Real Estate Mortgage Investment Conduits; Reporting Requirements and Other Administrative Matters

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-100905-97]

RIN 1545-AU96

Real Estate Mortgage Investment Conduits; Reporting Requirements

and Other Administrative Matters

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking and notice of public hearing.

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SUMMARY: This document proposes to eliminate the regulatory requirement

that certain information be set forth on the face of a collateralized

debt obligation (CDO) or regular interest in a Real Estate Mortgage

Investment

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Conduit (REMIC). Implementing the proposal should reduce the burden

imposed on issuers of CDOs and regular interests without impairing the

flow of tax information to either the holders of those instruments or

the IRS. This document also provides notice of a public hearing on

these proposed regulations.

DATES: Written and electronic comments must be received by July 19,

1999. Outlines of topics to be discussed at the public hearing

scheduled for September 13, 1999, at 10 a.m. must be received by August

23, 1999.

ADDRESSES: Send submissions to CC:DOM:CORP:R (REG-100905-97), Room

5226, Internal Revenue Service, POB 7604, Ben Franklin Station,

Washington, DC 20044. Submissions may be hand delivered Monday through

Friday between the hours of 8 a.m. and 5 p.m. to: CC:DOM:CORP:R (REG-

100905-97), Courier's Desk, Internal Revenue Service, 1111 Constitution

Avenue, NW., Washington, DC. Alternatively, taxpayers may submit

comments electronically via the internet by selecting the ``Tax Regs''

option on the IRS Home Page or by submitting comments directly to the

IRS Internet site at

http://www.irs.ustreas.gov/tax__regs/reglist.html. The public hearing

will be held in room 2615, Internal Revenue Building, 1111 Constitution

Avenue, NW., Washington, DC.

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations,

Kenneth Christman, (202) 622-3950; concerning submissions of comments,

the hearing, and/or to be placed on the building access list to attend

the hearing, Guy Traynor, (202) 622-7180 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background

Final regulations (TD 8366) imposing reporting requirements with

regard to CDOs and REMIC regular interests were published in the

Federal Register for September 30, 1991 (56 FR 49512, as corrected by

56 FR 51175). Among other things, those regulations compel the issuer

of a CDO or REMIC regular interest to set forth certain information on

the face of the instrument (legending). Several commentators have asked

the IRS to reassess the need for this rule.

Explanation of Provisions

Section 1272(a)(6) of the Internal Revenue Code provides a special

rule for calculating the accrual of original issue discount (OID) on

REMIC regular interests and CDOs. Special rules are needed because the

timing of payments on these instruments is often uncertain. Although

CDOs and REMIC regular interests are issued with fixed maturity dates,

they may be accelerated to the extent that obligations collateralizing

them prepay.

Because the holder of a CDO or REMIC regular interest would not

necessarily have the information needed to calculate OID under section

1272(a)(6), Congress added section 6049(d)(7) to require enhanced

reporting for such instruments. In addition, Congress gave the IRS and

Treasury specific authority to issue regulations carrying out that

purpose. 2 H.R. Conf. Rep. 99th Cong. 2d Sess. II-237 (1986), 1986-3

(Vol. 4) C.B. 237.

The regulations issued under section 6049(d)(7) are comprehensive.

Sections 1.6049-7(a) through 1.6049-7(f) establish a chain of reporting

obligations that ensures essential tax information will flow to holders

of CDOs and REMIC regular interests. The information made available

includes the amount of a holder's OID accrued during the calendar year.

Importantly, this information is updated annually.

In addition to the ongoing information reporting provided under

Secs. 1.6049-7(a) through 1.6049-7(f), section 1.6049-7(g) provides for

certain information to be legended on the face of a CDO or REMIC

certificate when first issued. The information includes the total

amount of OID on the instrument, the issue date, the rate at which

interest is payable (if any) as of the issue date, and the yield to

maturity.

Legending appears to provide little practical benefit. Most CDOs

and REMIC regular interests are held through book-entry systems, which

means the legended information is rarely (if ever) reported to the

holders. Even if the information were reported, it would be of little

use. Holders who are entitled to have OID determined for them do not

need the information. Holders who need or want to determine OID

themselves cannot make the necessary section 1272(a)(6) calculations

without acquiring additional information. Furthermore, legended

information is available through other sources. It can be obtained from

vendors of financial information or requested under other section 6049

regulations. For these reasons, the IRS and Treasury propose to rescind

Sec. 1.6049-7(g).

Comments are invited on these proposed regulations. In particular,

any taxpayers that rely on legended information are asked to specify

the items relied on and suggest other ways to provide those items (such

as including them among the items that must be reported under

Secs. 1.6049-7(a) through 1.6049-7(f)).

Proposed Effective Date

The rescission of Sec. 1.6049-7(g) is proposed to be effective on

the date the regulations are published in the Federal Register as final

regulations.

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 has also been determined

that section 553(b) of the Administrative Procedure Act (5 U.S.C.

chapter 5) does not apply to these regulations, and, because the

regulations do not impose a collection of information on small

entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not

apply. 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 (a signed original

and eight (8) copies) and electronic comments that are submitted timely

to the IRS. The IRS and Treasury Department specifically request

comments on the clarity of the proposed regulations and how they may be

made easier to understand. All comments will be available for public

inspection and copying.

A public hearing has been scheduled for September 13, 1999,

beginning at 10 a.m. in room 2615, Internal Revenue Building, 1111

Constitution Avenue, NW., Washington DC. Due to building security

procedures, visitors must enter at the 10th Street entrance, located

between Constitution and Pennsylvania Avenues, NW. In addition, all

visitors must present photo identification to enter the building.

Because of access restrictions, visitors will not be admitted beyond

the immediate entrance area more than 15 minutes before the hearing

starts. For further information about having your name placed on the

building access list to attend the hearing, see the FOR FURTHER

INFORMATION CONTACT section of this preamble.

The rules of 26 CFR 601.601(a)(3) apply to the hearing.

Persons who wish to present oral comments at the hearing must

submit written or electronic comments and an

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outline of the topics to be discussed and the time to be devoted to

each topic (a signed original and eight (8) copies) by August 23, 1999.

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 author of these regulations is Kenneth Christman,

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 in

part as follows:

Authority: 26 U.S.C. 7805 * * *

Sec. 1.6049-7 [Amended]

Par. 2. In Sec. 1.6049-7, paragraph (g) is removed.

Robert E. Wenzel,

Deputy Commissioner of Internal Revenue.

[FR Doc. 99-12525 Filed 5-18-99; 8:45 am]

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