[Congressional Bills 103th Congress]
[From the U.S. Government Publishing Office]
[H.R. 2065 Introduced in House (IH)]

103d CONGRESS
  1st Session
                                H. R. 2065

To facilitate the creation of Financial Asset Securitization Investment 
                                Trusts.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                              May 11, 1993

Mr. Hoagland (for himself and Mr. Shaw) introduced the following bill; 
         which was referred to the Committee on Ways and Means

_______________________________________________________________________

                                 A BILL


 
To facilitate the creation of Financial Asset Securitization Investment 
                                Trusts.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as ``The FASIT Provisions of 1993''.

SEC. 2. FINANCIAL ASSET SECURITIZATION INVESTMENT TRUST.

    (a) The heading and table of sections of part II of subchapter M of 
chapter 1 of the Internal Revenue Code of 1986, relating to real estate 
investment trusts in amended to read as follows:

                      ``PART II--INVESTMENT TRUSTS

                              ``Sec. 855A. Financial asset 
                                        securitization investment 
                                        trusts.
                              ``Sec. 855B. Transfers to FASITs.
                              ``Sec. 855C. Treatment of recognized 
                                        gains and losses.
                              ``Sec. 855D. Consistency requirement.
                              ``Sec. 855E. Treatment of front-loaded 
                                        income on common ownership 
                                        interests.
                              ``Sec. 855F. Tax on certain transfers of 
                                        ownership interests.
                              ``Sec. 855G. Additional taxes.
                              ``Sec. 856. Definition of real estate 
                                        investment trust.
                              ``Sec. 857. Taxation of real estate 
                                        investment trusts and their 
                                        beneficiaries.
                              ``Sec. 858. Dividends paid by real estate 
                                        investment trust after close of 
                                        taxable year.
                              ``Sec. 859. Adoption of annual accounting 
                                        period.''
    (b) The title of part II in the table of parts of subchapter M of 
chapter 1 of the Internal Revenue Code of 1986 is amended to read as 
follows:

                ``Part II. Investment Trusts.''
    (c) The following new sections are added to part II of subchapter M 
of chapter 1 of the Internal Revenue Code of 1986:

``SEC. 855A. FINANCIAL ASSET SECURITIZATION INVESTMENT TRUSTS.

    ``(a) Definition.--For purposes of this title, the term `financial 
asset securitization investment trust' and `FASIT' mean any entity or 
arrangement--
            ``(1) for which an election to be treated as a FASIT is in 
        effect for the taxable year and all preceding taxable years,
            ``(2) which has a taxable year which is a calender year,
            ``(3) substantially all of the assets of which, as of the 
        close of the second calendar quarter following its formation 
        and each calender quarter ending thereafter, consist of--
                    ``(A) money or debt obligations,
                    ``(B) property acquired in connection with the 
                default or imminent default of a debt obligation held 
                by a FASIT (but only if such property would be in 
                compliance with the limitations of paragraphs (2) and 
                (3) of section 856(e) if the FASIT were a real estate 
                investment trust),
                    ``(C) instruments or contractual rights in the 
                nature of a hedge or guarantee against the economic 
                risks associated with debts issued or held by the FASIT 
                (including, but not limited to, interest rate swaps, 
                credit enhancement, and liquidity arrangements), or
                    ``(D) ownership interests in other FASITs,
            ``(4) the governing documents of which prohibit--
                    ``(A) the acquisition or disposition of assets 
                other than in accordance with the terms and conditions 
                set forth in the agreements, indentures, or other 
                instruments pursuant to which its qualified debt 
                instruments and ownership interests are issued,
                    ``(B) the acquisition or disposition of assets for 
                the primary purpose of recognizing gains or decreasing 
                losses resulting from market value changes, and
                    ``(C) the acquisition of any debt obligation for 
                the primary purpose of realizing income from the 
                operation, management, rental, leasing, or sale of 
                property acquired or to be acquired in connection with 
                the default or imminent default thereof,
            ``(5) which has one and only one class of common ownership 
        interests,
            ``(6) which (except as otherwise provided by regulations) 
        has no ownership interests other than common ownership 
        interests and preferred ownership interests, and
            ``(7) with respect to which there are reasonable 
        arrangements designed to ensure that its ownership interests 
        are held exclusively by--
                    ``(A) corporations to which the provisions of 
                section 11 apply,
                    ``(B) other FASITs, or
                    ``(C) pass-through entities.
    ``(b) Classification and Taxation of FASITS.--
            ``(1) General rule.--A FASIT shall not be subject to 
        taxation under this subtitle (and shall not be treated as a 
        corporation, partnership, or trust) except to the extent the 
        FASIT (or a portion thereof) is classified as a corporation by 
        section 7701(i).
            ``(2) Determination and allocation of fasit income.--The 
        taxable income of a FASIT shall be determined in the same 
        manner as for a corporation. The constant yield method and the 
        principles of section 1722(a)(6) shall be applied in 
        determining all interest and discount income, and all premium 
        deductions or adjustments, with respect to all debt obligations 
        held by the FASIT.
            ``(3) Taxation of holders of ownership interests.--The 
        holder of an ownership interest in a FASIT shall take into 
        account its daily portion of the amount of FASIT taxable income 
        (or net loss) allocable to ownership interests of the same 
        class for each day during the taxable year on which such holder 
        held such interest. The daily portion shall be determined--
                    ``(A) by allocating to each day in any calendar 
                quarter its ratable portion of the amount of taxable 
                income (or net loss) for such quarter allocable to such 
                class of ownership interests, and
                    ``(B) by dividing the amounts so allocated to any 
                day among the holders (on such day) of ownership 
                interests of such class in proportion to their 
                respective holdings on such day.
            ``(4) Amounts allocable to classes of ownership 
        interests.--
                    ``(A) FASIT taxable income, to the extent thereof, 
                shall be allocated to any outstanding classes of 
                preferred ownership interests, in order of their 
                respective preferences, in the same manner that 
                interest and original issue discount income would 
                accrue on a debt instrument having the same terms. Any 
                remaining FASIT taxable income shall be allocated to 
                the class of common ownership interests.
                    ``(B) FASIT net losses shall be allocated first to 
                the class of common ownership interests until the basis 
                of all such ownership interests (determined as if held 
                by the original holders) is reduced to zero. Any 
                remaining net losses shall be allocated to any 
                outstanding classes of preferred ownership interests in 
                accordance with their terms and priorities until the 
                basis of all such ownership interests (determined as if 
                held by the original holders) is reduced to zero. Any 
                remaining net losses shall be allocable to the class of 
                common ownership interests.
            ``(5) Distributions.--Any distribution by a FASIT with 
        respect to an ownership interest--
                    ``(A) shall not be included in gross income to the 
                extent it does not exceed the adjusted basis of the 
                interest, and
                    ``(B) to the extent it exceeds the adjusted basis 
                of the interest, shall be treated as gain from the sale 
                or exchange of such interest.
            ``(6) Basis rules.--The basis of any person's ownership 
        interest in a FASIT shall be increased by the amount of any 
        taxable income, and decreased (but not below zero) by the 
        amount of any loss, taken into account under paragraph (3) of 
        this subsection by such person with respect to such interest. 
        Such basis shall also be increased by any contributions and 
        decreased (but not below zero) by any distributions to such 
        person with respect to such interest.
            ``(7) Special rules.--
                    ``(A) Amount treated as ordinary.--Any amount taken 
                into account under paragraph (3) of this subsection 
                shall be treated as ordinary income or ordinary loss, 
                as the case may be.
                    ``(B) Limitation on losses.--The amount of the net 
                loss of any FASIT taken into account by any holder 
                under paragraph (3) of this subsection with respect to 
                any calendar quarter shall not exceed the adjusted 
                basis of the holder's ownership interest in such FASIT 
                as of the close of such calendar quarter (determined 
                without regard to any basis reduction for net losses 
                taken into account by such holder for such quarter). 
                Any loss disallowed by the preceding sentence shall be 
                treated as incurred by the FASIT in the succeeding 
                calendar quarter with respect to such holder.
                    ``(C) Premium and discount.--Except as otherwise 
                provided in regulations, any amount by which a holder's 
                basis in an ownership interest differs from the basis 
                determined as if held by the original holder shall be 
                taken into account on a constant yield method.
            ``(8) Rules similar to those provided by section 860D(2)(B) 
        shall apply to inadvertent failures to comply with the 
        requirements for qualifying as a FASIT.
    ``(c) Qualified debt instruments.--
            ``(1) Treatment of qualified debt instruments.--For 
        purposes of this subtitle, a qualified debt instrument issued 
        by a FASIT shall be treated as a debt obligation of the FASIT 
        (and as a debt obligation of a corporation) and not as an 
        ownership interest therein.
            ``(2) Definition.--A qualified debt instrument is any 
        instrument issued by a FASIT which is designated as a qualified 
        debt instrument if--
                    ``(A) such instrument unconditionally entitles the 
                holder to receive a specified principal amount (or 
                other similar amount),
                    ``(B) interest payments (or other similar amounts), 
                if any, with respect to such instrument are payable 
                based on one or more rates that, as of the date of 
                issuance, are fixed or qualify as permissible variable 
                rates for purposes of section 860G(a)(1)(B)(i),
                    ``(C) such instrument has a stated maturity at 
                issuance no longer than fifteen years,
                    ``(D) the instrument's issue price does not exceed 
                125 percent of its stated principal amount, and
                    ``(E) the instrument does not have a yield to 
                maturity as of the date of issuance that is more than 
                five percentage points higher than the yield to 
                maturity on outstanding marketable obligations of the 
                United States with a comparable maturity (based upon a 
                statistically significant sampling, a published index, 
                or a similar objective determination).
            ``(3) Treatment of foreclosure property.--For purposes of 
        the preceding paragraph, principal on a debt instrument issued 
        by a FASIT shall not be considered to be unconditionally 
        payable, and interest on such a debt instrument shall not be 
        considered to be payable based on a fixed or qualified variable 
        rate, if payment of such amounts is dependent upon the receipt 
        of any payments from the rental, lease, management or sale of 
        any property that was (1) acquired by the FASIT prior to the 
        issuance of such debt instrument in connection with the default 
        or imminent default of a debt obligation held by a FASIT, or 
        (2) acquired by the FASIT at any time in connection with the 
        default or imminent default of a debt obligation that was in 
        default or imminent risk of default at the time it was acquired 
        by the FASIT.
            ``(4) Stripped instruments.--The trustee or other fiduciary 
        of a FASIT may separate rights to principal and interest on any 
        qualified debt instruments issued by the FASIT and may issue 
        certificates of ownership in such rights to the same extent as 
        would be permitted in the case of a fixed investment trust 
        holding such qualified debt instruments. All such rights 
        arising out of the same qualified debt instrument shall be 
        treated by the FASIT as a single qualified debt instrument.
    ``(d) Preferred Ownership Interests.--For purposes of this section, 
a preferred ownership interest is an instrument that--
            ``(1) is designated as such,
            ``(2) is described in subparagraphs (A), (B), and (C) of 
        paragraph (2) of the preceding subsection, and
            ``(3) does not have an issue price in excess of its stated 
        principal amount.
    ``(e) Common Ownership Interests.--For purposes of this section, a 
common ownership interest is an instrument that is designated as such.

``SEC. 855B. TRANSFERS TO FASITS.

    ``(a) Treatment of Transferor.--
            ``(1) Recognition of gain or loss.--Gain or loss shall be 
        recognized to the transferor on the transfer of any property to 
        a FASIT in exchange for an interest or instrument therein. Any 
        increase in the value of an existing interest or instrument 
        held by the transferor (or by a party bearing a relationship to 
        the transferor described in section 267(b) or section 707(b)) 
        attributable to the transfer of assets shall be treated as the 
        receipt of an additional interest or instrument, as the case 
        may be.
            ``(2) Adjusted bases.--The adjusted basis of an interest or 
        instrument received in a transfer described in paragraph (1) 
        shall be equal to its fair market value immediately after such 
        transfer.
    ``(b) Treatment of fasit.--The basis of any property received by a 
FASIT in a transfer described in subsection (a)(1) shall be its fair 
market value immediately after such transfer.
    ``(c) Accounting Rules.--For purposes of this part--
            ``(1) In general.--The anticipated cash flows and fair 
        market value of assets transferred to a FASIT shall be 
        determined without regard to any future transfers of assets 
        that the transferor may be obligated or permitted to make. Any 
        such subsequent transfer shall be treated as a separate 
        transfer of assets with respect to which there shall be 
        separately computed--
                    ``(A) the FASIT's basis therein and income thereon, 
                and
                    ``(B) any gain or loss to the transferor.
            ``(2) Treatment of revolving loan pools.--In the case of 
        any FASIT acquiring obligations representing extensions of 
        credit on revolving loan accounts having substantially the same 
        terms--
                    ``(A) each extension of credit shall be treated as 
                a separate obligation transferred to the FASIT,
                    ``(B) the anticipated life of each such obligation 
                shall be determined using a periodic principal payment 
                rate equal to the reasonably anticipated periodic rate 
                (determined at the time of transfer) at which principal 
                payments on the accounts will be paid, as a proportion 
                of their outstanding principal balance, and
                    ``(C) actual payments of principal (and losses of 
                principal) shall be allocated among all outstanding 
                obligations in proportion to their outstanding 
                balances.
    ``(d) Distributions of Property.--Any distribution of property with 
respect to an interest or instrument of a FASIT (other than a 
distribution described in section 855C(b)(3)(B)) shall be treated as if 
the FASIT had sold such property and distributed the proceeds.
    ``(e) Treatment of Recognized Gains and Losses.--Recognized gains 
and losses attributable to transfers described in paragraph (a)(1) 
shall be taken into account by the transferor in the manner prescribed 
in section 855C.
    ``(f) Below-Market Loans.--For purposes of subsection (a) (relating 
to the recognition of gain or loss upon the transfer of property to a 
FASIT) and subsection (b) (relating to the FASIT's basis in such 
property), the fair market value of any loan that was a below-market 
loan when made (within the meaning of section 7872(e)(1)) shall not be 
considered to be less than the lower of its outstanding principal 
amount or the transferor's adjusted basis therein.

``SEC. 855C. TREATMENT OF RECOGNIZED GAINS AND LOSSES.

    ``(a) Retained Interests and Instruments.--Subject to subsections 
(b) and (c), gain (or loss) recognized on a transfer described in 
section 855B(a)(1) shall be taken into account in the same manner as 
the same amount of premium (or discount) on the transferred assets 
would be required to be taken into account by the FASIT.
    ``(b) Acceleration of Gain or Loss Upon Sale of Interests and 
Instruments.--
            ``(1) In general.--Amounts received by the transferor with 
        respect to the sale or other disposition of any FASIT interest 
        or instrument (including any amounts treated as received with 
        respect to the allocable portion of any interests or 
        instruments issued directly by the FASIT)--
                    ``(A) shall be allocated among the outstanding 
                assets that were transferred by the transferor in 
                transactions to which section 855B(a)(1) applied (but 
                not in excess of the outstanding principal amount of 
                any such assets determined after prior applications of 
                this paragraph), and
                    ``(B) shall be treated (solely for purposes of 
                subsection (a)) as a payment of principal received by 
                the FASIT on such assets.
            ``(2) Deemed receipts.--Amounts of principal received by a 
        FASIT and used to acquire new debt obligations in a transfer to 
        which section 855B(a)(1) applies shall be treated for purposes 
        of this subsection as attributable to a redemption and new 
        issuance of an allocable portion of all outstanding interests 
        and instruments.
            ``(3) Exceptions.--Paragraph (1) shall not apply (and 
        appropriate basis adjustments shall be required) with respect 
        to amounts received--
                    ``(A) upon a sale or disposition that is of a type 
                which would not give rise to the recognition of gain, 
                or the recognition or allowance of loss, as the case 
                may be, or
                    ``(B) upon a distribution with respect to an 
                interest or instrument of assets that are substantially 
                identical to the assets transferred for such interest 
                or instrument.
    ``(c) Coordination.--Following any application of subsection (b), 
subsection (a) shall be applied disregarding pro rata portions of 
subsequent actual and anticipated principal payments to the FASIT to 
take into account the amounts treated as principal payments in all 
prior applications of subsection (b).
    ``(d) Investment Partnership Rules Applicable.--Notwithstanding 
subsection (a), gain shall be taken into account to the extent that 
would be required under section 721(b) if the FASIT were a partnership 
(treating as a single taxpayer all transferors that are members of the 
same affiliated group of corporations joining in the filing of a 
consolidated return).

``SEC. 855D. CONSISTENCY REQUIREMENT.

    ``(a) Adoption of Method of Accounting.--Any transfer of debt 
obligations to a FASIT in exchange for an interest or instrument of the 
FASIT followed by the retention by the transferor (or by a party 
bearing a relationship to the transferor described in section 267(b) or 
section 707(b)) of any such interest or instrument for more than three 
months, shall be treated as the adoption by the transferor (and by all 
members of the same affiliated group of corporations joining in the 
filing of a consolidated return with the transferor) of a method of 
accounting. Such method of accounting shall--
            ``(1) apply to all gains and losses arising from the 
        transfer of substantially similar debt obligations to entities 
        described in subsection (b) in exchange for interests in or 
        obligations of such entities, and
            ``(2) shall require gains and losses to be recognized and 
        taken into account (upon the later of the transfer or the time 
        at which the entity first becomes described in subsection (b)) 
        in substantially the same manner as if the transferee were a 
        FASIT.
    ``(b) Entities.--An entity is described in this subsection if--
            ``(1) substantially all of its assets consist of debt 
        obligations, and
            ``(2) the entity has outstanding instruments treated as 
        debt for Federal income tax purposes (with an adjusted issue 
        price exceeding 50 percent of the adjusted basis of its assets) 
        that are not treated as debt on the consolidated financial 
        statement (or similar report or statement) of the transferor 
        for financial or regulatory accounting purposes.
    ``(c) Scope of Method.--For purposes of subsection (a)(1) of this 
section, a debt obligation shall be considered to be substantially 
similar to a debt obligation transferred to a FASIT if such obligation 
is of a type that was customarily treated (at the time of the transfer 
to the FASIT) as an equivalent substitute for the debt obligation 
transferred to the FASIT by buyers and sellers in the markets for 
securities collateralized by such debt obligations.

``SEC. 855E. TREATMENT OF FRONT-LOADED INCOME ON COMMON OWNERSHIP 
              INTERESTS.

    ``(a) Front-Loaded Income May Not Be Offset by Net Operating 
Losses.--
            ``(1) In general.--Except as provided in paragraphs (2) and 
        (3), the taxable income of any holder of a common ownership 
        interest in a FASIT for any taxable year shall in no event be 
        less than the front-loaded income for such taxable year. For 
        purposes of the preceding sentence, all members of an 
        affiliated group filing a consolidated return shall be treated 
        as one taxpayer.
            ``(2) Exception for certain structures.--Paragraph (1) 
        shall not apply to any FASIT for any periods during which--
                    ``(A) the debt obligations held by the FASIT have 
                an anticipated weighted average life that is not 
                greater than four years (determined at the end of each 
                calendar quarter), or,
                    ``(B) under regulations, it can reasonably be 
                anticipated from the structure of the FASIT that 
                taxable income will not be required to be included by 
                the holders of common ownership interests under section 
                855A(b)(3) materially faster than would be required if 
                the ownership interests were subject to taxation under 
                the rules and principles applicable to debt 
                obligations.
            ``(3) Exception for bona fide originators.--Paragraph (1) 
        shall not apply to any ownership interest--
                    ``(A) that is held by the originator of the debt 
                obligations transferred in exchange therefor (or by a 
                member of the same affiliated group of corporations 
                joining in the filing of a consolidated return), and
                    ``(B) that represents a substantial economic 
                interest in the value or performance of such debt 
                obligations.
        ``For purposes of the preceding sentence, an economic interest 
        is substantial if it is reasonably anticipated to represent at 
        least 2 percent of the value of the debt obligations to which 
        it relates for at least half of their anticipated weighted 
        average life.
            ``(4) Coordination with section 172.--For purposes of 
        section 172, front-loaded income for a taxable year shall be 
        treated in the same manner as an excess inclusion is treated 
        under section 860E(a)(5).
    ``(b) Front Loaded Income.--For purposes of this section, front-
loaded income for the taxable year is the amount (not less than zero) 
equal to--
            ``(1) the taxable income taken into account by the holder 
        of a common ownership interest under section 855A(b)(3) for the 
        taxable year and for all prior years, minus,
            ``(2) the amount that would have been required to be taken 
        into account by such holder for the taxable year and all prior 
        years if the common ownership interest were treated as a debt 
        obligation (providing for the same fixed, variable, and 
        contingent cash flows as the common ownership interest) 
        originally issued to the holder on the date of its acquisition 
        for an amount equal to its fair market value on that date, 
        minus
            ``(3) the amount determined under this subsection with 
        respect to the holder for all years prior to the taxable year.
To the extent the amount described in paragraph (2) requires a 
determination of the yield to maturity of the hypothetical debt 
obligation, such yield shall be considered to be equal to 120 percent 
of the applicable Federal rate, unless there is clear evidence that the 
amount would properly be determined using a higher yield.

``SEC. 855F. TAX ON CERTAIN TRANSFERS OF OWNERSHIP INTERESTS.

    ``(a) In General.--A tax is hereby imposed on any transfer of an 
ownership interest in a FASIT other than a transfer to a FASIT, to a 
pass-through entity, or to a corporation to which the provision of 
section 11 apply.
    ``(b) Amount of Tax.--The amount of the tax imposed by subsection 
(a) on any transfer of an ownership interest shall be equal to the 
product of--
            ``(1) the fair market value of the ownership interest on 
        the date of transfer, multiplied by--
            ``(2) the highest rate of tax specified in section 
        11(b)(1).
    ``(c) Liability.--The tax imposed by subsection (a) on any transfer 
shall be paid by the transferor; except that, where such transfer is 
through an agent for the transferee, such tax shall be paid by such 
agent.
    ``(d) Transferee Furnishes Affidavit.--The person otherwise liable 
for any tax imposed by subsection (a) shall be relieved of liability 
for the tax imposed by subsection (a) with respect to any transfer if--
            ``(1) the transferee furnishes to such person an affidavit 
        that the transferee is a FASIT, a pass-through entity, or a 
        corporation to which the provisions of section 11 apply, and
            ``(2) as of the time of the transfer, such person does not 
        have actual knowledge that such affidavit is false.
    ``(e) Treatment of Pass-Through Entities.--If, at any time during a 
taxable year of a pass-through entity, the pass-through entity holds 
(directly or through one or more other pass-through entities) an 
ownership interest in a FASIT and a record holder of an interest in the 
pass-through entity is neither a corporation to which the provisions of 
section 11 apply, a FASIT, nor another pass-through entity, there is 
hereby imposed on the pass-through entity a tax, for the taxable year, 
equal to the product of--
            ``(1) the amount of taxable income for such taxable year 
        attributable to the FASIT ownership interest held (directly or 
        through one or more other pass-through entities) and allocable 
        to the pass-through interest held by such record holder, 
        multiplied by
            ``(2) the highest rate of tax specified in section 
        11(b)(1).
    ``(f) Pass-Through Entity.--For purposes of this section, the term 
`pass-through entity' has the same meaning as that provided in section 
860E(e)(6), except that such term shall also include S corporations.
    ``(g) Exceptions.--No tax shall be imposed by subsection (e) to the 
extent a pass-through entity--
            ``(1) holds an ownership interest in a FASIT representing a 
        retained economic interest in debt obligations originated by 
        the pass-through entity in connection with the pass-through 
        entity's sale of goods or services, or
            ``(2) holds an ownership interest in a FASIT for sale to 
        customers in the ordinary course of business, or is a dealer in 
        securities and holds an ownership interest in a FASIT for no 
        more than one month.
    ``(h) Exception Where Holder Furnishes Affidavit.--No tax shall be 
imposed by subsection (e) with respect to any interest in a pass-
through entity for any period if--
            ``(1) the record holder of such interest furnishes to such 
        pass-through entity an affidavit that such record holder is a 
        FASIT, a corporation to which the provisions of section 11 
        apply, or another pass-through entity, and
            ``(2) during such period, the pass-through entity receiving 
        the affidavit does not have actual knowledge that such 
        affidavit is false.
    ``(i) Waiver.--The Secretary may waive the tax imposed by 
subsection (a) on any transfer if--
            ``(1) within a reasonable time after discovery that the 
        transfer was subject to tax under subsection (a) steps are 
        taken so that the interest is no longer held by the prohibited 
        holder, and
            ``(2) there is paid to the Secretary such amounts as the 
        Secretary may require.
    ``(j) Administrative Provisions.--For purposes of subtitle F, the 
taxes imposed by this section shall be treated as excise taxes with 
respect to which the deficiency procedures of such subtitle apply.

``SEC. 855G. ADDITIONAL TAXES.

    ``(a) Prohibited Transaction Tax.--
            ``(1) Imposition of tax.--A tax is hereby imposed for each 
        taxable year of a FASIT equal to 100 percent of the net income 
        derived from prohibited transactions (disregarding any losses 
        from prohibited transactions).
            ``(2) Prohibited transaction.--For purposes of this 
        subsection, the term `prohibited transaction' means--
                    ``(A) any acquisition or disposition of assets 
                other than in accordance with the terms and conditions 
                set forth in the agreements, indentures, or other 
                instruments pursuant to which its qualified debt 
                instruments and ownership interests are issued,
                    ``(B) any acquisition or disposition of assets for 
                the primary purpose of recognizing gains or decreasing 
                losses resulting from market value changes,
                    ``(C) any acquisition of a debt instrument for the 
                primary purpose of realizing income from the operation, 
                management, rental, leasing, or sale of property 
                acquired or to be acquired in connection with the 
                default or imminent default thereof, and
                    ``(D) the receipt of any income attributable to an 
                asset which is not described in section 855A(a)(3).
    ``(b) Tax on Income From Foreclosure Property.--
            ``(1) In general.--A tax is hereby imposed for each taxable 
        year on the net income from foreclosure property of each FASIT. 
        Such tax shall be computed by multiplying the net income from 
        foreclosure property by the highest rate of tax specified in 
        section 11(b).
            ``(2) Net income from foreclosure property.--For purposes 
        of this part, the term `net income from foreclosure property' 
        means the amount which would be the FASIT's net income from 
        foreclosure property under section 857(b)(4)(B) if the FASIT 
        were a real estate investment trust and all property acquired 
        by the FASIT in connection with the default or imminent default 
        of a debt obligation were treated as if it were real property 
        and as if it were foreclosure property.''

SEC. 3. CONFORMING AMENDMENTS.

    (a) The last sentence of paragraph (1) of section 582(c) of the 
Internal Revenue Code of 1986 is amended to read as follows: ``For 
purposes of the preceding sentence, any regular or residual interest in 
a REMIC and any ownership interest or qualified debt instrument issued 
by a FASIT shall be treated as an evidence of indebtedness.''
    (b) Sections 593(d)(4), 856(c)(6)(E), and 7701(a)(19)(C) of the 
Internal Revenue Code of 1986, are each amended by adding at the ends 
thereof the following sentence: ``The provisions of this section 
applicable to regular and residual interests in a REMIC shall also 
apply to interests and instruments in a FASIT.''

SEC. 4. EFFECTIVE DATE.

    The amendments made by sections 2 and 3 shall be effective upon the 
date of enactment.

                                 <all>

HR 2065 IH----2