On January 14, 2010, the Large and Mid-Scale Business division of the IRS issued its “Industry Directive on Total Return Swaps Used to Avoid Dividend Withholding Tax” (Swap Audit Guidelines). In addition to providing audit guidance to IRS field agents auditing U.S. financial institutions and U.S. branches of foreign financial institutions, the Swap Audit Guidelines contain six Information Document Requests for agents to use to solicit information from financial institutions that have equity swap operations. The new guidance is substantially more detailed than the previous guidance. As a result, IRS audits of financial institutions undertaken in accordance with the Swap Audit Guidelines are likely to impose a significant compliance burden on affected companies. The purpose of the Swap Audit Guidelines is to assist IRS agents in “uncovering and developing cases related to total return swap transactions that may have been executed in order to avoid tax with respect to U.S. source dividend income” paid to non-U.S. persons. The Swap Audit Guidelines posit four different transaction structures involving equity swaps. If an IRS agent uncovers one of these fact patterns, he is encouraged to “develop facts supporting a legal conclusion that the Foreign Person retained ownership of the reference securities.” In a guest article, Greenberg Traurig, LLP Shareholder Mark Leeds examines those four transaction structures in depth, and discusses the implications of the Swap Audit Guidelines for over-the-counter derivatives markets participants.