26 USC 860F - Other rules

U.S Code last checked for updates: Nov 26, 2024

§ 860F.

Other rules

(a)

100 percent tax on prohibited transactions

(1)

Tax imposed

(2)

Prohibited transaction

For purposes of this part, the term “prohibited transaction” means—

(A)

Disposition of qualified mortgage

The disposition of any qualified mortgage transferred to the REMIC other than a disposition pursuant to—

(i)

the substitution of a qualified replacement mortgage for a qualified mortgage (or the repurchase in lieu of substitution of a defective obligation),

(ii)

a disposition incident to the foreclosure, default, or imminent default of the mortgage,

(iii)

the bankruptcy or insolvency of the REMIC, or

(iv)

a qualified liquidation.

(B)

Income from nonpermitted assets

(C)

Compensation for services

(D)

Gain from disposition of cash flow investments

(3)

Determination of net income

(4)

Qualified liquidation

For purposes of this part—

(A)

In general

The term “qualified liquidation” means a transaction in which—

(i)

the REMIC adopts a plan of complete liquidation,

(ii)

such REMIC sells all its assets (other than cash) within the liquidation period, and

(iii)

all proceeds of the liquidation (plus the cash), less assets retained to meet claims, are credited or distributed to holders of regular or residual interests on or before the last day of the liquidation period.

(B)

Liquidation period

The term “liquidation period” means the period—

(i)

beginning on the date of the adoption of the plan of liquidation, and

(ii)

ending at the close of the 90th day after such date.

(5)

Exceptions

Notwithstanding subparagraphs (A) and (D) of paragraph (2), the term “prohibited transaction” shall not include any disposition—

(A)

required to prevent default on a regular interest where the threatened default resulted from a default on 1 or more qualified mortgages, or

(B)

to facilitate a clean-up call (as defined in regulations).

(b)

Treatment of transfers to the REMIC

(1)

Treatment of transferor

(A)

Nonrecognition gain or loss

(B)

Adjusted bases of interests

(C)

Treatment of nonrecognized gain

If the issue price of any regular or residual interest exceeds its adjusted basis as determined under subparagraph (B), for periods during which such interest is held by the transferor (or by any other person whose basis is determined in whole or in part by reference to the basis of such interest in the hand of the transferor)—

(i)

in the case of a regular interest, such excess shall be included in gross income (as determined under rules similar to rules of section 1276(b)), and

(ii)

in the case of a residual interest, such excess shall be included in gross income ratably over the anticipated period during which the REMIC will be in existence.

(D)

Treatment of nonrecognized loss

If the adjusted basis of any regular or residual interest received in a transfer described in subparagraph (A) exceeds its issue price, for periods during which such interest is held by the transferor (or by any other person whose basis is determined in whole or in part by reference to the basis of such interest in the hand of the transferor)—

(i)

in the case of a regular interest, such excess shall be allowable as a deduction under rules similar to the rules of section 171, and

(ii)

in the case of a residual interest, such excess shall be allowable as a deduction ratably over the anticipated period during which the REMIC will be in existence.

(2)

Basis to REMIC

(c)

Distributions of property

If a REMIC makes a distribution of property with respect to any regular or residual interest—

(1)

notwithstanding any other provision of this subtitle, gain shall be recognized to such REMIC on the distribution in the same manner as if it had sold such property to the distributee at its fair market value, and

(2)

the basis of the distributee in such property shall be its fair market value.

(d)

Coordination with wash sale rules

For purposes of section 1091—

(1)

any residual interest in a REMIC shall be treated as a security, and

(2)

in applying such section to any loss claimed to have been sustained on the sale or other disposition of a residual interest in a REMIC—

(A)

except as provided in regulations, any residual interest in any REMIC and any interest in a taxable mortgage pool (as defined in section 7701(i)) comparable to a residual interest in a REMIC shall be treated as substantially identical stock or securities, and

(B)

subsections (a) and (e) of such section shall be applied by substituting “6 months” for “30 days” each place it appears.

(e)

Treatment under subtitle F

(Added Pub. L. 99–514, title VI, § 671(a), Oct. 22, 1986, 100 Stat. 2313; amended Pub. L. 100–647, title I, § 1006(t)(3), (4), (14), (18)(A), (22)(B)–(E), Nov. 10, 1988, 102 Stat. 3419, 3420, 3423, 3426; Pub. L. 104–188, title I, § 1704(t)(74), Aug. 20, 1996, 110 Stat. 1891.)

cite as: 26 USC 860F