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

DEPARTMENT OF THE TREASURY
Internal Revenue Service 26 CFR Part 1 [REG-100905-97] RIN 1545-AU96

TITLE: 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.

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 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 A 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 §§
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 §
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
§§ 1.6049-7(a) through 1.6049-7(f)).

Proposed Effective Date

The rescission of § 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 10 th 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 A 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 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 * * *

§1.6049-7 [Amended] Par. 2. In § 1.6049-7, paragraph (g) is removed.

Robert E. Wenzel
Deputy Commissioner of Internal Revenue

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