§ 860C. Taxation of residual interests
(a)
Pass-thru of income or loss
(1)
In general
In determining the tax under this chapter of any holder of a residual interest in a REMIC, such holder shall take into account his daily portion of the taxable income or net loss of such REMIC for each day during the taxable year on which such holder held such interest.
(b)
Determination of taxable income or net loss
For purposes of this section—
(1)
Taxable income
The taxable income of a REMIC shall be determined under an accrual method of accounting and, except as provided in regulations, in the same manner as in the case of an individual, except that—
(A)
regular interests in such REMIC (if not otherwise debt instruments) shall be treated as indebtedness of such REMIC,
(B)
market discount on any market discount bond shall be included in gross income for the taxable years to which it is attributable as determined under the rules of section
1276
(b)(2) (and sections
1276
(a) and
1277 shall not apply),
(C)
there shall not be taken into account any item of income, gain, loss, or deduction allocable to a prohibited transaction,
(c)
Distributions
Any distribution by a REMIC—
(d)
Basis rules
(1)
Increase in basis
The basis of any person’s residual interest in a REMIC shall be increased by the amount of the taxable income of such REMIC taken into account under subsection (a) by such person with respect to such interest.
(e)
Special rules
(1)
Amounts treated as ordinary
Any amount taken into account under subsection (a) by any holder of a residual interest in a REMIC shall be treated as ordinary income or ordinary loss, as the case may be.
(2)
Limitation on losses
(A)
In general
The amount of the net loss of any REMIC taken into account by a holder under subsection (a) with respect to any calendar quarter shall not exceed the adjusted basis of such holder’s residual interest in such REMIC as of the close of such calendar quarter (determined without regard to the adjustment under subsection (d)(2)(B) for such calendar quarter).