The New York State Bar Association’s Tax Section has recently released a new report, Report Number 1525 on Notice 2025-63:

[The Report comments] on Notice 2025-63 (the “Notice”), issued by the Department of the Treasury (“Treasury”) and the Internal Revenue Service (the “IRS”) on October 23, 2025. The Notice announces the intention of Treasury and the IRS to propose regulations concerning the sourcing of certain securities borrow fees by reference to the residence of the recipient.

We commend Treasury and the IRS for undertaking to address this longstanding area of uncertainty and we support the core principle of sourcing borrow fees to the residence of the recipient. This approach is consistent with the economic substance of borrow fees, preserves the orderly operation of the capital markets, and is aligned with the approach embedded in U.S. tax treaties.

Our two principal recommendations are that the forthcoming regulations (i) remove the provision in the Notice that limits the scope of the transactions to which the residence- based sourcing rule applies to those “documented on an industry-standard master agreement and confirmation … with standard market terms” and instead apply the sourcing rule to any fee that in substance is paid for making the securities available to the borrower; and (ii) define “residence” for purposes of sourcing borrow fees without reference to IRC Section 988(a)(3)(B) and provide that, in the case of a partnership, the determination of residence generally is made at the partner level.