
From the U.S. Code Online via GPO Access
[wais.access.gpo.gov]
[Laws in effect as of January 2, 2001]
[Document not affected by Public Laws enacted between
  January 2, 2001 and January 28, 2002]
[CITE: 26USC860G]

 
                     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. 860G. Other definitions and special rules


(a) Definitions

    For purposes of this part--

                        (1) Regular interest

        The term ``regular interest'' means any interest in a REMIC 
    which is issued on the startup day with fixed terms and which is 
    designated as a regular interest if--
            (A) such interest unconditionally entitles the holder to 
        receive a specified principal amount (or other similar amount), 
        and
            (B) interest payments (or other similar amount), if any, 
        with respect to such interest at or before maturity--
                (i) are payable based on a fixed rate (or to the extent 
            provided in regulations, at a variable rate), or
                (ii) consist of a specified portion of the interest 
            payments on qualified mortgages and such portion does not 
            vary during the period such interest is outstanding.

    The interest shall not fail to meet the requirements of subparagraph 
    (A) merely because the timing (but not the amount) of the principal 
    payments (or other similar amounts) may be contingent on the extent 
    of prepayments on qualified mortgages and the amount of income from 
    permitted investments.

                        (2) Residual interest

        The term ``residual interest'' means an interest in a REMIC 
    which is issued on the startup day, which is not a regular interest, 
    and which is designated as a residual interest.

                       (3) Qualified mortgage

        The term ``qualified mortgage'' means--
            (A) any obligation (including any participation or 
        certificate of beneficial ownership therein) which is 
        principally secured by an interest in real property and which--
                (i) is transferred to the REMIC on the startup day in 
            exchange for regular or residual interests in the REMIC, or
                (ii) is purchased by the REMIC within the 3-month period 
            beginning on the startup day if, except as provided in 
            regulations, such purchase is pursuant to a fixed-price 
            contract in effect on the startup day,

            (B) any qualified replacement mortgage,
            (C) any regular interest in another REMIC transferred to the 
        REMIC on the startup day in exchange for regular or residual 
        interests in the REMIC, and
            (D) any regular interest in a FASIT which is transferred to, 
        or purchased by, the REMIC as described in clauses (i) and (ii) 
        of subparagraph (A) but only if 95 percent or more of the value 
        of the assets of such FASIT is at all times attributable to 
        obligations described in subparagraph (A) (without regard to 
        such clauses).

    For purposes of subparagraph (A), any obligation secured by stock 
    held by a person as a tenant-stockholder (as defined in section 216) 
    in a cooperative housing corporation (as so defined) shall be 
    treated as secured by an interest in real property.

                 (4) Qualified replacement mortgage

        The term ``qualified replacement mortgage'' means any 
    obligation--
            (A) which would be a qualified mortgage if transferred on 
        the startup day in exchange for regular or residual interests in 
        the REMIC, and
            (B) which is received for--
                (i) another obligation within the 3-month period 
            beginning on the startup day, or
                (ii) a defective obligation within the 2-year period 
            beginning on the startup day.

                      (5) Permitted investments

        The term ``permitted investments'' means any--
            (A) cash flow investment,
            (B) qualified reserve asset, or
            (C) foreclosure property.

                      (6) Cash flow investment

        The term ``cash flow investment'' means any investment of 
    amounts received under qualified mortgages for a temporary period 
    before distribution to holders of interests in the REMIC.

                     (7) Qualified reserve asset

        (A) In general

            The term ``qualified reserve asset'' means any intangible 
        property which is held for investment and as part of a qualified 
        reserve fund.

        (B) Qualified reserve fund

            For purposes of subparagraph (A), the term ``qualified 
        reserve fund'' means any reasonably required reserve to provide 
        for full payment of expenses of the REMIC or amounts due on 
        regular interests in the event of defaults on qualified 
        mortgages or lower than expected returns on cash flow 
        investments. The amount of any such reserve shall be promptly 
        and appropriately reduced as payments of qualified mortgages are 
        received.

        (C) Special rule

            A reserve shall not be treated as a qualified reserve for 
        any taxable year (and all subsequent taxable years) if more than 
        30 percent of the gross income from the assets in such fund for 
        the taxable year is derived from the sale or other disposition 
        of property held for less than 3 months. For purposes of the 
        preceding sentence, gain on the disposition of a qualified 
        reserve asset shall not be taken into account if the disposition 
        giving rise to such gain is required to prevent default on a 
        regular interest where the threatened default resulted from a 
        default on 1 or more qualified mortgages.

                      (8) Foreclosure property

        The term ``foreclosure property'' means property--
            (A) which would be foreclosure property under section 856(e) 
        (without regard to paragraph (5) thereof) if acquired by a real 
        estate investment trust, and
            (B) which is acquired in connection with the default or 
        imminent default of a qualified mortgage held by the REMIC.

    Solely for purposes of section 860D(a), the determination of whether 
    any property is foreclosure property shall be made without regard to 
    section 856(e)(4).

                           (9) Startup day

        The term ``startup day'' means the day on which the REMIC issues 
    all of its regular and residual interests. To the extent provided in 
    regulations, all interests issued (and all transfers to the REMIC) 
    during any period (not exceeding 10 days) permitted in such 
    regulations shall be treated as occurring on the day during such 
    period selected by the REMIC for purposes of this paragraph.

                          (10) Issue price

        The issue price of any regular or residual interest in a REMIC 
    shall be determined under section 1273(b) in the same manner as if 
    such interest were a debt instrument; except that if the interest is 
    issued for property, paragraph (3) of section 1273(b) shall apply 
    whether or not the requirements of such paragraph are met.

(b) Treatment of nonresident aliens and foreign corporations

    If the holder of a residual interest in a REMIC is a nonresident 
alien individual or a foreign corporation, for purposes of sections 
871(a), 881, 1441, and 1442--
        (1) amounts includible in the gross income of such holder under 
    this part shall be taken into account when paid or distributed (or 
    when the interest is disposed of), and
        (2) no exemption from the taxes imposed by such sections (and no 
    reduction in the rates of such taxes) shall apply to any excess 
    inclusion.

The Secretary may by regulations provide that such amounts shall be 
taken into account earlier than as provided in paragraph (1) where 
necessary or appropriate to prevent the avoidance of tax imposed by this 
chapter.

(c) Tax on income from foreclosure property

                           (1) In general

        A tax is hereby imposed for each taxable year on the net income 
    from foreclosure property of each REMIC. Such tax shall be computed 
    by multiplying the net income from foreclosure property by the 
    highest rate of tax specified in section 11(b).

              (2) Net income from foreclosure property

        For purposes of this part, the term ``net income from 
    foreclosure property'' means the amount which would be the REMIC's 
    net income from foreclosure property under section 857(b)(4)(B) if 
    the REMIC were a real estate investment trust.

(d) Tax on contributions after startup date

                           (1) In general

        Except as provided in paragraph (2), if any amount is 
    contributed to a REMIC after the startup day, there is hereby 
    imposed a tax for the taxable year of the REMIC in which the 
    contribution is received equal to 100 percent of the amount of such 
    contribution.

                           (2) Exceptions

        Paragraph (1) shall not apply to any contribution which is made 
    in cash and is described in any of the following subparagraphs:
            (A) Any contribution to facilitate a clean-up call (as 
        defined in regulations) or a qualified liquidation.
            (B) Any payment in the nature of a guarantee.
            (C) Any contribution during the 3-month period beginning on 
        the startup day.
            (D) Any contribution to a qualified reserve fund by any 
        holder of a residual interest in the REMIC.
            (E) Any other contribution permitted in regulations.

(e) Regulations

    The Secretary shall prescribe such regulations as may be necessary 
or appropriate to carry out the purposes of this part, including 
regulations--
        (1) to prevent unreasonable accumulations of assets in a REMIC,
        (2) permitting determinations of the fair market value of 
    property transferred to a REMIC and issue price of interests in a 
    REMIC to be made earlier than otherwise provided,
        (3) requiring reporting to holders of residual interests of such 
    information as frequently as is necessary or appropriate to permit 
    such holders to compute their taxable income accurately,
        (4) providing appropriate rules for treatment of transfers of 
    qualified replacement mortgages to the REMIC where the transferor 
    holds any interest in the REMIC, and
        (5) providing that a mortgage will be treated as a qualified 
    replacement mortgage only if it is part of a bona fide replacement 
    (and not part of a swap of mortgages).

(Added Pub. L. 99-514, title VI, Sec. 671(a), Oct. 22, 1986, 100 Stat. 
2315; amended Pub. L. 100-647, title I, Sec. 1006(t)(5)(A)-(E), (6)-
(8)(B), (9)(A), (10), Nov. 10, 1988, 102 Stat. 3420-3422; Pub. L. 101-
239, title VII, Sec. 7811(c)(9), Dec. 19, 1989, 103 Stat. 2408; Pub. L. 
101-508, title XI, Sec. 11704(a)(9), Nov. 5, 1990, 104 Stat. 1388-518; 
Pub. L. 104-188, title I, Sec. 1621(b)(6), Aug. 20, 1996, 110 Stat. 
1867.)


                               Amendments

    1996--Subsec. (a)(3)(D). Pub. L. 104-188 added subpar. (D).
    1990--Subsec. (a)(3)(A). Pub. L. 101-508 struck out comma after 
``secured'' in introductory provisions.
    1989--Subsec. (a)(3). Pub. L. 101-239 substituted ``subparagraph 
(A)'' for ``this subparagraph'' in last sentence.
    1988--Subsec. (a)(1). Pub. L. 100-647, Sec. 1006(t)(5)(A), amended 
par. (1) generally. Prior to amendment, par. (1) read as follows: ``The 
term `regular interest' means an interest in a REMIC the terms of which 
are fixed on the startup day, and which--
        ``(A) unconditionally entitles the holder to receive a specified 
    principal amount (or other similar amount), and
        ``(B) provides that interest payments (or other similar 
    amounts), if any, at or before maturity are payable based on a fixed 
    rate (or to the extent provided in regulations, at a variable rate).
An interest shall not fail to meet the requirements of subparagraph (A) 
merely because the timing (but not the amount) of the principal payments 
(or other similar amounts) may be contingent on the extent of 
prepayments on qualified mortgages and the amount of income from 
permitted investments.''
    Subsec. (a)(2). Pub. L. 100-647, Sec. 1006(t)(5)(B), amended par. 
(2) generally. Prior to amendment, par. (2) read as follows: ``The term 
`residual interest' means an interest in a REMIC which is not a regular 
interest and is designated as a residual interest.''
    Subsec. (a)(3). Pub. L. 100-647, Sec. 1006(t)(6)(B), inserted at end 
``For purposes of this subparagraph, any obligation secured by stock 
held by a person as a tenant-stockholder (as defined in section 216) in 
a cooperative housing corporation (as so defined) shall be treated as 
secured by an interest in real property.''
    Subsec. (a)(3)(A). Pub. L. 100-647, Sec. 1006(t)(6)(A), struck out 
``directly or indirectly,''.
    Subsec. (a)(3)(A)(i). Pub. L. 100-647, Sec. 1006(t)(5)(C)(i), 
substituted ``on the startup day in exchange for regular or residual 
interests in the REMIC'' for ``on or before the startup day''.
    Subsec. (a)(3)(A)(ii). Pub. L. 100-647, Sec. 1006(t)(5)(C)(ii), 
inserted before comma at end ``if, except as provided in regulations, 
such purchase is pursuant to a fixed-price contract in effect on the 
startup day''.
    Subsec. (a)(3)(C). Pub. L. 100-647, Sec. 1006(t)(5)(C)(iii), 
substituted ``on the startup day in exchange for regular or residual 
interests in the REMIC'' for ``on or before the startup day''.
    Subsec. (a)(4)(A). Pub. L. 100-647, Sec. 1006(t)(5)(D), amended 
subpar. (A) generally. Prior to amendment, subpar. (A) read as follows: 
``which would be described in paragraph (3)(A) if it were transferred to 
the REMIC on or before the startup day, and''.
    Subsec. (a)(7)(B). Pub. L. 100-647, Sec. 1006(t)(7), inserted before 
period at end of first sentence ``or lower than expected returns on cash 
flow investments''.
    Subsec. (a)(8). Pub. L. 100-647, Sec. 1006(t)(8)(A), substituted 
``section 856(e) (without regard to paragraph (5) thereof)'' for 
``section 856(e)'' in subpar. (A) and amended last sentence generally. 
Prior to amendment, last sentence read as follows: ``Property shall 
cease to be foreclosure property with respect to the REMIC on the date 
which is 1 year after the date such real estate mortgage pool acquired 
such property.''
    Subsec. (a)(9). Pub. L. 100-647, Sec. 1006(t)(5)(E), amended par. 
(9) generally. Prior to amendment, par. (9) read as follows: ``The term 
`startup day' means any day selected by a REMIC which is on or before 
the 1st day on which interests in such REMIC are issued.''
    Subsec. (c). Pub. L. 100-647, Sec. 1006(t)(8)(B), added subsec. (c). 
Former subsec. (c) redesignated (d).
    Subsec. (d). Pub. L. 100-647, Sec. 1006(t)(9)(A), added subsec. (d). 
Former subsec. (d) redesignated (e).
    Pub. L. 100-647, Sec. 1006(t)(8)(B), redesignated former subsec. (c) 
as (d).
    Subsec. (e). Pub. L. 100-647, Sec. 1006(t)(9)(A), redesignated 
former subsec. (d) as (e).
    Subsec. (e)(4), (5). Pub. L. 100-647, Sec. 1006(t)(10), added pars. 
(4) and (5).


                    Effective Date of 1996 Amendment

    Amendment by Pub. L. 104-188 effective Sept. 1, 1997, see section 
1621(d) of Pub. L. 104-188, set out as a note under section 26 of this 
title.


                    Effective Date of 1989 Amendment

    Amendment by Pub. L. 101-239 effective, except as otherwise 
provided, as if included in the provision of the Technical and 
Miscellaneous Revenue Act of 1988, Pub. L. 100-647, to which such 
amendment relates, see section 7817 of Pub. L. 101-239, set out as a 
note under section 1 of this title.


                    Effective Date of 1988 Amendment

    Section 1006(t)(5)(F) of Pub. L. 100-647 provided that: ``The 
amendments made by this paragraph [amending this section] shall not 
apply to any REMIC where the startup day (as defined in section 
860G(a)(9) of the 1986 Code as in effect on the day before the date of 
the enactment of this Act [Nov. 10, 1988]) is before July 1, 1987.''
    Section 1006(t)(9)(B) of Pub. L. 100-647 provided that: ``The 
amendment made by subparagraph (A) [amending this section] shall not 
apply to any REMIC where the startup day (as defined in section 
860G(a)(9) of the 1986 Code as in effect on the day before the date of 
the enactment of this Act [Nov. 10, 1988]) is before July 1, 1987.''
    Amendment by section 1006(t)(6)-(8)(B), (10) of 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 sections 860C, 860L, 1259 of this 
title.
