[Federal Register Volume 69, Number 153 (Tuesday, August 10, 2004)]
[Proposed Rules]
[Pages 48431-48432]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-18269]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-154077-03]
RIN 1545-BC71


Real Estate Mortgage Investment Conduits

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: This document contains proposed regulations relating to the 
application of the unified partnership audit procedures to disputes 
regarding the ownership of residual interests in a Real Estate Mortgage 
Investment Conduit (REMIC). These regulations will affect taxpayers 
that invest in REMIC residual interests.

DATES: Written or electronically generated comments and requests for a 
public hearing must be received by November 8, 2004.

ADDRESSES: Send submissions to CC:PA:LPD:PR (REG-154077-03), room 5226, 
Internal Revenue Service, POB 7604, Ben Franklin Station, Washington, 
DC 20044. Submissions may be hand-delivered Monday through Friday 
between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-154077-03), 
Courier's Desk, Internal Revenue Service, 1111 Constitution Avenue, 
NW., Washington, DC. Alternatively, taxpayers may submit electronic 
comments directly to the IRS Internet site at www.irs.gov/regs or the 
Federal eRulemaking Portal at www.regulations.gov (IRS--REG-154077-03).

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
Arturo Estrada, (202) 622-3900(not a toll-free number); concerning the 
submissions of comments, or a request for a public hearing, LaNita 
VanDyke (202) 622-7180 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    This proposed regulation amends 26 CFR part 1 under section 860F of 
the Internal Revenue Code (Code) relating to the application of the 
unified partnership audit procedures of subchapter C of chapter 63 of 
the Code to REMICs and the holders of residual interests. Section 
860F(e) provides that a REMIC is treated as a partnership (and holders 
of residual interests in that REMIC shall be treated as partners) for 
purposes of subtitle F of the Code, which includes the unified 
partnership audit procedures. The taxable income of a holder of a REMIC 
residual interest is determined under the REMIC provisions of part IV 
of subchapter M, which require the holder to take into account its 
daily portion of the REMIC's taxable income or net loss for each day 
during the taxable year on which the holder holds its interest. Section 
860C(a)(1). The provisions of subchapter K relating to the 
determination of the taxable income of a partnership and its partners 
do not apply to REMICs or the holders of REMIC residual interests. 
Section 860A(a).
    Questions have arisen regarding whether the identity of the holder 
of a REMIC residual interest is treated as a partnership item for 
purposes of the unified partnership audit procedures. Questions also 
have arisen regarding the applicability of the unified partnership 
audit procedures when a determination is made under the REMIC 
regulations to disregard certain transfers of REMIC residual interests 
and continue to treat the transferor as the holder of the transferred 
REMIC residual interests. See Sec. Sec.  1.860E-1(c) and 1.860G-3.
    The IRS and Treasury Department have determined that the identity 
of a holder of a REMIC residual interest is more appropriately 
determined at the residual interest holder level than at the REMIC 
entity level.

Explanation of Provisions

    The proposed regulations provide that the determination of the 
identity of a holder of a REMIC residual interest is not a partnership 
item for purposes of the unified partnership audit procedures as 
applied to REMICs, whether or not such determination involves the 
application of a disregarded transfer rule. Unlike the identity of a 
partner in a partnership subject to subchapter K, the identity of the 
holder of a REMIC residual interest does not affect the calculation of 
the REMIC's taxable income or net loss.

Proposed Dates of Applicability

    These regulations are proposed to apply after December 31, 1986. 
See Sec.  1.860A-1(b)(1)(ii).

Special Analyses

    It has been determined that this notice of proposed rulemaking is 
not a significant regulatory action as defined in Executive Order 
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) does not apply to these regulations, and because 
these regulations do not impose a collection requirement on small 
entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not 
apply. Therefore, a Regulatory Flexibility Analysis is not required. 
Pursuant to section 7805(f) of the Code, this notice of proposed 
rulemaking has been submitted to the Chief Counsel for Advocacy of the 
Small Business Administration for comment on its impact on small 
businesses.

Comments and Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any written comments (a signed original 
and

[[Page 48432]]

eight (8) copies) or electronic comments that are submitted timely to 
the IRS. The IRS and Treasury Department request comments on the 
clarity of the proposed rules and how they may be made easier to 
understand. All comments will be available for public inspection and 
copying.
    A public hearing will be scheduled if requested in writing by any 
person that timely submits written comments. If a public hearing is 
scheduled, notice of the date, time, and place for the public hearing 
will be published in the Federal Register.

Drafting Information

    The principal author of these regulations is Arturo Estrada, Office 
of the Associate 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 is amended by adding 
an entry in numerical order to read, in part, as follows:

    Authority: 26 U.S.C. 7805 * * *
    Section 860F-4 issued under 26 U.S.C. 860G(e) and 26 U.S.C. 
6230(k).* * *

    Par. 2. In Sec.  1.860F-4, paragraph (a) is amended by adding a 
sentence at the end to read as follows:


Sec.  1.860F-4  REMIC reporting requirements and other administrative 
rules.

    (a) * * * The identity of a holder of a residual interest in a 
REMIC is not treated as a partnership item with respect to the REMIC 
for purposes of subchapter C of chapter 63.
* * * * *

Nancy J. Jardini,
Acting Deputy Commissioner of Services and Enforcement.
[FR Doc. 04-18269 Filed 8-9-04; 8:45 am]
BILLING CODE 4830-01-P