Page:United States Statutes at Large Volume 100 Part 3.djvu/502

 100 STAT. 2310

PUBLIC LAW 99-514—OCT. 22, 1986

"(h) 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 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, and "(D) the deductions referred to in section 703(a)(2) (other than any deduction under section 212) shall not be allowed. "(2) NET LOSS.—The net loss of any REMIC is the excess of— "(A) the deductions allowable in computing the taxable income of such REMIC, over "(B) its gross income. Such amount shall be determined with the modifications set forth in paragraph (1). "(c) DISTRIBUTIONS.—Any distribution by a REMIC— "(1) shall not be included in gross income to the extent it does not exceed the adjusted basis of the interest, and "(2) to the extent it exceeds the adjusted basis of the interest, shall be treated as gain from the sale or exchange of such interest. "(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. "(2) DECREASES IN BASIS.—The basis of any person's residual interest in a REMIC shall be decreased (but not below zero) by the sum of the following amounts: "(A) any distributions to such person with respect to such interest, and "(B) any net loss 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 INCOME.—Any

amount included in the gross income of any holder of a residual interest in a REMIC by reason of subsection (a) shall be treated as ordinary income. "(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). "(B) INDEFINITE CARRYFORWARD.—Any loss disallowed by reason of subparagraph (A) shall be treated as incurred by

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