SECTION 6. DRAFTING

INFORMATION

The principal author of this notice is S. James Hawes of the Office of Associate Chief Counsel (International). However, other personnel from the IRS and the Treasury Department participated in its development. For further information regarding this notice, contact Mr. Hawes or Milton M. Cahn at (202) 622–3860 (not a toll-free call).

Modifications of Commercial Mortgage Loans Held by an Investment Trust

Notice 2009–79

In T.D. 9463, the Internal Revenue Service (IRS) and the Treasury Department issued final regulations relating to permitted modifications of commercial mortgage loans held by a real estate mortgage investment conduit (REMIC). See T.D. 9463, 2009–40 I.R.B. 442, 74 FR 47436 (No. 178, September 16, 2009), (amending § 1.860G–2(b)(3) of the Income Tax Regulations). In response to a request for comments in Notice 2007–17, 2007–1 C.B. 748 (March 19, 2007), and in response to proposed regulations published in the Federal Register (72 FR 63523) on November 9, 2007, several commentators recommended that the scope of the regulations project be expanded to include a rule that would permit investment trusts to modify commercial mortgage loans to the same extent that REMICs can modify those loans under § 1.860G–2(b)(3) (taking into account the anticipated amendments to that rule). The commentators, however, did not provide detailed explanations for why those changes were needed or whether there are alternative ways of dealing with investment trust interests held by REMICs.

The scope of the final regulations remained focused on § 1.860G–2(b)(3) and was not expanded to include modifications of commercial mortgage loans held by investment trusts. The IRS and the Treasury Department note that, although REMICs and investment trusts are often used to securitize mortgages, the requirements for classification as a REMIC are not identical to the requirements for classification as

a trust. The IRS and the Treasury Department continue to study the commentators’ recommendation and in this notice solicit input concerning whether additional guidance may be appropriate.

Background

Section 301.7701–1(b) of the Procedure and Administration Regulations provides that the classification of organizations that are recognized as separate entities is determined under §§ 301.7701–2, 301.7701–3, and 301.7701–4, unless a provision of the Internal Revenue Code (Code) (such as section 860A addressing Real Estate Mortgage Investment Conduits (REMICs)) provides for special treatment of that organization.

Section 301.7701–2(a) provides that a “business entity” is an entity recognized for federal tax purposes that is not properly classified as a trust under § 301.7701–4 or otherwise subject to special treatment under the Code.

Section 301.7701–4(a) provides that, in general, an arrangement is treated as a trust if it can be shown that the purpose of the arrangement is to vest in trustees responsibility for the protection and conservation of property for beneficiaries who cannot share in the discharge of this responsibility and, therefore, are not associates in a joint enterprise for the conduct of business for profit.

Section 301.7701–4(b) provides that there are arrangements that are known as trusts, because legal title to property is conveyed to trustees for the benefit of beneficiaries, but that are not classified as trusts for purposes of the Code because they are not simply arrangements to protect or conserve the property for the beneficiaries. The beneficiaries generally create these trusts, which are often known as business or commercial trusts, simply as a device to carry on a profit-making business. Such a business normally would have been carried on through business organizations that the Code classifies as corporations or partnerships (business entities).

Section 301.7701–4(c) provides that an “investment” trust is not classified as a trust if there is a power under the trust agreement to vary the investment of the certificate holders. See Comm’r v. North American Bond Trust, 122 F.2d 545

2009–40 I.R.B. 454 October 5, 2009

1111 Constitution Avenue, NW, Washington, DC. Alternatively, comments may be submitted electronically directly to the IRS via the following e-mail address: Notice.comments@irscounsel.treas.gov. Please include “Notice 2009–79” in the subject line of any electronic communication. All materials submitted will be available for public inspection and copying.

Drafting Information

The principal author of this notice is Pamela Lew of the Office of Associate Chief Counsel (Financial Institutions & Products). For further information regarding this notice, contact Pamela Lew at (202) 622–3950 (not a toll-free call).

Extension of Replacement Period for Livestock Sold on Account of Drought in Specified Counties

Notice 2009–81