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corporations. Payers of such interest are generally required
under sections 1441 and 1442 to deduct and withhold therefrom an
amount equal to the tax imposed by sections 871 and 881, and in
the event that they fail to do so they are liable for those
withholding taxes under section 1461.
In 1984 Congress repealed the 30-percent withholding tax
imposed by sections 871 and 881 with respect to certain interest
paid on portfolio debt, referred to as “portfolio interest”.9
Deficit Reduction Act of 1984 (DEFRA), Pub. L. 98-369, sec. 127,
98 Stat. 494, 648. Repeal, however, was only prospective in
effect, applying to interest payments made with respect to debt
obligations issued after July 18, 1984, the date of enactment of
DEFRA. See DEFRA sec. 127(g)(1), 98 Stat. 652. For preexisting
obligations, DEFRA provided special transitional relief from
withholding taxes applicable to interest payments made on
obligations issued before June 22, 1984 (the date of conference
action), by corporations in existence on or before that date that
met requirements based on the “principles” of certain previously
9 Portfolio interest generally refers to interest payments
made to a nonresident alien individual or foreign corporation
(owning less than 10 percent of the payer entity) pursuant to
debt obligations that are sold exclusively to non-U.S. persons
with proper precautions taken that such debt obligations will not
be held by U.S. persons. See secs. 871(h), 881(c), 163(f)(2)(B).
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