TaxNewsFlash-Cooperatives

July 11, 2008
No. 2008-15

Final Regulations Concerning Residual Interests: Accounting for REMIC Net Income by Foreign Holders (Including Cooperative Patrons)

The Treasury Department and IRS today released for publication in the Federal Register final regulations (T.D. 9415) that concern income associated with a residual interest in a Real Estate Mortgage Investment Conduit (REMIC) and allocated through certain entities to foreign persons—including patrons in subchapter T cooperatives—who have invested in those entities. These final regulations adopt “without any substantive changes” regulations that were proposed in August 2006.

For computer-scanned versions of today’s regulations: T.D. 9415

Overview

The regulations accelerate the time when income is recognized for withholding tax purposes to conform to the timing of income recognition for general income tax purposes.

The regulations clarify the timing of income under section 860G for purposes of determining a domestic partnership’s responsibility under sections 1441 and 1442 for withholding tax with respect to a foreign partner’s share of REMIC net income as a result of indirectly holding a residual interest. The regulations further provide that the exception from withholding that (1) may apply if no property or money is paid or (2) there is lack of knowledge, will not apply to the foreign partner’s share of REMIC income.

The regulations also provide that an excess inclusion is treated as income from sources within the United States.

The regulations were issued to address certain inappropriate avoidance of current income tax liability by foreign persons to whom income from REMIC residual interests is allocated.

The regulations are effective August 1, 2006.

T.D. 9415 will be published in the Federal Register on Monday, July 14, 2008.

For more information, contact KPMG’s National Director of Cooperative Tax Services:

Teree Castanias, in Sacramento, (916) 554-1146, tcastanias@kpmg.com

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