[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
