SECTION 2. BACKGROUND

.01 The Treasury Department has implemented a series of initiatives as part of its Financial Stability Plan in connection with the Emergency Economic Stabilization Act of 2008.

.02 One of these initiatives is the Public-Private Investment Program. Pursuant to this program, the Treasury Department will co-invest with private capital through specific entities known as Public-Private Investment Funds (Funds) to restore the orderly functioning of financial markets.

The Funds will acquire certain commercial mortgage backed securities and certain non-agency residential mortgage backed securities issued prior to 2009 that were originally rated AAA (collectively, the Legacy Securities). The Funds intend to issue debt, secured by the assets acquired by the Funds, including debt in one or more sequential pay tranches, and equity.

.03 Section 7701(i) of the Code defines the term “taxable mortgage pool” (TMP) and provides that a TMP will be taxable as a corporation. In general, a TMP is any entity (other than a Real Estate Mortgage Investment Conduit (REMIC)) having the following qualifications: (i) substantially all of the entity’s assets consist of debt obligations and more than 50 percent of these are real estate mortgages, (ii) the entity has issued its own debt obligations with two or more maturities, and (iii) the payments the entity makes as a debtor are related to the payments the entity receives as a creditor.

.04 The purpose of section 7701(i) is to support the REMIC provisions found in sections 860A through 860G. Congress sought to make a REMIC the only arrangement capable of issuing multiple classes of mortgage-backed securities without the imposition of two levels of taxation. H. Conf. Rep. No. 841, 99th Cong., 2d Sess. II–239, 1986–3 (Vol. 4) C.B. 239. Any arrangement that functions like a REMIC but fails to qualify under section 860D is classified as a TMP. .05 The application of the TMP rules to entities that technically fall within their

2009–37 I.R.B. 362 September 14, 2009