[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: 94-9549]


[[Page Unknown]]

[Federal Register: April 20, 1994]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[FI-10-94]
RIN 1545-AS54

 

Real Estate Mortgage Investment Conduits

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking by cross-reference to temporary 
regulations and notice of public hearing.

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SUMMARY: In the Rules and Regulations section of this issue of the 
Federal Register, the IRS is issuing temporary regulations relating to 
permitted variable interest rates for regular interests in real estate 
mortgage investment conduits, or REMICs. A portion of the text of those 
temporary regulations also serves as the partial text of these proposed 
regulations. The remaining text of these proposed regulations concerns 
permitted specified portion interest rates for regular interests and 
effective dates. This document also provides notice of a public hearing 
on these proposed regulations.

DATES: Written comments must be received by June 20, 1994. Outlines of 
topics to be discussed at the public hearing scheduled for July 22, 
1994, at 10 a.m. must be received by July 1, 1994.

ADDRESSES: Send submissions to: CC:DOM:CORP:T:R (FI-10-94), room 5228, 
Internal Revenue Service, POB 7604, Ben Franklin Station, Washington, 
DC 20044. In the alternative, submissions may be hand delivered to: 
CC:DOM:CORP:T:R (FI-10-94), room 5228, Internal Revenue Service, 1111 
Constitution Avenue NW., Washington, DC. The public hearing will be 
held in the Auditorium, Internal Revenue Building, 1111 Constitution 
Avenue NW., Washington, DC.

FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Carol A. 
Schwartz, (202) 622-3920; concerning submissions and the hearing, Carol 
Savage, (202) 622-8452 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background

    Temporary regulations in the Rules and Regulations portion of this 
issue of the Federal Register amend the Income Tax Regulations (26 CFR 
part 1) contained in Sec. 1.860G-1(a)(3)(i) concerning permitted 
variable interest rates for REMIC regular interests. A portion of the 
text of those temporary regulations also serves as a partial text of 
these proposed regulations. The preamble to the temporary regulations 
explains the temporary regulations.
    This notice of proposed rulemaking also contains rules under 
Sec. 1.860G-1(a)(2)(i) that are not in the temporary regulations. These 
rules concern interest rates, applicable to a REMIC regular interest, 
that consist of a ``specified portion.''
    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) of the Internal Revenue 
Code. 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. 
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)(2)(i) (A), (B), and (C) identifies the 
specified portions that are permitted under section 860G(a)(1)(B). 
Paragraph (a)(2)(i)(A) describes a portion that can be expressed as a 
percentage of the interest payable on some or all of the qualified 
mortgages held by the REMIC. The qualified mortgages, however, must 
bear interest at a fixed rate or at a permitted variable rate. This 
limitation prevents the REMIC from passing through as interest certain 
contingent payments that may be associated with the qualified 
mortgages.
    Taxpayers have requested that the IRS clarify that a REMIC may 
issue a specified portion regular interest (sometimes called an 
``Interest Only'' interest or ``IO'') expressed as a percentage of the 
interest payable on an IO acquired from another REMIC. The proposed 
regulations, which are proposed to be effective for entities whose 
startup day is on or after November 12, 1991, clarify that issue. The 
IRS and Treasury Department specifically invite comments regarding 
whether further guidance under 1.860G-1(a)(2)(i) is necessary.

Special Analyses

    It has been determined that this notice of proposed rulemaking 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, 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 Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any written comments that are submitted 
timely (preferably a signed original and eight copies) to the IRS. All 
comments will be available for public inspection and copying.
    A public hearing has been scheduled for Friday, July 22, 1994, at 
10 a.m. in the IRS Auditorium. Because of access restrictions, visitors 
will not be admitted beyond the Internal Revenue Building lobby more 
than 15 minutes before the hearing starts.
    The rules of 26 CFR 601.601(a)(3) apply to the hearing.
    Persons that wish to present oral comments at the hearing must 
submit written comments by June 20, 1994, and submit an outline of the 
topics to be discussed and the time to be devoted to each topic by July 
1, 1994.
    A period of 10 minutes will be allotted to each person for making 
comments.
    An agenda showing the scheduling of the speakers will be prepared 
after the deadline for receiving outlines has passed. Copies of the 
agenda will be available free of charge at the hearing.

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.

Proposed Amendments to the Regulations

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

PART 1--INCOME TAXES

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

    Authority: 26 U.S.C. 7805 * * *.

    Par. 2. Section 1.860A-0 is amended by:

    1. Adding an entry for Sec. 1.860A-1(b)(4).
    2. Revising the entry for Sec. 1.860G-1(a)(3)(i).
    3. The addition and revision read as follows:


Sec. 1.860A-0  Outline of REMIC provisions.

* * * * *

Sec. 1.860A-1  Effective dates and transition rules.

* * * * *
    (b) * * *
    (4) Rate based on current interest rate.
    (i) In general.
    (ii) Rate based on index.
    (iii) Transition obligations.
* * * * *

Sec. 1.860G-1  Definition of regular and residual interests.

    (a) * * *
    (3) * * *
    (i) Rate based on current interest rate.
* * * * *
    Par. 3. Section 1.860A-1 is amended by adding paragraph (b)(4) to 
read as follows:


Sec. 1.860A-1  Effective dates and transition rules.

* * * * *
    (b) * * *
    (4) Rate based on current interest rate--(i) In general. Section 
1.860G-1(a)(3)(i) applies to obligations (other than transition 
obligations described in paragraph (b)(4)(iii) of this section) 
intended to qualify as regular interests that are issued on or after 
April 4, 1994.
    (ii) Rate based on index. Section 1.860G-1(a)(3)(i) (as contained 
in 26 CFR part 1 revised as of April 1, 1994) applies to obligations 
intended to qualify as regular interests that--
    (A) Are issued by a qualified entity (as defined in Sec. 1.860D-
1(c)(3)) whose startup date (as defined in section 860G(a)(9) and 
Sec. 1.860G-2(k)) is on or after November 12, 1991; and
    (B) Are either--
    (1) Issued before April 4, 1994; or
    (2) Transition obligations described in paragraph (b)(4)(iii) of 
this section.
    (iii) Transition obligations. Obligations are described in this 
paragraph (b)(4)(iii) if--
    (A) The terms of the obligations and the prices at which the 
obligations are offered are fixed before April 4, 1994; and
    (B) On or before June 1, 1994, a substantial portion of the 
obligations are 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.
    Par. 4. Section 1.860G-1 is amended by adding paragraph 
(a)(2)(i)(D) to read as follows:


Sec. 1.860G-1  Definition of regular and residual interests.

    (a) * * *
    (2) * * *
    (i) * * *
    (D) A fixed percentage of the interest that is payable on some or 
all of the qualified mortgages if--
    (1) Each qualified mortgage is a regular interest issued by another 
REMIC; and
    (2) With respect to that other REMIC, the regular interest bears 
interest that can be expressed as a specified portion as described in 
Sec. 1.860G-1(a)(2)(i)(A), (B), or (C). See Sec. 1.860A-1(a) for the 
effective date of paragraph (a)(2)(i)(D) of this section.


Sec. 1.860G-1  [Amended]

    Par. 5. Section 1.860G-1, paragraph (a)(3)(i) is revised as 
follows:
    [The text of this proposed paragraph is the same as the text of 
Sec. 1.860G-1T(a) published elsewhere in this issue of the Federal 
Register].
Michael P. Dolan,
Acting Commissioner of Internal Revenue.
[FR Doc. 94-9549 Filed 4-15-94; 2:05 pm]
BILLING CODE 4830-01-U