Tax insight

Treasury releases guidance on how to source certain borrow fees

Insight
5 minute read
November 06, 2025

What happened?

Treasury and the IRS, on October 23, 2025, released Notice 2025-63, which announces the intention to publish proposed regulations addressing how to determine the source of ”borrow fees” (including negative rebate) arising from certain securities lending and sale-repurchase (repo) transactions.

Why is it relevant?

Currently, the Internal Revenue Code and Treasury regulations thereunder do not specify the sourcing rules for these payments, creating uncertainty in tax treatment. The proposed regulations will establish that the source of borrow fees is determined by the residence of the recipient. The notice explicitly excludes from its scope other payments with respect to securities lending transactions, repo transactions, or substantially similar transactions, including payments labeled as borrow fees with respect to one-off transactions and transactions without standard business terms. It also clarifies that the substance, not the label, of a payment determines whether it is treated as a borrow fee.

Actions to consider

The proposed regulations will apply prospectively to tax years ending after their publication, but taxpayers may choose to rely on the rules described in the notice before the proposed regulations are published. Withholding agents that choose to rely on the notice will want to review their current securities lending and repo transactions to confirm those transactions meet the requirements for sourcing borrow fees to the residence of the recipient of the payment.