
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: 26USC860L]

 
                     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. 860L. Definitions and other special rules


(a) FASIT

                           (1) In general

        For purposes of this title, the terms ``financial asset 
    securitization investment trust'' and ``FASIT'' mean any entity--
            (A) for which an election to be treated as a FASIT applies 
        for the taxable year,
            (B) all of the interests in which are regular interests or 
        the ownership interest,
            (C) which has only one ownership interest and such ownership 
        interest is held directly by an eligible corporation,
            (D) as of the close of the third month beginning after the 
        day of its formation and at all times thereafter, substantially 
        all of the assets of which (including assets treated as held by 
        the entity under section 860I(b)(2)) consist of permitted 
        assets, and
            (E) which is not described in section 851(a).

    A rule similar to the rule of the last sentence of section 860D(a) 
    shall apply for purposes of this paragraph.

                      (2) Eligible corporation

        For purposes of paragraph (1)(C), the term ``eligible 
    corporation'' means any domestic C corporation other than--
            (A) a corporation which is exempt from, or is not subject 
        to, tax under this chapter,
            (B) an entity described in section 851(a) or 856(a),
            (C) a REMIC, and
            (D) an organization to which part I of subchapter T applies.

                            (3) Election

        An entity (otherwise meeting the requirements of paragraph (1)) 
    may elect to be treated as a FASIT. Except as provided in paragraph 
    (5), such an election shall apply to the taxable year for which made 
    and all subsequent taxable years unless revoked with the consent of 
    the Secretary.

                           (4) Termination

        If any entity ceases to be a FASIT at any time during the 
    taxable year, such entity shall not be treated as a FASIT after the 
    date of such cessation.

                 (5) Inadvertent terminations, etc.

        Rules similar to the rules of section 860D(b)(2)(B) shall apply 
    to inadvertent failures to qualify or remain qualified as a FASIT.

        (6) Permitted assets not treated as interest in FASIT

        Except as provided in regulations prescribed by the Secretary, 
    any asset which is a permitted asset at the time acquired by a FASIT 
    shall not be treated at any time as an interest in such FASIT.

(b) Interests in FASIT

    For purposes of this part--

                        (1) Regular interest

        (A) In general

            The term ``regular interest'' means any interest which is 
        issued by a FASIT on or after the startup date with fixed terms 
        and which is designated as a regular interest if--
                (i) such interest unconditionally entitles the holder to 
            receive a specified principal amount (or other similar 
            amount),
                (ii) interest payments (or other similar amounts), if 
            any, with respect to such interest are determined based on a 
            fixed rate, or, except as otherwise provided by the 
            Secretary, at a variable rate permitted under section 
            860G(a)(1)(B)(i),
                (iii) such interest does not have a stated maturity 
            (including options to renew) greater than 30 years (or such 
            longer period as may be permitted by regulations),
                (iv) the issue price of such interest does not exceed 
            125 percent of its stated principal amount, and
                (v) the yield to maturity on such interest is less than 
            the sum determined under section 163(i)(1)(B) with respect 
            to such interest.

        An interest shall not fail to meet the requirements of clause 
        (i) merely because the timing (but not the amount) of the 
        principal payments (or other similar amounts) may be contingent 
        on the extent that payments on debt instruments held by the 
        FASIT are made in advance of anticipated payments and on the 
        amount of income from permitted assets.

        (B) High-yield interests

            (i) In general

                The term ``regular interest'' includes any high-yield 
            interest.
            (ii) High-yield interest

                The term ``high-yield interest'' means any interest 
            which would be described in subparagraph (A) but for--
                    (I) failing to meet the requirements of one or more 
                of clauses (i), (iv), or (v) thereof, or
                    (II) failing to meet the requirement of clause (ii) 
                thereof but only if interest payments (or other similar 
                amounts), if any, with respect to such interest consist 
                of a specified portion of the interest payments on 
                permitted assets and such portion does not vary during 
                the period such interest is outstanding.

                       (2) Ownership interest

        The term ``ownership interest'' means the interest issued by a 
    FASIT after the startup day which is designated as an ownership 
    interest and which is not a regular interest.

(c) Permitted assets

    For purposes of this part--

                           (1) In general

        The term ``permitted asset'' means--
            (A) cash or cash equivalents,
            (B) any debt instrument (as defined in section 1275(a)(1)) 
        under which interest payments (or other similar amounts), if 
        any, at or before maturity meet the requirements applicable 
        under clause (i) or (ii) of section 860G(a)(1)(B),
            (C) foreclosure property,
            (D) any asset--
                (i) which is an interest rate or foreign currency 
            notional principal contract, letter of credit, insurance, 
            guarantee against payment defaults, or other similar 
            instrument permitted by the Secretary, and
                (ii) which is reasonably required to guarantee or hedge 
            against the FASIT's risks associated with being the obligor 
            on interests issued by the FASIT,

            (E) contract rights to acquire debt instruments described in 
        subparagraph (B) or assets described in subparagraph (D),
            (F) any regular interest in another FASIT, and
            (G) any regular interest in a REMIC.

        (2) Debt issued by holder of ownership interest not 
                               permitted asset

        The term ``permitted asset'' shall not include any debt 
    instrument issued by the holder of the ownership interest in the 
    FASIT or by any person related to such holder or any direct or 
    indirect interest in such a debt instrument. The preceding sentence 
    shall not apply to cash equivalents and to any other investment 
    specified in regulations prescribed by the Secretary.

                      (3) Foreclosure property

        (A) In general

            The term ``foreclosure property'' means property--
                (i) which would be foreclosure property under section 
            856(e) (determined without regard to paragraph (5) thereof) 
            if such property were real property acquired by a real 
            estate investment trust, and
                (ii) which is acquired in connection with the default or 
            imminent default of a debt instrument held by the FASIT 
            unless the security interest in such property was created 
            for the principal purpose of permitting the FASIT to invest 
            in such property.

        Solely for purposes of subsection (a)(1), the determination of 
        whether any property is foreclosure property shall be made 
        without regard to section 856(e)(4).

        (B) Authority to reduce grace period

            In the case of property other than real property and other 
        than personal property incident to real property, the Secretary 
        may by regulation reduce for purposes of subparagraph (A) the 
        periods otherwise applicable under paragraphs (2) and (3) of 
        section 856(e).

(d) Startup day

    For purposes of this part--

                           (1) In general

        The term ``startup day'' means the date designated in the 
    election under subsection (a)(3) as the startup day of the FASIT. 
    Such day shall be the beginning of the first taxable year of the 
    FASIT.

            (2) Treatment of property held on startup day

        All property held (or treated as held under section 860I(b)(2)) 
    by an entity as of the startup day shall be treated as contributed 
    to such entity on such day by the holder of the ownership interest 
    in such entity.

(e) Tax on prohibited transactions

                           (1) In general

        There is hereby imposed for each taxable year of a FASIT a tax 
    equal to 100 percent of the net income derived from prohibited 
    transactions. Such tax shall be paid by the holder of the ownership 
    interest in the FASIT.

                     (2) Prohibited transactions

        For purposes of this part, the term ``prohibited transaction'' 
    means--
            (A) except as provided in paragraph (3), the receipt of any 
        income derived from any asset that is not a permitted asset,
            (B) except as provided in paragraph (3), the disposition of 
        any permitted asset other than foreclosure property,
            (C) the receipt of any income derived from any loan 
        originated by the FASIT, and
            (D) the receipt of any income representing a fee or other 
        compensation for services (other than any fee received as 
        compensation for a waiver, amendment, or consent under permitted 
        assets (other than foreclosure property) held by the FASIT).

         (3) Exception for income from certain dispositions

        (A) In general

            Paragraph (2)(B) shall not apply to a disposition which 
        would not be a prohibited transaction (as defined in section 
        860F(a)(2)) by reason of--
                (i) clause (ii), (iii), or (iv) of section 
            860F(a)(2)(A), or
                (ii) section 860F(a)(5),

        if the FASIT were treated as a REMIC and permitted assets (other 
        than cash or cash equivalents) were treated as qualified 
        mortgages.

        (B) Substitution of debt instruments; reduction of over-
                collateralization

            Paragraph (2)(B) shall not apply to--
                (i) the substitution of a debt instrument described in 
            subsection (c)(1)(B) for another debt instrument which is a 
            permitted asset, or
                (ii) the distribution of a debt instrument contributed 
            by the holder of the ownership interest to such holder in 
            order to reduce over-collateralization of the FASIT,

        but only if a principal purpose of acquiring the debt instrument 
        which is disposed of was not the recognition of gain (or the 
        reduction of a loss) as a result of an increase in the market 
        value of the debt instrument after its acquisition by the FASIT.

        (C) Liquidation of class of regular interests

            Paragraph (2)(B) shall not apply to the complete liquidation 
        of any class of regular interests.

        (D) Income from dispositions of former hedge assets

            Paragraph (2)(A) shall not apply to income derived from the 
        disposition of--
                (i) an asset which was described in subsection (c)(1)(D) 
            when first acquired by the FASIT but on the date of such 
            disposition was no longer described in subsection 
            (c)(1)(D)(ii), or
                (ii) a contract right to acquire an asset described in 
            clause (i).

                           (4) Net income

        For purposes of this subsection, net income shall be determined 
    in accordance with section 860F(a)(3).

(f) Coordination with other provisions

                        (1) Wash sales rules

        Rules similar to the rules of section 860F(d) shall apply to the 
    ownership interest in a FASIT.

                           (2) Section 475

        Except as provided by the Secretary by regulations, if any 
    security which is sold or contributed to a FASIT by the holder of 
    the ownership interest in such FASIT was required to be marked-to-
    market under section 475 by such holder, section 475 shall continue 
    to apply to such security; except that in applying section 475 while 
    such security is held by the FASIT, the fair market value of such 
    security for purposes of section 475 shall not be less than its 
    value under section 860I(d).

(g) Related person

    For purposes of this part, a person (hereinafter in this subsection 
referred to as the ``related person'') is related to any person if--
        (1) the related person bears a relationship to such person 
    specified in section 267(b) or section 707(b)(1), or
        (2) the related person and such person are engaged in trades or 
    businesses under common control (within the meaning of subsections 
    (a) and (b) of section 52).

For purposes of paragraph (1), in applying section 267(b) or 707(b)(1), 
``20 percent'' shall be substituted for ``50 percent''.

(h) Regulations

    The Secretary shall prescribe such regulations as may be necessary 
or appropriate to carry out the purposes of this part, including 
regulations to prevent the abuse of the purposes of this part through 
transactions which are not primarily related to securitization of debt 
instruments by a FASIT.

(Added Pub. L. 104-188, title I, Sec. 1621(a), Aug. 20, 1996, 110 Stat. 
1862; amended Pub. L. 105-34, title XVI, Sec. 1601(f)(6), Aug. 5, 1997, 
111 Stat. 1091.)


                               Amendments

    1997--Subsec. (b)(1)(A). Pub. L. 105-34, Sec. 1601(f)(6)(A), 
substituted ``on or after the startup date'' for ``after the startup 
date'' in introductory provisions.
    Subsec. (d)(2). Pub. L. 105-34, Sec. 1601(f)(6)(B), substituted 
``section 860I(b)(2)'' for ``section 860I(c)(2)''.
    Subsec. (e)(2)(A). Pub. L. 105-34, Sec. 1601(f)(6)(E)(ii), inserted 
``except as provided in paragraph (3),'' before ``the receipt''.
    Subsec. (e)(2)(B). Pub. L. 105-34, Sec. 1601(f)(6)(C), inserted 
``other than foreclosure property'' after ``any permitted asset''.
    Subsec. (e)(3)(A). Pub. L. 105-34, Sec. 1601(f)(6)(D), struck out 
``if the FASIT were treated as a REMIC and debt instruments described in 
subsection (c)(1)(B) were treated as qualified mortgages.'' after 
``section 860F(a)(5),'' in cl. (ii) and inserted concluding provisions 
``if the FASIT were treated as a REMIC and permitted assets (other than 
cash or cash equivalents) were treated as qualified mortgages.''
    Subsec. (e)(3)(D). Pub. L. 105-34, Sec. 1601(f)(6)(E)(i), added 
subpar. (D).


                    Effective Date of 1997 Amendment

    Amendment by Pub. L. 105-34 effective as if included in the 
provisions of the Small Business Job Protection Act of 1996, Pub. L. 
104-188, to which it relates, see section 1601(j) of Pub. L. 105-34, set 
out as a note under section 23 of this title.

                  Section Referred to in Other Sections

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