REMICs, FASITs, and Other CDOs Holders of interests in real estate mortgage investment conduits(REMICs), financial asset securitization investment trusts (FASITs),and other collateralized debt obligations (CDOs) must follow specialrules for reporting income and any expenses from these investmentproducts. REMICs A real estate mortgage investment conduit (REMIC) is anentity that is formed for the purpose of holding a fixed pool ofmortgages secured by interests in real property. A REMIC issuesregular and residual interests to investors. For tax purposes, a REMICis generally treated as a partnership with the residual interestholders treated as the partners. The regular interests are treated asdebt instruments. REMIC income or loss is not income or loss from a passive activity. For more information about the qualifications and the tax treatmentthat apply to a REMIC and the interests of investors in a REMIC, seesections 860A through 860G of the Internal Revenue Code, and theregulations under those sections. Regular interest defined.A REMIC can have several classes (also known as "tranches") ofregular interests. A regular interest unconditionally entitles theholder to receive a specified principal amount (or other similaramount). Residual interest defined.A residual interest is an interest in a REMIC that is not a regularinterest. It is designated as a residual interest by the REMIC. Tax Treatment ofREMIC Regular Interests A REMIC regular interest is treated as a debt instrument for incometax purposes. Accordingly, the OID, market discount, and incomereporting rules that apply to bonds and other debt instruments asdescribed earlier in this publication under Discount on DebtInstruments apply, with certain modifications discussed below. ERROR MSGGenerally, you report your income from a regular interest on line8a, Form 1040. For more information on how to report interest and OID,see How To Report Interest Income, earlier. Holders must use accrual method. Holders of regular interests must use an accrual method ofaccounting to report OID and interest income. Because income under anaccrual method is not determined by the receipt of cash, you may haveto include OID or interest income in your taxable income even if youhave not received any cash payments. Forms 1099-INT and 1099-OID.You should receive a copy of Form 1099-INT or Form1099-OID from the REMIC. You will also receive a writtenstatement by March 15, 2001 (if you are a calendar year taxpayer),that provides additional information. The statement should containenough information to enable you to figure your accrual of marketdiscount or amortizable bond premium. Form 1099-INT shows the amount of interest income thataccrued to you for the period you held the regular interest. Form 1099-OID shows the amount of OID and interest, if any,that accrued to you for the period you held the regular interest. Youwill not need to make any adjustments to the amounts reported even ifyou held the regular interest for only a part of the calendar year.However, if you bought the regular interest at a premium oracquisition premium, see Refiguring OID shown on Form1099-OID under Original Issue Discount (OID),earlier. You may not get a Form 1099. Corporations and other persons specified in Regulation1.6049-7(c) will not receive Forms 1099. These persons andfiscal year taxpayers may obtain tax information by contacting theREMIC or the issuer of the CDO, if they hold directly from the REMICor issuer of the CDO. Publication 938, Real Estate MortgageInvestment Conduits (REMICs) Reporting Information, explains howto request this information. Computer: Publication 938 is only available on the Internet atwww.irs.gov. If you hold a regular interest or CDO through a nominee (ratherthan directly), you can request the information from the nominee inthe manner prescribed in Regulation 1.6049-7(f)(7)(i). Allocated investment expenses of a REMIC.Regular interest holders in a REMIC may be allowed to deduct theREMIC's investment expenses, but only if the REMIC is asingle-class Bohinjsko Jezero hotel bookingREMIC. A single-class REMIC is one thatgenerally would be classified as a trust for tax purposes if it hadnot elected REMIC status. The single-class REMIC will report your share of its investmentexpenses in box 5 of Form 1099-INT or box 7 of Form1099-OID. It will also include this amount in box 1 of Form1099-INT or box 2 of Form 1099-OID, and on the additionalwritten statement. You may be able to take a deduction for these expenses subject to a2% limit that also applies to certain other miscellaneous itemizeddeductions. See chapter 3for more information. Redemption of REMIC regular interests at maturity.ERROR MSGRedemption of debt instruments at their maturity is treated as asale or exchange. You must report redemptions on your tax returnwhether or not you realize gain or loss on the transaction. Your basisis your adjusted issue price, which includes any OID you previouslyreported in income. Any amount that you receive on the retirement of a debt instrumentis treated in the same way as if you had sold or exchanged thatinstrument. A debt instrument is retired when it is reacquired orredeemed by the issuer and canceled. Sale or exchange of a REMIC regular interest.Some of your gain on the sale or exchange of a REMIC regularinterest may be ordinary income. The ordinary income part, if any, is: The amount that would have been included in your income ifthe yield to maturity on the regular interest had been 110% of theapplicable federal rate at the beginning of your holding period, minus The amount you included in your income. Tax Treatment ofREMIC Residual Interests If you acquire a residual interest in a REMIC, you must take intoaccount, on a quarterly basis, your daily portion of the taxableincome or net loss of the REMIC for each day during the tax year thatyou hold the residual interest. You must report these amounts asordinary income or loss. Basis in the residual interest.alberghi a YorkYour basis in the residual interest is increased by the amount oftaxable income you take into account. Your basis is decreased (but notbelow zero) by the amount of cash or the fair market value of anyproperty distributed to you, and by the amount of any net loss youhave taken into account. If you sell your residual interest, you mustadjust your basis to reflect your share of the REMIC's taxable incomeor net loss immediately before the sale. See Wash Sales, inchapter 4,for more information about selling a residual interest. cheap hotels in CologneTreatment of distributions.You must include in your gross income the part of any distributionthat is more than your adjusted basis. Treat the distribution as again from the sale or exchange of your residual interest. Schedule Q.If you hold a REMIC residual interest, you should receive ScheduleQ (Form 1066), Quarterly Notice to Residual Interest Holder ofREMIC Taxable Income or Net Loss Allocation, and instructionsfrom the REMIC each quarter. Schedule Q will indicate your share ofthe REMIC's quarterly taxable income (or loss). Do not attach theSchedule Q to your tax return. Keep it for your records. Use Part IV of Schedule E (Form 1040) to report your total share ofthe REMIC's taxable income (or loss) for each quarter included in yourtax year. For more information about reporting your income (or loss) from aresidual interest in a REMIC, follow the Schedule Q (Form 1066) andSchedule E (Form 1040) instructions. Expenses.Subject to the 2%-of-adjusted- gross-income limit, you may be ableto claim a miscellaneous itemized deduction for certain ordinary andnecessary expenses that you paid or incurred in connection with yourinvestment in a REMIC. These expenses may include certain expenseitems incurred by the REMIC and passed through to you. The REMIC willreport these expenses to you on line 3b of Schedule Q. See chapter 3for information on how to report these expenses. Collateralized Debt Obligations (CDOs) A collateralized debt obligation (CDO) is a debtinstrument, other than a REMIC regular interest, that is secured by apool of mortgages or other evidence of debt and that has principalpayments that are subject to acceleration. (Note: While REMIC regularinterests are collateralized debt obligations, they have unique rulesthat do not apply to CDOs issued before 1987.) CDOs, also known as"pay-through bonds," are commonly divided into different classes(also called "tranches"). CDOs can be secured by a pool of mortgages, automobile loans,equipment leases, or credit card receivables. For more information about the qualifications and the tax treatmentthat apply to an issuer of a CDO, see section 1272(a)(6) of theInternal Revenue Code and the regulations under that section. Tax treatment of CDOs. The OID, market discount, and income-reporting rules that apply tobonds and other debt instruments, as described earlier in this chapter under Discount on Debt Instruments, also apply to a CDO. You must include interest income from your CDO in your gross incomeunder your regular method of accounting. Also include any OID accruedon your CDO during the tax year. Generally, you report your income from a CDO on line 8a, Form 1040.For more information about reporting these amounts on your return, seeHow To Report Interest Income, earlier. Forms 1099-INT and 1099-OID.You should receive a copy of Form 1099-INT or Form1099-OID. You will also receive a written statement by March 15,2001, that provides additional information. The statement shouldcontain enough information about the CDO to enable you to figure youraccrual of market discount or amortizable bond premium. Form 1099-INT shows the amount of interest income paid to youfor the period you held the CDO. Form 1099-OID shows the amount of OID accrued to you and theinterest, if any, paid to you for the period you held the CDO. Youshould not need to make any adjustments to the amounts reported evenif you held the CDO for only a part of the calendar year. However, ifyou bought the CDO at a premium or acquisition premium, seeRefiguring OID shown on Form 1099-OID underOriginal Issue Discount (OID), earlier. If you did not receive a Form 1099, see You may not get a Form1099 under Tax Treatment of REMIC Regular Interests,earlier. FASITs A financial asset securitization investment trust (FASIT)is an entity that securitizes debt obligations such as creditcard receivables, home equity loans, and automobile loans. A regular interest in a FASIT is treated as a debt instrument. Therules described under Tax Treatment of CDOs, earlier, applyto a regular interest in a FASIT, except that a holder of a regularinterest in a FASIT must use an accrual method of accounting to reportOID and interest income. For more information about FASITs, see sections 860H through 860Lof the Internal Revenue Code.