Internal Revenue Bulletin: 2006-35
August 28, 2006
Notice of Proposed Rulemaking by Cross-Reference to Temporary Regulations REMIC Residual Interests — Accounting for REMIC Net Income (Including Any Excess Inclusions (Foreign Holders)
Table of Contents
In this issue of the Bulletin, the IRS is issuing temporary regulations, (T.D. 9272) relating to the income that is associated with a residual interest in a Real Estate Mortgage Investment Conduit (REMIC) and that is allocated through certain entities to foreign persons who have invested in those entities. The regulations accelerate the time when income is recognized for withholding tax purposes to conform to the timing of income recognition for general tax purposes. The foreign persons covered by these regulations include partners in domestic partnerships, shareholders of real estate investment trusts, shareholders of regulated investment companies, participants in common trust funds, and patrons of subchapter T cooperatives. These regulations are necessary to prevent inappropriate avoidance of current income tax liability by foreign persons to whom income from REMIC residual interests is allocated. The regulations clarify the timing of income under section 860G for purposes of determining a domestic partnership’s responsibility under sections 1441 and 1442 for withholding tax with respect to a foreign partner’s share of REMIC net income as a result of indirectly holding a residual interest. The regulations also provide that an excess inclusion is treated as income from sources within the United States. The text of those temporary regulations also serves as the text of these proposed regulations.
Written or electronic comments and requests for a public hearing must be received by October 30, 2006.
Send submissions to: CC:PA:LPD:PR (REG-159929-02), room 5203, Internal Revenue Service, POB 7604, Ben Franklin Station, Washington, DC 20044.Alternatively, taxpayers may submit electronic comments directly to the IRS Internet site at www.irs.gov/regs or the Federal eRulemaking Portal at www.regulations.gov (IRS-REG-159929-02).
Concerning the proposed regulations, Dale Collinson, (202) 622-3900 (not a toll-free number); concerning the submission of comments, or a request for a public hearing, Kelly Banks (Kelly.D.Banks@irscounsel.treas.gov).
Temporary regulations in the Rules and Regulations section of this issue of the Bulletin amend the Income Tax Regulations (26 CFR Part 1) relating to sections 860A; 860G, 863, 1441, and 1442 of the Internal Revenue Code (Code). The temporary regulations provide rules relating to the recognition and sourcing of income and related withholding issues associated with a Real Estate Mortgage Investment Conduit (REMIC) residual interest that is allocated to a foreign person, including a foreign partner in a domestic partnership. The text of the temporary regulations also serves as the text of these proposed regulations. The preamble to the temporary regulations explains the amendments.
It has been determined that this notice of proposed rulemaking is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It is hereby certified that these regulations will not have a significant economic impact on a substantial number of small entities. This certification is based upon the fact that the regulations do not impose any new or different requirements on small entities. Therefore, a Regulatory Flexibility Analysis under the Regulatory Flexibility Act (5 U.S.C. chapter 6) is not required. Pursuant to section 7805(f) of the 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.
Before these proposed regulations are adopted as final regulations, consideration will be given to any written comments (a signed original and eight (8) copies) or electronic comments that are submitted timely to the IRS. The IRS and Treasury Department request comments on the clarity of the proposed rules and how they can be made easier to understand. All comments will be available for public inspection and copying. A public hearing will be scheduled if requested in writing by any person that timely submits written comments. If a public hearing is scheduled, notice of the date, time and place for the public hearing will be published in the Federal Register.
Accordingly, 26 CFR part 1 is proposed to be amended as follows:
Paragraph 1. The authority citation for part 1 is amended by adding an entry in numerical order to read, in part, as follows:
Authority: 26 U.S.C. 7805 * * *
§1.860A-1 also issued under 26 U.S.C. 860G(b) and 860G(e). * * *
Par. 2. In §1.860A-1, paragraph (b)(5) is added to read as follows:
* * * * *
(b) * * *
(5) [The text of the proposed amendment to §1.860A-1(b)(5) is the same as the text of §1.860A-1T(b)(5) published elsewhere in this issue of the Bulletin].
Par. 3. In §1.860G-3, paragraph (b) is added to read as follows:
* * * * *
(b) [The text of the proposed amendment to §1.860G-3(b) is the same as the text of §1.860G-3T(b) published elsewhere in this issue of the Bulletin].
Par. 4. Section 1.863-1 is amended as follows:
1. The paragraph heading for paragraph (e) is revised.
2. The text of paragraph (e) is redesignated as (e)(1).
3. A new paragraph heading for paragraph (e)(1) is added.
4. A new paragraph (e)(2) is added.
5. The last sentence of paragraph (f) is revised and a new sentence is added to the end.
The revisions and additions read as follows:
* * * * *
(e) Residual interest in a REMIC—(1) REMIC inducement fees.* * *
(2) [The text of the proposed amendment to §1.863-1(e)(2) is the same as the text of §1.863-1T(e)(2) published elsewhere in this issue of the Bulletin].
(f) [The text of proposed amendment to §1.863-1(f) is the same as the text of §1.863-1T(f) published elsewhere in this issue of the Bulletin].
Par. 5. Section 1.1441-2 is amended by adding paragraphs (b)(5) and (d)(4) and a sentence to the end of paragraph (f) to read as follows:
* * * * *
(b) * * *
(5) [The text of the proposed amendment to §1.1441-2(b)(5) is the same as the text of §1.1441-2T(b)(5) published elsewhere in this issue of the Bulletin].
* * * * *
(d) * * *
(4) [The text of the proposed amendment to §1.1441-2(d)(4) is the same as the text of §1.1441-2T(d)(4) published elsewhere in this issue of the Bulletin.]
* * * * *
(f) [The text of the proposed amendment to §1.1441-2T(f)(1) is the same as the text of §1.1441-2T(f)(1) published elsewhere in this issue of the Bulletin.
Mark E. Matthews,
Deputy Commissioner for
Services and Enforcement.
(Filed by the Office of the Federal Register on July 31, 2006, 8:45 a.m., and published in the issue of the Federal Register for August 1, 2006, 71 F.R. 43398)
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