IRS Notice: Source of Certain Borrow Fees Based on Recipient Residence (IRC §863)

The IRS published a notice announcing its intent to issue proposed regulations providing that certain borrowing fees from securities lending transactions and sale-repurchase transactions are sourced based on the residence of the recipient. The notice resolves uncertainty about sourcing rules for these payments, which are not directly addressed in the Internal Revenue Code or Treasury regulations. The forthcoming regulations will apply to borrow fees paid pursuant to transactions documented with industry-standard master agreements and entered into in the ordinary course of business. Taxpayers may rely on these rules before the proposed regulations are published. [IRS Notice 2025-63, (Oct. 23, 2025)] ...