
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: 26USC860K]

 
                     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 V--FINANCIAL ASSET SECURITIZATION INVESTMENT TRUSTS
 
Sec. 860K. Treatment of transfers of high-yield interests to 
        disqualified holders
        

(a) General rule

    In the case of any high-yield interest which is held by a 
disqualified holder--
        (1) the gross income of such holder shall not include any income 
    (other than gain) attributable to such interest, and
        (2) amounts not includible in the gross income of such holder by 
    reason of paragraph (1) shall be included (at the time otherwise 
    includible under paragraph (1)) in the gross income of the most 
    recent holder of such interest which is not a disqualified holder.

(b) Exceptions

    Rules similar to the rules of paragraphs (4) and (7) of section 
860E(e) shall apply to the tax imposed by reason of the inclusion in 
gross income under subsection (a).

(c) Disqualified holder

    For purposes of this section, the term ``disqualified holder'' means 
any holder other than--
        (1) an eligible corporation (as defined in section 860L(a)(2)), 
    or
        (2) a FASIT.

(d) Treatment of interests held by securities dealers

                           (1) In general

        Subsection (a) shall not apply to any high-yield interest held 
    by a disqualified holder if such holder is a dealer in securities 
    who acquired such interest exclusively for sale to customers in the 
    ordinary course of business (and not for investment).

                     (2) Change in dealer status

        (A) In general

            In the case of a dealer in securities which is not an 
        eligible corporation (as defined in section 860L(a)(2)), if--
                (i) such dealer ceases to be a dealer in securities, or
                (ii) such dealer commences holding the high-yield 
            interest for investment,

        there is hereby imposed (in addition to other taxes) an excise 
        tax equal to the product of the highest rate of tax specified in 
        section 11(b)(1) and the income of such dealer attributable to 
        such interest for periods after the date of such cessation or 
        commencement.

        (B) Holding for 31 days or less

            For purposes of subparagraph (A)(ii), a dealer shall not be 
        treated as holding an interest for investment before the thirty-
        second day after the date such dealer acquired such interest 
        unless such interest is so held as part of a plan to avoid the 
        purposes of this paragraph.

        (C) Administrative provisions

            The deficiency procedures of subtitle F shall apply to the 
        tax imposed by this paragraph.

(e) Treatment of high-yield interests in pass-thru entities

                           (1) In general

        If a pass-thru entity (as defined in section 860E(e)(6)) issues 
    a debt or equity interest--
            (A) which is supported by any regular interest in a FASIT, 
        and
            (B) which has an original yield to maturity which is greater 
        than each of--
                (i) the sum determined under clauses (i) and (ii) of 
            section 163(i)(1)(B) with respect to such debt or equity 
            interest, and
                (ii) the yield to maturity to such entity on such 
            regular interest (determined as of the date such entity 
            acquired such interest),

    there is hereby imposed on the pass-thru entity a tax (in addition 
    to other taxes) equal to the product of the highest rate of tax 
    specified in section 11(b)(1) and the income of the holder of such 
    debt or equity interest which is properly attributable to such 
    regular interest. For purposes of the preceding sentence, the yield 
    to maturity of any equity interest shall be determined under 
    regulations prescribed by the Secretary.

                            (2) Exception

        Paragraph (1) shall not apply to arrangements not having as a 
    principal purpose the avoidance of the purposes of this subsection.

(Added Pub. L. 104-188, title I, Sec. 1621(a), Aug. 20, 1996, 110 Stat. 
1861.)

                  Section Referred to in Other Sections

    This section is referred to in section 26 of this title.
