Page:United States Statutes at Large Volume 100 Part 3.djvu/505

 PUBLIC LAW 99-514—OCT. 22, 1986

100 STAT. 2313

"(A) the aggregate excess inclusions determined with respect to such interests, over "(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. •SEC. 860F. OTHER RULES. "(a) 100 PERCENT TAX ON PROHIBITED TRANSACTIONS.—

"(1) TAX IMPOSED.—There is hereby imposed for each taxable year of a REMIC a tax equal to 100 percent of the net income derived from prohibited transactions. "(2) PROHIBITED TRANSACTION.—For purposes of this part, the term 'prohibited transaction' means— "(A) DISPOSITION OF QUALIFIED MORTGAGE.—The disposi-

tion of any qualified mortgage transferred to the REMIC other than a disposition pursuant to— "(i) the substitution of a qualified replacement mortgage for a qualified mortgage, "(ii) a disposition incident to the foreclosure, default, or imminent default of the mortgage, "(iii) the bankruptcy or insolvency of the real estate mortgage pool, or "(iv) a qualified liquidation. Notwithstanding the preceding sentence, the term 'prohibited transaction shall not include any disposition required to prevent default on a regular interest where the threatened default resulted from a default on 1 or more qualified mortgages. "(B) INCOME FROM NONPERMITTED ASSETS.—The receipt of

any income attributable to any asset which is neither a qualified mortgage nor a permitted investment. "(C) COMPENSATION FOR SERVICES.—The receipt by the

real estate mortgage pool of any amount representing a fee or other compensation for services. "(D) GAIN

FROM DISPOSITION OF CASH

FLOW INVEST-

MENTS.—Gain from the disposition of any cash flow investment other than pursuant to any qualified liquidation described in subsection (b). "(3) DETERMINATION OF NET INCOME.—For purposes of paragraph (1), the term 'net income derived from prohibited transactions' means the excess of the gross income from prohibited transactions over the deductions allowed by this chapter which are directly connected with such transactions; except that there shall not be taken into account any item attributable to any prohibited transaction for which there was a loss. "(4) QUALIFIED UQUIDATION.—For purposes of this part— "(A) IN GENERAL.—The term 'qualified liquidation' means a transaction in which— "(i) the REMIC adopts a plan of complete liquidation, "(ii) such REMIC sells all its assets (other than cash) within the liquidation period, and

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