[Federal Register Volume 71, Number 147 (Tuesday, August 1, 2006)]
[Proposed Rules]
[Pages 43398-43400]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-12364]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-159929-02]
RIN 1545-BB84


REMIC Residual Interests--Accounting for REMIC Net Income 
(Including Any Excess Inclusions (Foreign Holders)

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking by cross-reference to temporary 
regulations.

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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 
the income that is associated with a residual interest in a Real Estate 
Mortgage Investment Conduit (REMIC) and that is allocated through 
certain entities to foreign persons who have invested in those 
entities. The regulations accelerate the time when income is recognized 
for withholding tax purposes to conform to the timing of income 
recognition for general tax purposes. The foreign persons covered by 
these regulations include partners in domestic partnerships, 
shareholders of real estate investment trusts, shareholders of 
regulated investment companies, participants in common trust funds, and 
patrons of subchapter T cooperatives. These regulations are necessary 
to prevent inappropriate avoidance of current income tax liability by 
foreign persons to whom income from REMIC

[[Page 43399]]

residual interests is allocated. The regulations clarify the timing of 
income under section 860G for purposes of determining a domestic 
partnership's responsibility under sections 1441 and 1442 for 
withholding tax with respect to a foreign partner's share of REMIC net 
income as a result of indirectly holding a residual interest. The 
regulations also provide that an excess inclusion is treated as income 
from sources within the United States. The text of those temporary 
regulations also serves as the text of these proposed regulations.

DATES: Written or electronic comments and requests for a public hearing 
must be received by October 30, 2006.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-159929-02), room 
5203, Internal Revenue Service, POB 7604, Ben Franklin Station, 
Washington, DC 20044. Alternatively, taxpayers may submit electronic 
comments directly to the IRS Internet site at http://www.irs.gov/regs 
or the Federal eRulemaking Portal at http://www.regulations.gov (IRS-
REG-159929-02).

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
Dale Collinson, (202) 622-3900 (not a toll-free number); concerning the 
submission of comments, or a request for a public hearing, Kelly Banks 
([email protected]).

SUPPLEMENTARY INFORMATION:

Background and Explanation of Provisions

    Temporary regulations in the Rules and Regulations section of this 
issue of the Federal Register amend the Income Tax Regulations (26 CFR 
part 1) relating to sections 860A; 860G, 863, 1441, and 1442 of the 
Internal Revenue Code (Code). The temporary regulations provide rules 
relating to the recognition and sourcing of income and related 
withholding issues associated with a Real Estate Mortgage Investment 
Conduit (REMIC) residual interest that is allocated to a foreign 
person, including a foreign partner in a domestic partnership. The text 
of the temporary regulations also serves as the text of these proposed 
regulations. The preamble to the temporary regulations explains the 
amendments.

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 is hereby 
certified that these regulations will not have a significant economic 
impact on a substantial number of small entities. This certification is 
based upon the fact that the regulations do not impose any new or 
different requirements on small entities. Therefore, a Regulatory 
Flexibility Analysis under the Regulatory Flexibility Act (5 U.S.C. 
chapter 6) is not required. Pursuant to section 7805(f) of the 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 Requests for a Public Hearing

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

    Sec.  1.860A-1 also issued under 26 U.S.C. 860G(b) and 860G(e). 
* * *

    Par. 2. In Sec.  1.860A-1, paragraph (b)(5) is added to read as 
follows:


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

* * * * *
    (b) * * *
    (5) [The text of the proposed amendment to Sec.  1.860A-1(b)(5) is 
the same as the text of Sec.  1.860A-1T(b)(5) published elsewhere in 
this issue of the Federal Register].
    Par. 3. In Sec.  1.860G-3, paragraph (b) is added to read as 
follows:


Sec.  1.860G-3  Treatment of foreign persons.

* * * * *
    (b) [The text of the proposed amendment to Sec.  1.860G-3(b) is the 
same as the text of Sec.  1.860G-3T(b) published elsewhere in this 
issue of the Federal Register].
    Par. 4. Section 1.863-1 is amended as follows:
    1. The paragraph heading for paragraph (e) is revised.
    2. The text of paragraph (e) is redesignated as (e)(1).
    3. A new paragraph heading for paragraph (e)(1) is added.
    4. A new paragraph (e)(2) is added.
    5. The last sentence of paragraph (f) is revised and a new sentence 
is added to the end.
    The revisions and additions read as follows:


Sec.  1.863-1  Allocation of gross income under section 863(a).

* * * * *
    (e) Residual interest in a REMIC--(1) REMIC inducement fees.* * *
    (2) [The text of the proposed amendment to Sec.  1.863-1(e)(2) is 
the same as the text of Sec.  1.863-1T(e)(2) published elsewhere in 
this issue of the Federal Register].
    (f) [The text of proposed amendment to Sec.  1.863-1(f) is the same 
as the text of Sec.  1.863-1T(f) published elsewhere in this issue of 
the Federal Register].
    Par. 5. Section 1.1441-2 is amended by adding paragraphs (b)(5) and 
(d)(4) and a sentence to the end of paragraph (f) to read as follows:


Sec.  1.1441-2  Amounts subject to withholding.

* * * * *
    (b) * * *
    (5) [The text of the proposed amendment to Sec.  1.1441-2(b)(5) is 
the same as the text of Sec.  1.1441-2T(b)(5) published elsewhere in 
this issue of the Federal Register].
* * * * *
    (d) * * *
    (4) [The text of the proposed amendment to Sec.  1.1441-2(d)(4) is 
the same as the text of Sec.  1.1441-2T(d)(4) published elsewhere in 
this issue of the Federal Register.]
* * * * *
    (f) [The text of the proposed amendment to Sec.  1.1441-2T(f)(1) is 
the same as the text of Sec.  1.1441-2T(f)(1)

[[Page 43400]]

published elsewhere in this issue of the Federal Register.

Mark E. Matthews,
Deputy Commissioner for Services and Enforcement.
 [FR Doc. E6-12364 Filed 7-31-06; 8:45 am]
BILLING CODE 4830-01-P