Page:United States Statutes at Large Volume 100 Part 3.djvu/503

 PUBLIC LAW 99-514—OCT. 22, 1986

100 STAT. 2311

the REMIC in the succeeding calendar quarter with respect to such holder "(3) CROSS REFERENCE.— "For special treatment of income in excess of daily accruals, see section 860E. "SEC. 860D. REMIC DEFINED.

"(a) GENERAL RULE.—For purposes of this title, the terms 'real estate mortgage investment conduit' and 'REMIC mean any entity— "(1) to which an election to be treated as a REMIC applies for the taxable year and all prior taxable years, "(2) all of the interests in which are regular interests or residual interests, "(3) which has 1 (and only 1) class of residual interests (and all distributions, if any, with respect to such interests are pro rata), "(4) as of the close of the 4th month ending after the startup day and each quarter ending thereafter, substantially all of the assets of which consist of qualified mortgages and permitted investments, and "(5) which has a taxable year which is a calendar year. "(b) ELECTION.—

"(1) IN GENERAL.—An entity (otherwise meeting the requirements of subsection (a)) may elect to be treated as a REMIC for its 1st taxable year. Such an election shall be made on its return for such 1st taxable year. Except as provided in paragraph (2), such an election shall apply to the taxable year for which made and all subsequent taxable years. "(2) TERMINATION.—

"(A) IN GENERAL.—If any entity ceases to be a REMIC at any time during the taxable year, such entity shall not be treated as a REMIC for such taxable year or any succeeding taxable year. "(B) INADVERTENT TERMINATIONS.—If—

"(i) an entity ceases to be a REMIC, "(ii) the Secretary determines that such cessation was inadvertent, "(iii) no later than a reasonable time after the discovery of the event resulting in such cessation, steps are taken so that such entity is once more a REMIC, and "(iv) such entity, and each person holding an interest in such entity at any time during the period specified pursuant to this subsection, agrees to make such adjustments (consistent with the treatment of such entity as a REMIC or a C corporation) as may be required by the Secretary with respect to such period, then, notwithstanding such terminating event, such entity shall be treated as continuing to be a REMIC (or such cessation shall be disregarded for purposes of subparagraph (A)) whichever the Secretary determines to be appropriate. "SEC 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.—Except as provided in paragraph (2), the taxable income of any holder of a residual interest in a REMIC

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