SECTION 1. PURPOSE

Neither the Internal Revenue Code (the “Code”) nor Treasury regulations directly specify how to determine the source of payments referred to as borrow fees or negative rebate (collectively, “borrow fees”) with respect to securities lending transactions or sale-repurchase transactions. As a result, the appropriate source rule for those payments is uncertain. See, e.g., TD 9579, 77 FR 9846, 9846 (Feb. 21, 2012) (“The Treasury Department and the IRS are considering whether separate guidance is needed on the source of income attributable to certain payments . . . that arise in securities lending transactions or repurchase transactions”). This notice announces that the Treasury Department (“Treasury”) and the Internal Revenue Service (“IRS”) intend to issue proposed regulations (the “forthcoming proposed regulations”) providing that certain borrow fees (as circumscribed in section 3) are sourced based on the residence of the recipient.