§ 860E. Treatment of income in excess of daily accruals on residual interests
(a)
Excess inclusions may not be offset by net operating losses
(1)
In general
The taxable income of any holder of a residual interest in a REMIC for any taxable year shall in no event be less than the excess inclusion for such taxable year.
(2)
Special rule for affiliated groups
All members of an affiliated group filing a consolidated return shall be treated as 1 taxpayer for purposes of this subsection.
(3)
Coordination with section
172
Any excess inclusion for any taxable year shall not be taken into account—
(A)
in determining under section
172 the amount of any net operating loss for such taxable year, and
(4)
Coordination with minimum tax
For purposes of part VI of subchapter A of this chapter—
(A)
the reference in section
55
(b)(2) to taxable income shall be treated as a reference to taxable income determined without regard to this subsection,
(c)
Excess inclusion
For purposes of this section—
(1)
In general
The term “excess inclusion” means, with respect to any residual interest in a REMIC for any calendar quarter, the excess (if any) of—
(A)
the amount taken into account with respect to such interest by the holder under section
860C
(a), over
(B)
the sum of the daily accruals with respect to such interest for days during such calendar quarter while held by such holder.
To the extent provided in regulations, if residual interests in a REMIC do not have significant value, the excess inclusions with respect to such interests shall be the amount determined under subparagraph (A) without regard to subparagraph (B).
(2)
Determination of daily accruals
(A)
In general
For purposes of this subsection, the daily accrual with respect to any residual interest for any day in any calendar quarter shall be determined by allocating to each day in such quarter its ratable portion of the product of—
(d)
Treatment of residual interests held by real estate investment trusts
If a residual interest in a REMIC is held by a real estate investment trust, under regulations prescribed by the Secretary—
(1)
any excess of—
(B)
the real estate investment trust taxable income (within the meaning of section
857
(b)(2), excluding any net capital gain),
shall be allocated among the shareholders of such trust in proportion to the dividends received by such shareholders from such trust, and
(2)
any amount allocated to a shareholder under paragraph (1) shall be treated as an excess inclusion with respect to a residual interest held by such shareholder.
Rules similar to the rules of the preceding sentence shall apply also in the case of regulated investment companies, common trust funds, and organizations to which part I of subchapter T applies.
(e)
Tax on transfers of residual interests to certain organizations, etc.
(1)
In general
A tax is hereby imposed on any transfer of a residual interest in a REMIC to a disqualified organization.
(2)
Amount of tax
The amount of the tax imposed by paragraph (1) on any transfer of a residual interest shall be equal to the product of—
(3)
Liability
The tax imposed by paragraph (1) on any transfer shall be paid by the transferor; except that, where such transfer is through an agent for a disqualified organization, such tax shall be paid by such agent.
(4)
Transferee furnishes affidavit
The person (otherwise liable for any tax imposed by paragraph (1)) shall be relieved of liability for the tax imposed by paragraph (1) with respect to any transfer if—
(5)
Disqualified organization
For purposes of this section, the term “disqualified organization” means—
(A)
the United States, any State or political subdivision thereof, any foreign government, any international organization, or any agency or instrumentality of any of the foregoing,
(6)
Treatment of pass-thru entities
(A)
Imposition of tax
If, at any time during any taxable year of a pass-thru entity, a disqualified organization is the record holder of an interest in such entity, there is hereby imposed on such entity for such taxable year a tax equal to the product of—
(B)
Pass-thru entity
For purposes of this paragraph, the term “pass-thru entity” means—
Except as provided in regulations, a person holding an interest in a pass-thru entity as a nominee for another person shall, with respect to such interest, be treated as a pass-thru entity.
(C)
Tax to be deductible
Any tax imposed by this paragraph with respect to any excess inclusion of any pass-thru entity for any taxable year shall, for purposes of this title (other than this subsection), be applied against (and operate to reduce) the amount included in gross income with respect to the residual interest involved.
(D)
Exception where holder furnishes affidavit
No tax shall be imposed by subparagraph (A) with respect to any interest in a pass-thru entity for any period if—
(f)
Treatment of variable insurance contracts
Except as provided in regulations, with respect to any variable contract (as defined in section
817), there shall be no adjustment in the reserve to the extent of any excess inclusion.