SECTION 7. DRAFTING

INFORMATION

The principal author of this notice is Aviva M. Roth of the Office of Associate Chief Counsel (Financial Institutions & Products). For further information regarding this notice, contact Aviva M. Roth at (202) 622–3980 (not a toll-free call.)

Payments made to a REMIC Pursuant to the Home Affordable Modification Program

Notice 2009–36

The Internal Revenue Service (Service) and the Department of the Treasury (Treasury) intend to issue regulations regarding the application of section 860G(d) of the Internal Revenue Code to certain amounts that may be paid to real estate mortgage investment conduits (REMICs) as part of the Home Affordable Modification Program (HAMP). The HAMP was announced on February 18, 2009, and many details of its operation were provided on March 4, 2009. See documents entitled “Home Affordable Modification Program Guidelines” and “Making Home Affordable, Summary of Guidelines.”

BACKGROUND

.01 Section 860G(d)(1) states that, except as provided in section 860G(d)(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.”

.02 Section 860G(d)(2) provides that this tax does not apply to any cash contributions that are—

(A) Contributions made to facilitate a clean-up call or a qualified liquidation;

(B) Payments in the nature of a guarantee;

(C) Contributions made during the 3-month period beginning on the startup day;

(D) Contributions made to a qualified reserve fund by any holder of a residual interest in the REMIC; or

(E) Other contributions permitted in regulations.

.03 The question has arisen whether some of the payments that may be made to REMICs under the HAMP are “contributions” that are described in section 860G(d)(1) and, if so, whether they are covered by the exceptions in section 860G(d)(2).

DISCUSSION

If a payment is made to a REMIC under the HAMP, if the payment is described in section 860G(d)(1), and if the payment is not covered by any of the exceptions in section 860G(d)(2), then regulations to be issued by the Service and Treasury will provide an exception for that payment. The regulations are expected to be effective for payments made on or after March 4, 2009. Pending the issuance of further guidance, taxpayers may rely on this notice and, accordingly, any payment made to a REMIC under the HAMP will not be subject to the 100 percent tax set forth in section 860G(d)(1).

DRAFTING INFORMATION

The principal author of this notice is Diana Imholtz of the Office of Associate Chief Counsel (Financial Institutions and Products). For further information regarding this notice, contact Ms. Imholtz at 202–622–3930 (not a toll-free call).

April 27, 2009 883 2009–17 I.R.B.

.04 An interest issued after the startup day does not qualify as a REMIC regular interest.

.05 Under section 860D(a)(4), an entity qualifies as a REMIC only if, among other things, as of the close of the third month beginning after the startup day and at all times thereafter, substantially all of its assets consist of qualified mortgages and permitted investments. This asset test is satisfied if the entity owns no more than a de minimis amount of other assets. See § 1.860D–1(b)(3)(i). As a safe harbor, the amount of assets other than qualified mortgages and permitted investments is de min- imis if the aggregate of the adjusted bases of those assets is less than one percent of the aggregate of the adjusted bases of all of the entity’s assets. § 1.860D–1(b)(3)(ii).

.06 With limited exceptions, a mortgage loan is not a qualified mortgage unless it is transferred to the REMIC on the startup day in exchange for regular or residual interests in the REMIC. See section 860G(a)(3)(A)(i).

.07 The legislative history of the REMIC provisions indicates that Congress intended the provisions to apply only to an entity that holds a substantially fixed pool of real estate mortgages and related assets and that “has no powers to vary the composition of its mortgage assets.” S. Rep. No. 99–313, 99 ^th Cong., 2 ^nd Sess. 791–92, 1986–3 (Vol. 3) C.B. 791–92. .08 Section 1.1001–3(c)(1)(i) defines a “modification” of a debt instrument as any alteration, including any deletion or addition, in whole or in part, of a legal right or obligation of the issuer or holder of a debt instrument, whether the alteration is evidenced by an express agreement (oral or written), conduct of the parties, or otherwise. Section 1.1001–3(e) governs which modifications of debt instruments are “significant.” Under § 1.1001–3(b), for most federal income tax purposes, a significant modification produces a deemed exchange of the original debt instrument for a new debt instrument.

.09 Under § 1.860G–2(b), related rules apply to determine REMIC qualification. Except as specifically provided in § 1.860G–2(b)(3), if there is a significant modification of an obligation that is held by a REMIC, then the modified obligation is treated as one that was newly issued in exchange for the unmodified obligation that it replaced. See § 1.860G–2(b)(1).

26 CFR 601.105: Examination of returns and claims for refund, credit or abatement; determination of cor- rect tax liability. (Also Part I, §§ 860D, 860F, 860G, 1001; 1.860G–2, 1.1001–3, 301.7701–2, 301.7701–3, 301.7701–4.)

Rev. Proc. 2009–23