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S E P T E M B E R 2 0 0 8

S E P T E M B E R 2 0 0 8. IRS Rule 302 — Industry Operational Challenges. Brian Goldman Managing Director, US Securities Operations JPMorgan Chase Bank, N.A. S T R I C T L Y P R I V A T E A N D C O N F I D E N T I A L. IRS Rule 302 — Industry Operational Challenges.

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S E P T E M B E R 2 0 0 8

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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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