Title 26 — Internal Revenue CodeRelease 119-73
§860G Other definitions and special rules
Title 26 › Subtitle Subtitle A— - Income Taxes › Chapter CHAPTER 1— - NORMAL TAXES AND SURTAXES › Subchapter Subchapter M— - Regulated Investment Companies and Real Estate Investment Trusts › Part PART IV— - REAL ESTATE MORTGAGE INVESTMENT CONDUITS › § 860G
Summary
Sets rules for special mortgage investment trusts (REMICs). It names key kinds of interests and assets and explains timing, taxes, and what the tax agency can regulate. "Regular interest" — an interest issued on the startup day that pays a fixed principal and pays interest on a fixed rate (or sometimes a variable rate) or a fixed share of mortgage payments. "Residual interest" — an interest issued on the startup day that is not a regular interest. "Qualified mortgage" — a mortgage or similar loan on real property that is transferred to the REMIC on the startup day, bought within 3 months under a fixed-price contract, or is an allowed increase in principal under original loan terms. "Qualified replacement mortgage" — a mortgage that would qualify if transferred on the startup day and is received as a replacement within 3 months or to fix a defective transfer within 2 years. "Permitted investments" — cash-flow investments, qualified reserve assets, and foreclosure property. "Cash-flow investment" — short-term use of mortgage collections before they are paid out. "Qualified reserve asset" and "qualified reserve fund" — intangible assets held to pay REMIC expenses, cover shortfalls, or buy allowed mortgages; a reserve loses that status if more than 30% of its income in a year comes from selling property held under 3 months (with a limited exception). "Foreclosure property" — property acquired after a mortgage default, treated like REIT foreclosure property. "Startup day" — the day the REMIC issues all interests (up to a 10-day window may be treated as that day). Issue price for interests is set like debt under the tax rules with a special rule when interests are issued for property. Foreign holders of residual interests must count income when paid or distributed and cannot get exemptions or lower withholding for any excess inclusion. REMICs pay a tax each year on net income from foreclosure property at the highest rate in section 11(b). Any contribution to a REMIC after the startup day is taxed at 100% unless it is certain cash contributions (for a clean-up call or qualified liquidation, a guarantee payment, within 3 months of startup, a reserve-fund payment by a residual holder, or other contributions allowed by regulations). The tax agency must write rules to prevent unreasonable asset buildup, allow earlier valuations, require reporting to residual holders, set rules for transfers of replacement mortgages when the transferor holds an interest, and make sure replacement mortgages are genuine swaps and not just paper trades.
Full Legal Text
Title 26, §860G
Internal Revenue Code — Source: USLM XML via OLRC
(a)For purposes of this part—
(1)The term “regular interest” means any interest in a REMIC which is issued on the startup day with fixed terms and which is designated as a regular interest if—
(A)such interest unconditionally entitles the holder to receive a specified principal amount (or other similar amount), and
(B)interest payments (or other similar amount), if any, with respect to such interest at or before maturity—
(i)are payable based on a fixed rate (or to the extent provided in regulations, at a variable rate), or
(ii)consist of a specified portion of the interest payments on qualified mortgages and such portion does not vary during the period such interest is outstanding.
(2)The term “residual interest” means an interest in a REMIC which is issued on the startup day, which is not a regular interest, and which is designated as a residual interest.
(3)The term “qualified mortgage” means—
(A)any obligation (including any participation or certificate of beneficial ownership therein) which is principally secured by an interest in real property and which—
(i)is transferred to the REMIC on the startup day in exchange for regular or residual interests in the REMIC,
(ii)is purchased by the REMIC within the 3-month period beginning on the startup day if, except as provided in regulations, such purchase is pursuant to a fixed-price contract in effect on the startup day, or
(iii)represents an increase in the principal amount under the original terms of an obligation described in clause (i) or (ii) if such increase—
(I)is attributable to an advance made to the obligor pursuant to the original terms of a reverse mortgage loan or other obligation,
(II)occurs after the startup day, and
(III)is purchased by the REMIC pursuant to a fixed price contract in effect on the startup day,
(B)any qualified replacement mortgage, and
(C)any regular interest in another REMIC transferred to the REMIC on the startup day in exchange for regular or residual interests in the REMIC.
(4)The term “qualified replacement mortgage” means any obligation—
(A)which would be a qualified mortgage if transferred on the startup day in exchange for regular or residual interests in the REMIC, and
(B)which is received for—
(i)another obligation within the 3-month period beginning on the startup day, or
(ii)a defective obligation within the 2-year period beginning on the startup day.
(5)The term “permitted investments” means any—
(A)cash flow investment,
(B)qualified reserve asset, or
(C)foreclosure property.
(6)The term “cash flow investment” means any investment of amounts received under qualified mortgages for a temporary period before distribution to holders of interests in the REMIC.
(7)(A)The term “qualified reserve asset” means any intangible property which is held for investment and as part of a qualified reserve fund.
(B)For purposes of subparagraph (A), the term “qualified reserve fund” means any reasonably required reserve to—
(i)provide for full payment of expenses of the REMIC or amounts due on regular interests in the event of defaults on qualified mortgages or lower than expected returns on cash flow investments, or
(ii)provide a source of funds for the purchase of obligations described in clause (ii) or (iii) of paragraph (3)(A).
(C)A reserve shall not be treated as a qualified reserve for any taxable year (and all subsequent taxable years) if more than 30 percent of the gross income from the assets in such fund for the taxable year is derived from the sale or other disposition of property held for less than 3 months. For purposes of the preceding sentence, gain on the disposition of a qualified reserve asset shall not be taken into account if the disposition giving rise to such gain is required to prevent default on a regular interest where the threatened default resulted from a default on 1 or more qualified mortgages.
(8)The term “foreclosure property” means property—
(A)which would be foreclosure property under section 856(e) (without regard to paragraph (5) thereof) if acquired by a real estate investment trust, and
(B)which is acquired in connection with the default or imminent default of a qualified mortgage held by the REMIC.
(9)The term “startup day” means the day on which the REMIC issues all of its regular and residual interests. To the extent provided in regulations, all interests issued (and all transfers to the REMIC) during any period (not exceeding 10 days) permitted in such regulations shall be treated as occurring on the day during such period selected by the REMIC for purposes of this paragraph.
(10)The issue price of any regular or residual interest in a REMIC shall be determined under section 1273(b) in the same manner as if such interest were a debt instrument; except that if the interest is issued for property, paragraph (3) of section 1273(b) shall apply whether or not the requirements of such paragraph are met.
(b)If the holder of a residual interest in a REMIC is a nonresident alien individual or a foreign corporation, for purposes of section 871(a), 881, 1441, and 1442—
(1)amounts includible in the gross income of such holder under this part shall be taken into account when paid or distributed (or when the interest is disposed of), and
(2)no exemption from the taxes imposed by such sections (and no reduction in the rates of such taxes) shall apply to any excess inclusion.
(c)(1)A tax is hereby imposed for each taxable year on the net income from foreclosure property of each REMIC. Such tax shall be computed by multiplying the net income from foreclosure property by the highest rate of tax specified in section 11(b).
(2)For purposes of this part, the term “net income from foreclosure property” means the amount which would be the REMIC’s net income from foreclosure property under section 857(b)(4)(B) if the REMIC were a real estate investment trust.
(d)(1)Except as provided in paragraph (2), if any amount is contributed to a REMIC after the startup day, there is hereby imposed a tax for the taxable year of the REMIC in which the contribution is received equal to 100 percent of the amount of such contribution.
(2)Paragraph (1) shall not apply to any contribution which is made in cash and is described in any of the following subparagraphs:
(A)Any contribution to facilitate a clean-up call (as defined in regulations) or a qualified liquidation.
(B)Any payment in the nature of a guarantee.
(C)Any contribution during the 3-month period beginning on the startup day.
(D)Any contribution to a qualified reserve fund by any holder of a residual interest in the REMIC.
(E)Any other contribution permitted in regulations.
(e)The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this part, including regulations—
(1)to prevent unreasonable accumulations of assets in a REMIC,
(2)permitting determinations of the fair market value of property transferred to a REMIC and issue price of interests in a REMIC to be made earlier than otherwise provided,
(3)requiring reporting to holders of residual interests of such information as frequently as is necessary or appropriate to permit such holders to compute their taxable income accurately,
(4)providing appropriate rules for treatment of transfers of qualified replacement mortgages to the REMIC where the transferor holds any interest in the REMIC, and
(5)providing that a mortgage will be treated as a qualified replacement mortgage only if it is part of a bona fide replacement (and not part of a swap of mortgages).
Legislative History
Notes & Related Subsidiaries
Editorial Notes
Amendments
2018—Subsec. (a)(3)(A)(iii)(III). Pub. L. 115–141 substituted comma for period at end. 2005—Subsec. (a)(3). Pub. L. 109–135, § 403(cc)(2), inserted concluding provisions and struck out former concluding provisions which read as follows: “For purposes of subparagraph (A), any obligation secured by stock held by a person as a tenant-stockholder (as defined in section 216) in a cooperative housing corporation (as so defined) shall be treated as secured by an interest in real property, and any reverse mortgage loan (and each balance increase on such loan meeting the requirements of subparagraph (A)(iii)) shall be treated as an obligation secured by an interest in real property. For purposes of subparagraph (A), if more than 50 percent of the obligations transferred to, or purchased by, the REMIC are originated by the United States or any State (or any political subdivision, agency, or instrumentality of the United States or any State) and are principally secured by an interest in real property, then each obligation transferred to, or purchased by, the REMIC shall be treated as secured by an interest in real property.” Subsec. (a)(3)(A)(iii)(I). Pub. L. 109–135, § 403(cc)(1), substituted “a reverse mortgage loan or other obligation” for “the obligation”. 2004—Subsec. (a)(1). Pub. L. 108–357, § 835(b)(5)(A), inserted at end of concluding provisions “An interest shall not fail to qualify as a regular interest solely because the specified principal amount of the regular interest (or the amount of interest accrued on the regular interest) can be reduced as a result of the nonoccurrence of 1 or more contingent payments with respect to any reverse mortgage loan held by the REMIC if, on the startup day for the REMIC, the sponsor reasonably believes that all principal and interest due under the regular interest will be paid at or prior to the liquidation of the REMIC.” Subsec. (a)(3). Pub. L. 108–357, § 835(b)(7), inserted at end of concluding provisions “For purposes of subparagraph (A), if more than 50 percent of the obligations transferred to, or purchased by, the REMIC are originated by the United States or any State (or any political subdivision, agency, or instrumentality of the United States or any State) and are principally secured by an interest in real property, then each obligation transferred to, or purchased by, the REMIC shall be treated as secured by an interest in real property.” Pub. L. 108–357, § 835(b)(5)(B), inserted before period at end of concluding provisions “, and any reverse mortgage loan (and each balance increase on such loan meeting the requirements of subparagraph (A)(iii)) shall be treated as an obligation secured by an interest in real property”. Subsec. (a)(3)(A)(iii). Pub. L. 108–357, § 835(b)(8)(A), added cl. (iii). Subsec. (a)(3)(B) to (D). Pub. L. 108–357, § 835(b)(6), inserted “and” at end of subpar. (B), substituted period for “, and” at end of subpar. (C), and struck out subpar. (D) which read as follows: “any regular interest in a FASIT which is transferred to, or purchased by, the REMIC as described in clauses (i) and (ii) of subparagraph (A) but only if 95 percent or more of the value of the assets of such FASIT is at all times attributable to obligations described in subparagraph (A) (without regard to such clauses).” Subsec. (a)(7)(B). Pub. L. 108–357, § 835(b)(8)(B), reenacted heading without change and amended text of subpar. (B) generally. Prior to amendment, text read as follows: “For purposes of subparagraph (A), the term ‘qualified reserve fund’ means any reasonably required reserve to provide for full payment of expenses of the REMIC or amounts due on regular interests in the event of defaults on qualified mortgages or lower than expected returns on cash flow investments. The amount of any such reserve shall be promptly and appropriately reduced as payments of qualified mortgages are received.” 1996—Subsec. (a)(3)(D). Pub. L. 104–188 added subpar. (D). 1990—Subsec. (a)(3)(A). Pub. L. 101–508 struck out comma after “secured” in introductory provisions. 1989—Subsec. (a)(3). Pub. L. 101–239 substituted “subparagraph (A)” for “this subparagraph” in last sentence. 1988—Subsec. (a)(1). Pub. L. 100–647, § 1006(t)(5)(A), amended par. (1) generally. Prior to amendment, par. (1) read as follows: “The term ‘regular interest’ means an interest in a REMIC the terms of which are fixed on the startup day, and which— “(A) unconditionally entitles the holder to receive a specified principal amount (or other similar amount), and “(B) provides that interest payments (or other similar amounts), if any, at or before maturity are payable based on a fixed rate (or to the extent provided in
Regulations
, at a variable rate). An interest shall not fail to meet the requirements of subparagraph (A) merely because the timing (but not the amount) of the principal payments (or other similar amounts) may be contingent on the extent of prepayments on qualified mortgages and the amount of income from permitted investments.” Subsec. (a)(2). Pub. L. 100–647, § 1006(t)(5)(B), amended par. (2) generally. Prior to amendment, par. (2) read as follows: “The term ‘residual interest’ means an interest in a REMIC which is not a regular interest and is designated as a residual interest.” Subsec. (a)(3). Pub. L. 100–647, § 1006(t)(6)(B), inserted at end “For purposes of this subparagraph, any obligation secured by stock held by a person as a tenant-stockholder (as defined in section 216) in a cooperative housing corporation (as so defined) shall be treated as secured by an interest in real property.” Subsec. (a)(3)(A). Pub. L. 100–647, § 1006(t)(6)(A), struck out “directly or indirectly,”. Subsec. (a)(3)(A)(i). Pub. L. 100–647, § 1006(t)(5)(C)(i), substituted “on the startup day in exchange for regular or residual interests in the REMIC” for “on or before the startup day”. Subsec. (a)(3)(A)(ii). Pub. L. 100–647, § 1006(t)(5)(C)(ii), inserted before comma at end “if, except as provided in
Regulations
, such purchase is pursuant to a fixed-price contract in effect on the startup day”. Subsec. (a)(3)(C). Pub. L. 100–647, § 1006(t)(5)(C)(iii), substituted “on the startup day in exchange for regular or residual interests in the REMIC” for “on or before the startup day”. Subsec. (a)(4)(A). Pub. L. 100–647, § 1006(t)(5)(D), amended subpar. (A) generally. Prior to amendment, subpar. (A) read as follows: “which would be described in paragraph (3)(A) if it were transferred to the REMIC on or before the startup day, and”. Subsec. (a)(7)(B). Pub. L. 100–647, § 1006(t)(7), inserted before period at end of first sentence “or lower than expected returns on cash flow investments”. Subsec. (a)(8). Pub. L. 100–647, § 1006(t)(8)(A), substituted “section 856(e) (without regard to paragraph (5) thereof)” for “section 856(e)” in subpar. (A) and amended last sentence generally. Prior to amendment, last sentence read as follows: “Property shall cease to be foreclosure property with respect to the REMIC on the date which is 1 year after the date such real estate mortgage pool acquired such property.” Subsec. (a)(9). Pub. L. 100–647, § 1006(t)(5)(E), amended par. (9) generally. Prior to amendment, par. (9) read as follows: “The term ‘startup day’ means any day selected by a REMIC which is on or before the 1st day on which interests in such REMIC are issued.” Subsec. (c). Pub. L. 100–647, § 1006(t)(8)(B), added subsec. (c). Former subsec. (c) redesignated (d). Subsec. (d). Pub. L. 100–647, § 1006(t)(9)(A), added subsec. (d). Former subsec. (d) redesignated (e). Pub. L. 100–647, § 1006(t)(8)(B), redesignated former subsec. (c) as (d). Subsec. (e). Pub. L. 100–647, § 1006(t)(9)(A), redesignated former subsec. (d) as (e). Subsec. (e)(4), (5). Pub. L. 100–647, § 1006(t)(10), added pars. (4) and (5).
Statutory Notes and Related Subsidiaries
Effective Date
of 2005 Amendment
Amendments
by Pub. L. 109–135 effective as if included in the provisions of the American Jobs Creation Act of 2004, Pub. L. 108–357, to which they relate, see section 403(nn) of Pub. L. 109–135, set out as a note under section 26 of this title.
Effective Date
of 2004 AmendmentAmendment by Pub. L. 108–357 effective Jan. 1, 2005, with exception for any FASIT in existence on Oct. 22, 2004, to the extent that regular interests issued by the FASIT before such date continue to remain outstanding in accordance with the original terms of issuance, see section 835(c) of Pub. L. 108–357, set out as a note under section 56 of this title.
Effective Date
of 1996 AmendmentAmendment by Pub. L. 104–188 effective Sept. 1, 1997, see section 1621(d) of Pub. L. 104–188, set out as a note under section 26 of this title.
Effective Date
of 1989 AmendmentAmendment by Pub. L. 101–239 effective, except as otherwise provided, as if included in the provision of the Technical and Miscellaneous Revenue Act of 1988, Pub. L. 100–647, to which such amendment relates, see section 7817 of Pub. L. 101–239, set out as a note under section 1 of this title.
Effective Date
of 1988 Amendment Pub. L. 100–647, title I, § 1006(t)(5)(F), Nov. 10, 1988, 102 Stat. 3421, provided that: “The
Amendments
made by this paragraph [amending this section] shall not apply to any REMIC where the startup day (as defined in section 860G(a)(9) of the 1986 Code as in effect on the day before the date of the enactment of this Act [Nov. 10, 1988]) is before
July 1, 1987.” Pub. L. 100–647, title I, § 1006(t)(9)(B), Nov. 10, 1988, 102 Stat. 3422, provided that: “The amendment made by subparagraph (A) [amending this section] shall not apply to any REMIC where the startup day (as defined in section 860G(a)(9) of the 1986 Code as in effect on the day before the date of the enactment of this Act [Nov. 10, 1988]) is before
July 1, 1987.” Amendment by section 1006(t)(6)–(8)(B), (10) of Pub. L. 100–647 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Pub. L. 99–514, to which such amendment relates, see section 1019(a) of Pub. L. 100–647, set out as a note under section 1 of this title.
Reference
Citations & Metadata
Citation
26 U.S.C. § 860G
Title 26 — Internal Revenue Code
Last Updated
Apr 6, 2026
Release point: 119-73