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Internal Revenue Bulletin:  2011-7 

February 14, 2011 


Notice of Proposed Rulemaking by Cross-Reference to Temporary Regulations Source of Income From Qualified Fails Charges


Internal Revenue Service (IRS), Treasury.


Notice of proposed rulemaking by cross-reference to temporary regulations.


In this issue of the Bulletin, the IRS and the Treasury Department are issuing temporary regulations (T.D. 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.


Written or electronic comments and requests for a public hearing must be received by March 8, 2011.


Send submissions to: CC:PA:LPD:PR (REG-132724-10), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand-delivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-132724-10), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, NW, Washington, DC, or sent electronically, via the Federal eRulemaking Portal at (IRS REG-132724-10).


Concerning the proposed regulations, Sheila Ramaswamy or Anthony J. Marra, Office of Associate Chief Counsel (International) (202) 622-3870; concerning submissions of comments or a request for a public hearing, Richard Hurst at (202) 622-7180.

Background and Explanation of Provisions

The temporary regulations published in this issue of the Bulletin provide guidance for the treatment of fails charges for purposes of sections 871, 881, 1441 and 1442 by establishing source rules for qualified fails charges that arise in the delivery-versus-payment market for Treasury securities. The text of those temporary regulations also serves as the text of these proposed regulations. The preamble to the temporary regulations explains the temporary regulations and these proposed regulations.

Special Analyses

It has been determined that this notice of proposed rulemaking is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It has also been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations, and because these regulations do not impose a collection of information on small entities, the provisions of the Regulatory Flexibility Act (5 U.S.C. chapter 6) do not apply. Pursuant to section 7805(f) of the Internal Revenue Code, this notice of proposed rulemaking will be submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

Comments and Requests for a Public Hearing

Before these proposed regulations are adopted as final regulations, consideration will be given to any written (a signed original and eight (8) copies) or electronic comments that are submitted timely to the IRS. In addition to the specific requests for comments made elsewhere in this preamble or the preamble to the temporary regulations, the IRS and the Treasury Department request comments on the clarity of the proposed regulations and how they can be made easier to understand. A public hearing may be scheduled if requested in writing by any person who timely submitted written comments. If a public hearing is scheduled, notice of the date, time, and place of the hearing will be published in the Federal Register.

Proposed Amendment to the Regulations

Accordingly, 26 CFR part 1 is proposed to be amended as follows:


Paragraph 1. The authority citation for part 1 continues to read in part as follows:

Authority: 26 U.S.C. 863(a) and 7805 * * *

Par. 2. Section 1.863-10 is added to read as follows:

§1.863-10 Source of income from a qualified fails charge.

[The text of proposed §1.863-10 is the same as the text of §1.863-10T published elsewhere in this issue of the Bulletin].

Steven T. Miller,
Deputy Commissioner for
Services and Enforcement.


(Filed by the Office of the Federal Register on December 7, 2010, 8:45 a.m., and published in the issue of the Federal Register for December 8, 2010, 75 F.R. 76321)

Drafting Information

The principal authors of these regulations are Sheila Ramaswamy and Anthony J. Marra, Office of the Associate Chief Counsel (International). However, other persons from the Office of Associate Chief Counsel (International) and the Treasury Department have participated in their development.

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