| REG-159929-02 |
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)
Internal Revenue Service (IRS), Treasury.
Notice of proposed rulemaking by cross-reference to temporary regulations.
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).
FOR FURTHER INFORMATION CONTACT:
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).
SUPPLEMENTARY INFORMATION:
Background and Explanation of Provisions
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.
Comments and Requests for a 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) 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.
Proposed Amendments to the Regulations
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:
§1.860A-1 Effective dates and transition rules.
* * * * *
(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:
§1.860G-3 Treatment of foreign persons.
* * * * *
(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:
§1.863-1 Allocation of gross income under section 863(a).
* * * * *
(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:
§1.1441-2 Amounts subject to withholding.
* * * * *
(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.
Note
(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)
The principal author of these regulations is Dale Collinson, Office
of the Associate Chief Counsel (Financial Institutions and Products). However,
other personnel from the IRS and Treasury Department participated in their
development.
* * * * *
Internal Revenue Bulletin 2006-35
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