[Federal Register Volume 70, Number 37 (Friday, February 25, 2005)]
[Rules and Regulations]
[Pages 9218-9219]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-3697]


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

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 9184]
RIN 1545-BC71


Real Estate Mortgage Investment Conduits

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulation.

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

SUMMARY: This document contains final regulations relating to the 
application of the unified partnership audit

[[Page 9219]]

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: These regulations apply after December 31, 1986.

FOR FURTHER INFORMATION CONTACT: Arturo Estrada, (202) 622-3900 (not a 
toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    This 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 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.

Effective Date

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

Special Analyses

    It has been determined that this Treasury decision 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 Treasury decision has 
been submitted to the Chief Counsel for Advocacy of the Small Business 
Administration for comment on its impact on small businesses.

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.

Amendments to the Regulations

0
Accordingly, 26 CFR part 1 is amended as follows:

PART 1--INCOME TAXES

0
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).* * *


0
Par. 2. In Sec.  1.860F-4, paragraph (a) is amended by adding a 
sentence at the end of the paragraph 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.
* * * * *

Mark E. Matthews,
Deputy Commissioner for Services and Enforcement.
    Approved: February 15, 2005.
Eric Solomon,
Acting Deputy Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 05-3697 Filed 2-24-05; 8:45 am]
BILLING CODE 4830-01-P