SECTION 9. PAPERWORK

REDUCTION ACT

The collection of information contained in this notice has been reviewed and approved by the Office of Management and Budget in accordance with the Paperwork Reduction Act (44 U.S.C. 3507) under control number 1545–1858.

An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid OMB control number.

The recordkeeping requirement in this notice is in Section 6. This information is required for brokers to use the rules for determining loanable shares and to use the rules for allocating transferred shares to loanable shares. The collection of information is voluntary to obtain a benefit. The likely respondents are businesses or other for profit institutions.

The estimated total annual recordkeeping burden is 60,000 hours.

The estimated annual burden per recordkeeper varies from 50 hours to 150 hours, depending on individual circumstances, with an estimated average of 100 hours.

The estimated number of recordkeepers is 600.

Books or records relating to a collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. Generally tax returns and tax return information are confidential, as required by 26 U.S.C. 6103.

be treated as not loanable only if all of the following requirements are satisfied:

a. At the time the broker designates the share as not loanable, the share has not, in fact, been loaned under an outstanding loan agreement;

b. The designation of a category of shares as not being loanable is reflected in a written policy of the broker that was placed in its books and records on or before the time of the stock loans to be affected by the policy; and

c. The policy is consistently applied for both tax and nontax purposes to all shares described in the category. The Service invites comments on these categories of shares and on the requirements that must be satisfied to treat the shares as not loanable.

.02 Allocation and Selection of Transferred Shares

Pending issuance of amendments to section 1.6045–2, the rules of that section continue to apply for recordkeeping for payments in lieu of dividends and for identifying which customers had their shares transferred. A broker may continue to allocate transferred shares to borrowed shares. In addition, if a broker uses the method of allocation and selection of loanable shares specified in paragraph (f)(2)(ii) of section 1.6045–2, the amendments are expected to allow the broker, starting in 2003, to make the selection of the transferred shares within the individual pool described in section 1.6045–2(f)(2)(ii)(C) using the methods of selection of transferred shares used within the nonindividual pool as prescribed in section 1.6045–2(f)(2)(ii)(B).

The Service expects to amend the existing regulations to permit brokers to use a new hierarchical method to allocate transferred shares. Under this new hierarchical method, a broker must allocate transferred shares first to shares that are borrowed under a securities lending agreement. Brokers must then allocate the remaining transferred shares to one or more pools of shares held by tax-indifferent customers to the extent of loanable shares in

those pools. For this purpose, a tax-indifferent customer is a customer (for example, a tax-exempt entity) for whom the broker has reasonably determined that the tax treatment of qualifying dividends and payments in lieu of dividends are the same. These pools may also include shares held by customers for whom the tax treatment of dividends is more desirable than the tax treatment of payments in lieu of dividends, but who have specifically authorized that the shares be included in a tax-indifferent-customer pool. After the broker has exhausted all the loanable shares in the tax-indifferent-customer pools, the broker must allocate the transferred shares to a single residual pool of all other loanable shares. If only a portion of the loanable shares held in any pool are transferred, the broker must allocate the transferred shares among customers in the pool using the random lottery method provided in section 1.6045–2(f)(2)(ii)(B) of the existing regulations. A broker may use some other allocation method only with the consent of the Service. See Rev. Proc. 2003–1, 2003–1 I.R.B. 1, for the procedures to request a letter ruling. The Service invites comments on this hierarchical method as well as other methods of allocating transferred shares (giving rise to payments in lieu of dividends) among customers holding loanable shares. The amendments are expected to allow brokers to use the allocation method described in this Section 6 for dividends received after January 1, 2003. The provisions applicable to foreign persons receiving substitute dividends payments continue to apply ( e.g., character rules under section 1.871–7(b)(2)).