26 U.S.C. § 860G: Other definitions and special rules

such interest unconditionally entitles the holder to receive a specified principal amount (or other similar amount), and are payable based on a fixed rate (or to the extent provided in regulations, at a variable rate), or 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 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. is transferred to the REMIC on the startup day in exchange for regular or residual interests in the REMIC, 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, or is attributable to an advance made to the obligor pursuant to the original terms of a reverse mortgage loan or other obligation, occurs after the startup day, and is purchased by the REMIC pursuant to a fixed price contract in effect on the startup day, any qualified replacement mortgage, and any regular interest in another REMIC transferred to the REMIC on the startup day in exchange for regular or residual interests in the REMIC. which would be a qualified mortgage if transferred on the startup day in exchange for regular or residual interests in the REMIC, and another obligation within the 3-month period beginning on the startup day, or a defective obligation within the 2-year period beginning on the startup day. cash flow investment, qualified reserve asset, or foreclosure property. 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. The term “qualified reserve asset” means any intangible property which is held for investment and as part of a qualified reserve fund. 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, or provide a source of funds for the purchase of obligations described in clause (ii) or (iii) of paragraph (3)(A). 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. which would be foreclosure property under section 856(e) (without regard to paragraph (5) thereof) if acquired by a real estate investment trust, and which is acquired in connection with the default or imminent default of a qualified mortgage held by the REMIC. 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. 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. 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 no exemption from the taxes imposed by such sections (and no reduction in the rates of such taxes) shall apply to any excess inclusion. 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). 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. 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. Any contribution to facilitate a clean-up call (as defined in regulations) or a qualified liquidation. Any payment in the nature of a guarantee. Any contribution during the 3-month period beginning on the startup day. Any contribution to a qualified reserve fund by any holder of a residual interest in the REMIC. Any other contribution permitted in regulations. to prevent unreasonable accumulations of assets in a REMIC, 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, 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, providing appropriate rules for treatment of transfers of qualified replacement mortgages to the REMIC where the transferor holds any interest in the REMIC, and 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).