SECTION 4. PROCEDURE

A transferor of a residual interest in a REMIC is presumed not to have improper knowledge under § 1.860E–1(c) of the regulations if–

2001–3 I.R.B. 335 January 16, 2001

.01 The transferor conducted, at the time of the transfer, a reasonable investigation of the financial condition of the transferee and, as a result of the investigation, the transferor found that the transferee had historically paid its debts as they came due and found no significant evidence to indicate that the transferee will not continue to pay its debts as they come due in the future;

.02 The transferee represents to the transferor that it understands that, as the holder of the residual interest, the transferee may incur tax liabilities in excess of any cash flows generated by the interest and that the transferee intends to pay taxes associated with holding the residual interest as they become due; and

.03 Either section 5 or section 6 is satisfied.