SECTION 1. PURPOSE

This notice provides interim guidance relating to excess inclusion income of pass-through entities, particularly real estate investment trusts (REITs). A growing number of REITs are generating excess inclusion income by engaging in mortgage securitization transactions that cause the REIT to be a taxable mortgage pool (TMP) or have a qualified REIT subsidiary that is a TMP. The interim guidance applies to excess inclusion income both from REMIC residual interests and from REIT TMPs, whether received directly or allocated from another pass-through entity.

This notice also requests comments and suggestions for further guidance, especially guidance regarding the tax and reporting obligations of regulated investment companies (RICs) and other entities that hold stock of REIT TMPs or that receive excess inclusion income in other ways.