1557 Massachusetts Ave
6 Ever
Cambridge, MA 02138
United States
617-495-3141 (Phone)

Robert L. McDonald

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States
847-491-8344 (Phone)
847-491-5719 (Fax)

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