Source of Income From Qualified Fails Charges

In the Rules and Regulations section of this Federal Register, the IRS and the Treasury Department are issuing temporary regulations (TD 9508) under section 863(a) of the Internal Revenue Code. These regulations set forth the source of income attributable to qualified fails charges. This action is necessary to provide guidance about the treatment of fails charges for purposes of sections 871 and 881, which generally require gross-basis taxation of foreign persons not otherwise subject to U.S. net-basis taxation and the withholding of such tax under sections 1441 and 1442. The text of the temporary regulations also serves as the text of these proposed regulations.