[Federal Register Volume 59, Number 76 (Wednesday, April 20, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-9548]


[[Page Unknown]]

[Federal Register: April 20, 1994]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 8534]
RIN 1545-AS55

 

Real Estate Mortgage Investment Conduits

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Temporary regulations.

-----------------------------------------------------------------------

SUMMARY: This document contains temporary regulations relating to the 
qualification of an interest as a regular interest in a real estate 
mortgage investment conduit, or REMIC. This action is necessary because 
of changes to the applicable tax law made by the Tax Reform Act of 1986 
and by the Technical and Miscellaneous Revenue Act of 1988. The 
temporary regulations provide guidance to REMIC sponsors and investors. 
A portion of the text of these temporary regulations also serves as the 
partial text of the proposed regulations set forth in the notice of 
proposed rulemaking on this subject in the Proposed Rules section of 
this issue of the Federal Register.

DATES: These regulations are effective April 4, 1994.

FOR FURTHER INFORMATION CONTACT: Carol A. Schwartz, (202) 622-3920 (not 
a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    This document modifies income tax regulations (26 CFR part 1) under 
section 860G of the Internal Revenue Code (Code), published in the 
Federal Register on December 24, 1992, (57 FR 61293). Section 671 of 
the Tax Reform Act of 1986 (the 1986 Act), Public Law 99-514, 100 Stat. 
2308, added sections 860A through 860G and amended other sections of 
the Code to provide rules relating to REMICs. Section 1006(t) of the 
Technical and Miscellaneous Revenue Act of 1988 (TAMRA), Public Law 
100-647, 102 Stat. 3419, amended section 671 of the 1986 Act. These 
provisions generally take effect, under section 675(a) of the 1986 Act, 
as amended by section 1006(w)(1) of TAMRA, on January 1, 1987.

Explanation of Provisions

    For an entity to qualify as a REMIC, every interest in the entity 
must be a residual interest or a regular interest. The term ``regular 
interest'' is defined in section 860G(a)(1). Section 860G(a)(1)(B) 
requires that any interest payments on a regular interest be based on a 
fixed rate, or on a variable rate as provided in regulations. Interest 
payments on a regular interest may also consist of a specified portion 
of the interest payments on qualified mortgages held by a REMIC, 
provided the specified portion does not vary while the regular interest 
is outstanding.
    Current Sec. 1.860G-1(a)(3) identifies the variable rates that are 
permitted under section 860G(a)(1)(B). These include ``a rate that is a 
qualifying variable rate for purposes of sections 1271 through 1275 and 
the related regulations.'' Section 1.860G-1(a)(3)(i).
    Notice 93-11, 1993-1 C.B. 298, which interprets 
Sec. 1.860G1(a)(3)(i), explains the meaning of ``qualifying variable 
rate'' by reference to proposed regulations under section 1275 that 
were published in the Federal Register on December 22, 1992 (57 FR 
60750). Under the notice, a ``qualifying variable rate'' is a qualified 
floating rate (as defined in proposed Sec. 1.1275-5(b)(1)) set at a 
current value (as defined in proposed Sec. 1.1275-5(a)(4)). The 
regulations under section 1275 were revised and published in their 
final form in the Federal Register on February 2, 1994 (59 FR 4799). 
Those regulations became effective on April 14, 1994. Taxpayers could 
rely on Notice 93-11 until that date.
    The temporary regulations contained in this document supersede 
current Sec. 1.860G-1(a)(3)(i) to conform with the final regulations 
under section 1275. Under the temporary regulations, a variable rate 
includes a qualified floating rate as defined in Sec. 1.1275-5(b)(1) 
(without the application of paragraphs (b) (2) and (3) of that section, 
concerning the use of caps, floors, governors, and certain multiples) 
set at a current value.
    The temporary regulations are generally effective for obligations 
issued on or after April 4, 1994. The temporary regulations will not 
apply, however, to certain obligations priced before April 4, 1994, and 
transferred on or before June 1, 1994.

Special Analyses

    It has been determined that this Treasury decision is not a 
significant regulatory action as defined in EO 12866. Therefore, a 
regulatory assessment is not required. It also has been determined that 
section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) 
and the Regulatory Flexibility Act (5 U.S.C. chapter 6) do not apply to 
these regulations, and, therefore, a Regulatory Flexibility Analysis is 
not required. Pursuant to section 7805(f) of the Internal Revenue Code, 
these temporary regulations will be submitted to the Chief Counsel for 
Advocacy of the Small Business Administration for comment on their 
impact on small business.

Drafting Information

    The principal authors of these regulations are Carol A. Schwartz 
and Marshall Feiring, Office of Assistant Chief Counsel (Financial 
Institutions and Products). However, other personnel from the IRS and 
Treasury Department participated in their development.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

    Accordingly, 26 CFR part 1 is amended as follows:

PART 1--INCOME TAXES

    Paragraph 1. The authority citation for part 1 is amended by adding 
an entry in numerical order to read as follows:

    Authority: 26 U.S.C. 7805 * * * Section 1.860G-1T also issued 
under 26 U.S.C. 860G(a)(1)(B)(i) and (e).

    Par. 2. Section 1.860G-1T is added to read as follows:


Sec. 1.860G-1T  Regular interests bearing interest at a rate based on a 
current interest rate (temporary).

    (a) Rate based on a current interest rate. A qualified floating 
rate as defined in Sec. 1.1275-5(b)(1) (but without the application of 
paragraph (b)(2) or (3) of that section) set at a current value, as 
defined in Sec. 1.1275-5(a)(4), is a variable rate. In addition, a rate 
equal to the highest, lowest, or average of two or more qualified 
floating rates is a variable rate. For example, a rate based on the 
average cost of funds of one or more financial institutions is a 
variable rate.
    (b) Effect on Sec. 1.860G-1. All references in Sec. 1.860G-1 to 
paragraph (a)(3)(i) must be read as references to paragraph (a) of this 
section.
    (c) Effective date--(1) In general. This section is effective April 
4, 1994.
    (2) Rate based on current interest rate. Paragraphs (a) and (b) of 
this section apply to obligations intended to qualify as regular 
interests that are issued on or after April 4, 1994, unless the 
obligations are described in paragraph (c)(4) of this section.
    (3) Rate based on index. Section 1.860G-1(a)(3)(i) (as contained in 
26 CFR part 1 revised as of April 1, 1994) does not apply to 
obligations intended to qualify as regular interests that are issued on 
or after April 4, 1994, unless the obligations are described in 
paragraph (c)(4) of this section.
    (4) Transition obligations. Obligations are described in this 
paragraph (c)(4) if--
    (i) The terms of the obligations and the prices at which the 
obligations will be offered are fixed before April 4, 1994; and
    (ii) On or before June 1, 1994, a substantial portion of the 
obligations will be transferred, with the terms and at the prices that 
are fixed before April 4, 1994, to investors who are unrelated to the 
REMIC's sponsor at the time of the transfer.
Michael P. Dolan,
Acting Commissioner of Internal Revenue.
    Approved: April 8, 1994.
Leslie Samuels,
Assistant Secretary of the Treasury.
[FR Doc. 94-9548 Filed 4-15-94; 2:05 pm]
BILLING CODE 4830-01-U