SECTION 1. PURPOSE

This notice provides additional examples to illustrate and confirm the application of section 937(b) and Temp. Treas. Reg. §§ 1.937–2T and –3T in determining whether income is derived from sources within a U.S. possession or territory specified in section 937(a)(1) (hereinafter “U.S. territory”) or whether income is effectively connected with the conduct of a trade or business within a U.S. territory. The examples address solely the application of the rules under section 937(b) and do not address any other issue, including the circumstances in which a taxpayer would be engaged in the conduct of a trade or business within the United States within the meaning of section 864 or how any transaction should be appropriately characterized. The Treasury Department and the Internal Revenue Service (IRS) intend to include these or substantially similar examples in additional guidance to be provided on the application of the so-called U.S. income rule in final regulations under section 937(b). Until additional examples are included in final regulations, taxpayers may treat the examples set forth in this notice as illustrative of the rules in the temporary regulations.