
From the U.S. Code Online via GPO Access
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[Laws in effect as of January 2, 2001]
[Document not affected by Public Laws enacted between
  January 2, 2001 and January 28, 2002]
[CITE: 26USC860C]

 
                     TITLE 26--INTERNAL REVENUE CODE
 
                        Subtitle A--Income Taxes
 
                  CHAPTER 1--NORMAL TAXES AND SURTAXES
 
Subchapter M--Regulated Investment Companies and Real Estate Investment 
                                 Trusts
 
            PART IV--REAL ESTATE MORTGAGE INVESTMENT CONDUITS
 
Sec. 860C. Taxation of residual interests


(a) Pass-thru of income or loss

                           (1) In general

        In determining the tax under this chapter of any holder of a 
    residual interest in a REMIC, such holder shall take into account 
    his daily portion of the taxable income or net loss of such REMIC 
    for each day during the taxable year on which such holder held such 
    interest.

                          (2) Daily portion

        The daily portion referred to in paragraph (1) shall be 
    determined--
            (A) by allocating to each day in any calendar quarter its 
        ratable portion of the taxable income (or net loss) for such 
        quarter, and
            (B) by allocating the amount so allocated to any day among 
        the holders (on such day) of residual interests in proportion to 
        their respective holdings on such day.

(b) Determination of taxable income or net loss

    For purposes of this section--

                         (1) Taxable income

        The taxable income of a REMIC shall be determined under an 
    accrual method of accounting and, except as provided in regulations, 
    in the same manner as in the case of an individual, except that--
            (A) regular interests in such REMIC (if not otherwise debt 
        instruments) shall be treated as indebtedness of such REMIC,
            (B) market discount on any market discount bond shall be 
        included in gross income for the taxable years to which it is 
        attributable as determined under the rules of section 1276(b)(2) 
        (and sections 1276(a) and 1277 shall not apply),
            (C) there shall not be taken into account any item of 
        income, gain, loss, or deduction allocable to a prohibited 
        transaction,
            (D) the deductions referred to in section 703(a)(2) (other 
        than any deduction under section 212) shall not be allowed, and
            (E) the amount of the net income from foreclosure property 
        (if any) shall be reduced by the amount of the tax imposed by 
        section 860G(c).

                            (2) Net loss

        The net loss of any REMIC is the excess of--
            (A) the deductions allowable in computing the taxable income 
        of such REMIC, over
            (B) its gross income.

    Such amount shall be determined with the modifications set forth in 
    paragraph (1).

(c) Distributions

    Any distribution by a REMIC--
        (1) shall not be included in gross income to the extent it does 
    not exceed the adjusted basis of the interest, and
        (2) to the extent it exceeds the adjusted basis of the interest, 
    shall be treated as gain from the sale or exchange of such interest.

(d) Basis rules

                        (1) Increase in basis

        The basis of any person's residual interest in a REMIC shall be 
    increased by the amount of the taxable income of such REMIC taken 
    into account under subsection (a) by such person with respect to 
    such interest.

                       (2) Decreases in basis

        The basis of any person's residual interest in a REMIC shall be 
    decreased (but not below zero) by the sum of the following amounts:
            (A) any distributions to such person with respect to such 
        interest, and
            (B) any net loss of such REMIC taken into account under 
        subsection (a) by such person with respect to such interest.

(e) Special rules

                   (1) Amounts treated as ordinary

        Any amount taken into account under subsection (a) by any holder 
    of a residual interest in a REMIC shall be treated as ordinary 
    income or ordinary loss, as the case may be.

                      (2) Limitation on losses

        (A) In general

            The amount of the net loss of any REMIC taken into account 
        by a holder under subsection (a) with respect to any calendar 
        quarter shall not exceed the adjusted basis of such holder's 
        residual interest in such REMIC as of the close of such calendar 
        quarter (determined without regard to the adjustment under 
        subsection (d)(2)(B) for such calendar quarter).

        (B) Indefinite carryforward

            Any loss disallowed by reason of subparagraph (A) shall be 
        treated as incurred by the REMIC in the succeeding calendar 
        quarter with respect to such holder.

                         (3) Cross reference

            For special treatment of income in excess of daily accruals, 
        see section 860E.

(Added Pub. L. 99-514, title VI, Sec. 671(a), Oct. 22, 1986, 100 Stat. 
2309; amended Pub. L. 100-647, title I, Sec. 1006(t)(1), (8)(C), (21), 
Nov. 10, 1988, 102 Stat. 3419, 3421, 3426.)


                               Amendments

    1988--Subsec. (b)(1). Pub. L. 100-647, Sec. 1006(t)(21), substituted 
``and, except as provided in regulations, in the same manner'' for ``and 
in the same manner'' in introductory provisions.
    Subsec. (b)(1)(E). Pub. L. 100-647, Sec. 1006(t)(8)(C), added 
subpar. (E).
    Subsec. (e)(1). Pub. L. 100-647, Sec. 1006(t)(1), substituted 
``ordinary'' for ``ordinary income'' in heading and amended text 
generally. Prior to amendment, text read as follows: ``Any amount 
included in the gross income of any holder of a residual interest in a 
REMIC by reason of subsection (a) shall be treated as ordinary income.''


                    Effective Date of 1988 Amendment

    Amendment by Pub. L. 100-647 effective, except as otherwise 
provided, as if included in the provision of the Tax Reform Act of 1986, 
Pub. L. 99-514, to which such amendment relates, see section 1019(a) of 
Pub. L. 100-647, set out as a note under section 1 of this title.

                  Section Referred to in Other Sections

    This section is referred to in section 860E of this title.
