< Back to H.R. 2065 (103rd Congress, 1993–1994)

Text of FASIT Provisions of 1993

This bill was introduced on May 11, 1993, in a previous session of Congress, but was not enacted. The text of the bill below is as of May 11, 1993 (Introduced).

Source: GPO

HR 2065 IH

103d CONGRESS

1st Session

H. R. 2065

To facilitate the creation of Financial Asset Securitization Investment Trusts.

IN THE HOUSE OF REPRESENTATIVES

May 11, 1993

Mr. HOAGLAND (for himself and Mr. SHAW) introduced the following bill; which was referred to the Committee on Ways and Means


A BILL

To facilitate the creation of Financial Asset Securitization Investment Trusts.

    Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as ‘The FASIT Provisions of 1993’.

SEC. 2. FINANCIAL ASSET SECURITIZATION INVESTMENT TRUST.

    (a) The heading and table of sections of part II of subchapter M of chapter 1 of the Internal Revenue Code of 1986, relating to real estate investment trusts in amended to read as follows:

‘PART II--INVESTMENT TRUSTS

‘Sec. 855A. Financial asset securitization investment trusts.

‘Sec. 855B. Transfers to FASITs.

‘Sec. 855C. Treatment of recognized gains and losses.

‘Sec. 855D. Consistency requirement.

‘Sec. 855E. Treatment of front-loaded income on common ownership interests.

‘Sec. 855F. Tax on certain transfers of ownership interests.

‘Sec. 855G. Additional taxes.

‘Sec. 856. Definition of real estate investment trust.

‘Sec. 857. Taxation of real estate investment trusts and their beneficiaries.

‘Sec. 858. Dividends paid by real estate investment trust after close of taxable year.

‘Sec. 859. Adoption of annual accounting period.’

    (b) The title of part II in the table of parts of subchapter M of chapter 1 of the Internal Revenue Code of 1986 is amended to read as follows:

‘PART II. Investment Trusts.’

    (c) The following new sections are added to part II of subchapter M of chapter 1 of the Internal Revenue Code of 1986:

‘SEC. 855A. FINANCIAL ASSET SECURITIZATION INVESTMENT TRUSTS.

    ‘(a) DEFINITION- For purposes of this title, the term ‘financial asset securitization investment trust’ and ‘FASIT’ mean any entity or arrangement--

      ‘(1) for which an election to be treated as a FASIT is in effect for the taxable year and all preceding taxable years,

      ‘(2) which has a taxable year which is a calender year,

      ‘(3) substantially all of the assets of which, as of the close of the second calendar quarter following its formation and each calender quarter ending thereafter, consist of--

        ‘(A) money or debt obligations,

        ‘(B) property acquired in connection with the default or imminent default of a debt obligation held by a FASIT (but only if such property would be in compliance with the limitations of paragraphs (2) and (3) of section 856(e) if the FASIT were a real estate investment trust),

        ‘(C) instruments or contractual rights in the nature of a hedge or guarantee against the economic risks associated with debts issued or held by the FASIT (including, but not limited to, interest rate swaps, credit enhancement, and liquidity arrangements), or

        ‘(D) ownership interests in other FASITs,

      ‘(4) the governing documents of which prohibit--

        ‘(A) the acquisition or disposition of assets other than in accordance with the terms and conditions set forth in the agreements, indentures, or other instruments pursuant to which its qualified debt instruments and ownership interests are issued,

        ‘(B) the acquisition or disposition of assets for the primary purpose of recognizing gains or decreasing losses resulting from market value changes, and

        ‘(C) the acquisition of any debt obligation for the primary purpose of realizing income from the operation, management, rental, leasing, or sale of property acquired or to be acquired in connection with the default or imminent default thereof,

      ‘(5) which has one and only one class of common ownership interests,

      ‘(6) which (except as otherwise provided by regulations) has no ownership interests other than common ownership interests and preferred ownership interests, and

      ‘(7) with respect to which there are reasonable arrangements designed to ensure that its ownership interests are held exclusively by--

        ‘(A) corporations to which the provisions of section 11 apply,

        ‘(B) other FASITs, or

        ‘(C) pass-through entities.

    ‘(b) CLASSIFICATION AND TAXATION OF FASITS-

      ‘(1) GENERAL RULE- A FASIT shall not be subject to taxation under this subtitle (and shall not be treated as a corporation, partnership, or trust) except to the extent the FASIT (or a portion thereof) is classified as a corporation by section 7701(i).

      ‘(2) DETERMINATION AND ALLOCATION OF FASIT INCOME- The taxable income of a FASIT shall be determined in the same manner as for a corporation. The constant yield method and the principles of section 1722(a)(6) shall be applied in determining all interest and discount income, and all premium deductions or adjustments, with respect to all debt obligations held by the FASIT.

      ‘(3) TAXATION OF HOLDERS OF OWNERSHIP INTERESTS- The holder of an ownership interest in a FASIT shall take into account its daily portion of the amount of FASIT taxable income (or net loss) allocable to ownership interests of the same class for each day during the taxable year on which such holder held such interest. The daily portion shall be determined--

        ‘(A) by allocating to each day in any calendar quarter its ratable portion of the amount of taxable income (or net loss) for such quarter allocable to such class of ownership interests, and

        ‘(B) by dividing the amounts so allocated to any day among the holders (on such day) of ownership interests of such class in proportion to their respective holdings on such day.

      ‘(4) AMOUNTS ALLOCABLE TO CLASSES OF OWNERSHIP INTERESTS-

        ‘(A) FASIT taxable income, to the extent thereof, shall be allocated to any outstanding classes of preferred ownership interests, in order of their respective preferences, in the same manner that interest and original issue discount income would accrue on a debt instrument having the same terms. Any remaining FASIT taxable income shall be allocated to the class of common ownership interests.

        ‘(B) FASIT net losses shall be allocated first to the class of common ownership interests until the basis of all such ownership interests (determined as if held by the original holders) is reduced to zero. Any remaining net losses shall be allocated to any outstanding classes of preferred ownership interests in accordance with their terms and priorities until the basis of all such ownership interests (determined as if held by the original holders) is reduced to zero. Any remaining net losses shall be allocable to the class of common ownership interests.

      ‘(5) DISTRIBUTIONS- Any distribution by a FASIT with respect to an ownership interest--

        ‘(A) shall not be included in gross income to the extent it does not exceed the adjusted basis of the interest, and

        ‘(B) to the extent it exceeds the adjusted basis of the interest, shall be treated as gain from the sale or exchange of such interest.

      ‘(6) BASIS RULES- The basis of any person’s ownership interest in a FASIT shall be increased by the amount of any taxable income, and decreased (but not below zero) by the amount of any loss, taken into account under paragraph (3) of this subsection by such person with respect to such interest. Such basis shall also be increased by any contributions and decreased (but not below zero) by any distributions to such person with respect to such interest.

      ‘(7) SPECIAL RULES-

        ‘(A) AMOUNT TREATED AS ORDINARY- Any amount taken into account under paragraph (3) of this subsection shall be treated as ordinary income or ordinary loss, as the case may be.

        ‘(B) LIMITATION ON LOSSES- The amount of the net loss of any FASIT taken into account by any holder under paragraph (3) of this subsection with respect to any calendar quarter shall not exceed the adjusted basis of the holder’s ownership interest in such FASIT as of the close of such calendar quarter (determined without regard to any basis reduction for net losses taken into account by such holder for such quarter). Any loss disallowed by the preceding sentence shall be treated as incurred by the FASIT in the succeeding calendar quarter with respect to such holder.

        ‘(C) PREMIUM AND DISCOUNT- Except as otherwise provided in regulations, any amount by which a holder’s basis in an ownership interest differs from the basis determined as if held by the original holder shall be taken into account on a constant yield method.

      ‘(8) Rules similar to those provided by section 860D(2)(B) shall apply to inadvertent failures to comply with the requirements for qualifying as a FASIT.

    ‘(c) QUALIFIED DEBT INSTRUMENTS-

      ‘(1) TREATMENT OF QUALIFIED DEBT INSTRUMENTS- For purposes of this subtitle, a qualified debt instrument issued by a FASIT shall be treated as a debt obligation of the FASIT (and as a debt obligation of a corporation) and not as an ownership interest therein.

      ‘(2) DEFINITION- A qualified debt instrument is any instrument issued by a FASIT which is designated as a qualified debt instrument if--

        ‘(A) such instrument unconditionally entitles the holder to receive a specified principal amount (or other similar amount),

        ‘(B) interest payments (or other similar amounts), if any, with respect to such instrument are payable based on one or more rates that, as of the date of issuance, are fixed or qualify as permissible variable rates for purposes of section 860G(a)(1)(B)(i),

        ‘(C) such instrument has a stated maturity at issuance no longer than fifteen years,

        ‘(D) the instrument’s issue price does not exceed 125 percent of its stated principal amount, and

        ‘(E) the instrument does not have a yield to maturity as of the date of issuance that is more than five percentage points higher than the yield to maturity on outstanding marketable obligations of the United States with a comparable maturity (based upon a statistically significant sampling, a published index, or a similar objective determination).

      ‘(3) TREATMENT OF FORECLOSURE PROPERTY- For purposes of the preceding paragraph, principal on a debt instrument issued by a FASIT shall not be considered to be unconditionally payable, and interest on such a debt instrument shall not be considered to be payable based on a fixed or qualified variable rate, if payment of such amounts is dependent upon the receipt of any payments from the rental, lease, management or sale of any property that was (1) acquired by the FASIT prior to the issuance of such debt instrument in connection with the default or imminent default of a debt obligation held by a FASIT, or (2) acquired by the FASIT at any time in connection with the default or imminent default of a debt obligation that was in default or imminent risk of default at the time it was acquired by the FASIT.

      ‘(4) STRIPPED INSTRUMENTS- The trustee or other fiduciary of a FASIT may separate rights to principal and interest on any qualified debt instruments issued by the FASIT and may issue certificates of ownership in such rights to the same extent as would be permitted in the case of a fixed investment trust holding such qualified debt instruments. All such rights arising out of the same qualified debt instrument shall be treated by the FASIT as a single qualified debt instrument.

    ‘(d) PREFERRED OWNERSHIP INTERESTS- For purposes of this section, a preferred ownership interest is an instrument that--

      ‘(1) is designated as such,

      ‘(2) is described in subparagraphs (A), (B), and (C) of paragraph (2) of the preceding subsection, and

      ‘(3) does not have an issue price in excess of its stated principal amount.

    ‘(e) COMMON OWNERSHIP INTERESTS- For purposes of this section, a common ownership interest is an instrument that is designated as such.

‘SEC. 855B. TRANSFERS TO FASITS.

    ‘(a) Treatment of Transferor-

      ‘(1) RECOGNITION OF GAIN OR LOSS- Gain or loss shall be recognized to the transferor on the transfer of any property to a FASIT in exchange for an interest or instrument therein. Any increase in the value of an existing interest or instrument held by the transferor (or by a party bearing a relationship to the transferor described in section 267(b) or section 707(b)) attributable to the transfer of assets shall be treated as the receipt of an additional interest or instrument, as the case may be.

      ‘(2) ADJUSTED BASES- The adjusted basis of an interest or instrument received in a transfer described in paragraph (1) shall be equal to its fair market value immediately after such transfer.

    ‘(b) TREATMENT OF FASIT- The basis of any property received by a FASIT in a transfer described in subsection (a)(1) shall be its fair market value immediately after such transfer.

    ‘(c) ACCOUNTING RULES- For purposes of this part--

      ‘(1) IN GENERAL- The anticipated cash flows and fair market value of assets transferred to a FASIT shall be determined without regard to any future transfers of assets that the transferor may be obligated or permitted to make. Any such subsequent transfer shall be treated as a separate transfer of assets with respect to which there shall be separately computed--

        ‘(A) the FASIT’s basis therein and income thereon, and

        ‘(B) any gain or loss to the transferor.

      ‘(2) TREATMENT OF REVOLVING LOAN POOLS- In the case of any FASIT acquiring obligations representing extensions of credit on revolving loan accounts having substantially the same terms--

        ‘(A) each extension of credit shall be treated as a separate obligation transferred to the FASIT,

        ‘(B) the anticipated life of each such obligation shall be determined using a periodic principal payment rate equal to the reasonably anticipated periodic rate (determined at the time of transfer) at which principal payments on the accounts will be paid, as a proportion of their outstanding principal balance, and

        ‘(C) actual payments of principal (and losses of principal) shall be allocated among all outstanding obligations in proportion to their outstanding balances.

    ‘(d) DISTRIBUTIONS OF PROPERTY- Any distribution of property with respect to an interest or instrument of a FASIT (other than a distribution described in section 855C(b)(3)(B)) shall be treated as if the FASIT had sold such property and distributed the proceeds.

    ‘(e) TREATMENT OF RECOGNIZED GAINS AND LOSSES- Recognized gains and losses attributable to transfers described in paragraph (a)(1) shall be taken into account by the transferor in the manner prescribed in section 855C.

    ‘(f) BELOW-MARKET LOANS- For purposes of subsection (a) (relating to the recognition of gain or loss upon the transfer of property to a FASIT) and subsection (b) (relating to the FASIT’s basis in such property), the fair market value of any loan that was a below-market loan when made (within the meaning of section 7872(e)(1)) shall not be considered to be less than the lower of its outstanding principal amount or the transferor’s adjusted basis therein.

‘SEC. 855C. TREATMENT OF RECOGNIZED GAINS AND LOSSES.

    ‘(a) RETAINED INTERESTS AND INSTRUMENTS- Subject to subsections (b) and (c), gain (or loss) recognized on a transfer described in section 855B(a)(1) shall be taken into account in the same manner as the same amount of premium (or discount) on the transferred assets would be required to be taken into account by the FASIT.

    ‘(b) ACCELERATION OF GAIN OR LOSS UPON SALE OF INTERESTS AND INSTRUMENTS-

      ‘(1) IN GENERAL- Amounts received by the transferor with respect to the sale or other disposition of any FASIT interest or instrument (including any amounts treated as received with respect to the allocable portion of any interests or instruments issued directly by the FASIT)--

        ‘(A) shall be allocated among the outstanding assets that were transferred by the transferor in transactions to which section 855B(a)(1) applied (but not in excess of the outstanding principal amount of any such assets determined after prior applications of this paragraph), and

        ‘(B) shall be treated (solely for purposes of subsection (a)) as a payment of principal received by the FASIT on such assets.

      ‘(2) DEEMED RECEIPTS- Amounts of principal received by a FASIT and used to acquire new debt obligations in a transfer to which section 855B(a)(1) applies shall be treated for purposes of this subsection as attributable to a redemption and new issuance of an allocable portion of all outstanding interests and instruments.

      ‘(3) EXCEPTIONS- Paragraph (1) shall not apply (and appropriate basis adjustments shall be required) with respect to amounts received--

        ‘(A) upon a sale or disposition that is of a type which would not give rise to the recognition of gain, or the recognition or allowance of loss, as the case may be, or

        ‘(B) upon a distribution with respect to an interest or instrument of assets that are substantially identical to the assets transferred for such interest or instrument.

    ‘(c) COORDINATION- Following any application of subsection (b), subsection (a) shall be applied disregarding pro rata portions of subsequent actual and anticipated principal payments to the FASIT to take into account the amounts treated as principal payments in all prior applications of subsection (b).

    ‘(d) INVESTMENT PARTNERSHIP RULES APPLICABLE- Notwithstanding subsection (a), gain shall be taken into account to the extent that would be required under section 721(b) if the FASIT were a partnership (treating as a single taxpayer all transferors that are members of the same affiliated group of corporations joining in the filing of a consolidated return).

‘SEC. 855D. CONSISTENCY REQUIREMENT.

    ‘(a) ADOPTION OF METHOD OF ACCOUNTING- Any transfer of debt obligations to a FASIT in exchange for an interest or instrument of the FASIT followed by the retention by the transferor (or by a party bearing a relationship to the transferor described in section 267(b) or section 707(b)) of any such interest or instrument for more than three months, shall be treated as the adoption by the transferor (and by all members of the same affiliated group of corporations joining in the filing of a consolidated return with the transferor) of a method of accounting. Such method of accounting shall--

      ‘(1) apply to all gains and losses arising from the transfer of substantially similar debt obligations to entities described in subsection (b) in exchange for interests in or obligations of such entities, and

      ‘(2) shall require gains and losses to be recognized and taken into account (upon the later of the transfer or the time at which the entity first becomes described in subsection (b)) in substantially the same manner as if the transferee were a FASIT.

    ‘(b) ENTITIES- An entity is described in this subsection if--

      ‘(1) substantially all of its assets consist of debt obligations, and

      ‘(2) the entity has outstanding instruments treated as debt for Federal income tax purposes (with an adjusted issue price exceeding 50 percent of the adjusted basis of its assets) that are not treated as debt on the consolidated financial statement (or similar report or statement) of the transferor for financial or regulatory accounting purposes.

    ‘(c) SCOPE OF METHOD- For purposes of subsection (a)(1) of this section, a debt obligation shall be considered to be substantially similar to a debt obligation transferred to a FASIT if such obligation is of a type that was customarily treated (at the time of the transfer to the FASIT) as an equivalent substitute for the debt obligation transferred to the FASIT by buyers and sellers in the markets for securities collateralized by such debt obligations.

‘SEC. 855E. TREATMENT OF FRONT-LOADED INCOME ON COMMON OWNERSHIP INTERESTS.

    ‘(a) FRONT-LOADED INCOME MAY NOT BE OFFSET BY NET OPERATING LOSSES-

      ‘(1) IN GENERAL- Except as provided in paragraphs (2) and (3), the taxable income of any holder of a common ownership interest in a FASIT for any taxable year shall in no event be less than the front-loaded income for such taxable year. For purposes of the preceding sentence, all members of an affiliated group filing a consolidated return shall be treated as one taxpayer.

      ‘(2) EXCEPTION FOR CERTAIN STRUCTURES- Paragraph (1) shall not apply to any FASIT for any periods during which--

        ‘(A) the debt obligations held by the FASIT have an anticipated weighted average life that is not greater than four years (determined at the end of each calendar quarter), or,

        ‘(B) under regulations, it can reasonably be anticipated from the structure of the FASIT that taxable income will not be required to be included by the holders of common ownership interests under section 855A(b)(3) materially faster than would be required if the ownership interests were subject to taxation under the rules and principles applicable to debt obligations.

      ‘(3) EXCEPTION FOR BONA FIDE ORIGINATORS- Paragraph (1) shall not apply to any ownership interest--

        ‘(A) that is held by the originator of the debt obligations transferred in exchange therefor (or by a member of the same affiliated group of corporations joining in the filing of a consolidated return), and

        ‘(B) that represents a substantial economic interest in the value or performance of such debt obligations.

      ‘For purposes of the preceding sentence, an economic interest is substantial if it is reasonably anticipated to represent at least 2 percent of the value of the debt obligations to which it relates for at least half of their anticipated weighted average life.

      ‘(4) COORDINATION WITH SECTION 172- For purposes of section 172, front-loaded income for a taxable year shall be treated in the same manner as an excess inclusion is treated under section 860E(a)(5).

    ‘(b) FRONT LOADED INCOME- For purposes of this section, front-loaded income for the taxable year is the amount (not less than zero) equal to--

      ‘(1) the taxable income taken into account by the holder of a common ownership interest under section 855A(b)(3) for the taxable year and for all prior years, minus,

      ‘(2) the amount that would have been required to be taken into account by such holder for the taxable year and all prior years if the common ownership interest were treated as a debt obligation (providing for the same fixed, variable, and contingent cash flows as the common ownership interest) originally issued to the holder on the date of its acquisition for an amount equal to its fair market value on that date, minus

      ‘(3) the amount determined under this subsection with respect to the holder for all years prior to the taxable year.

    To the extent the amount described in paragraph (2) requires a determination of the yield to maturity of the hypothetical debt obligation, such yield shall be considered to be equal to 120 percent of the applicable Federal rate, unless there is clear evidence that the amount would properly be determined using a higher yield.

‘SEC. 855F. TAX ON CERTAIN TRANSFERS OF OWNERSHIP INTERESTS.

    ‘(a) IN GENERAL- A tax is hereby imposed on any transfer of an ownership interest in a FASIT other than a transfer to a FASIT, to a pass-through entity, or to a corporation to which the provision of section 11 apply.

    ‘(b) AMOUNT OF TAX- The amount of the tax imposed by subsection (a) on any transfer of an ownership interest shall be equal to the product of--

      ‘(1) the fair market value of the ownership interest on the date of transfer, multiplied by--

      ‘(2) the highest rate of tax specified in section 11(b)(1).

    ‘(c) LIABILITY- The tax imposed by subsection (a) on any transfer shall be paid by the transferor; except that, where such transfer is through an agent for the transferee, such tax shall be paid by such agent.

    ‘(d) TRANSFEREE FURNISHES AFFIDAVIT- The person otherwise liable for any tax imposed by subsection (a) shall be relieved of liability for the tax imposed by subsection (a) with respect to any transfer if--

      ‘(1) the transferee furnishes to such person an affidavit that the transferee is a FASIT, a pass-through entity, or a corporation to which the provisions of section 11 apply, and

      ‘(2) as of the time of the transfer, such person does not have actual knowledge that such affidavit is false.

    ‘(e) TREATMENT OF PASS-THROUGH ENTITIES- If, at any time during a taxable year of a pass-through entity, the pass-through entity holds (directly or through one or more other pass-through entities) an ownership interest in a FASIT and a record holder of an interest in the pass-through entity is neither a corporation to which the provisions of section 11 apply, a FASIT, nor another pass-through entity, there is hereby imposed on the pass-through entity a tax, for the taxable year, equal to the product of--

      ‘(1) the amount of taxable income for such taxable year attributable to the FASIT ownership interest held (directly or through one or more other pass-through entities) and allocable to the pass-through interest held by such record holder, multiplied by

      ‘(2) the highest rate of tax specified in section 11(b)(1).

    ‘(f) PASS-THROUGH ENTITY- For purposes of this section, the term ‘pass-through entity’ has the same meaning as that provided in section 860E(e)(6), except that such term shall also include S corporations.

    ‘(g) EXCEPTIONS- No tax shall be imposed by subsection (e) to the extent a pass-through entity--

      ‘(1) holds an ownership interest in a FASIT representing a retained economic interest in debt obligations originated by the pass-through entity in connection with the pass-through entity’s sale of goods or services, or

      ‘(2) holds an ownership interest in a FASIT for sale to customers in the ordinary course of business, or is a dealer in securities and holds an ownership interest in a FASIT for no more than one month.

    ‘(h) EXCEPTION WHERE HOLDER FURNISHES AFFIDAVIT- No tax shall be imposed by subsection (e) with respect to any interest in a pass-through entity for any period if--

      ‘(1) the record holder of such interest furnishes to such pass-through entity an affidavit that such record holder is a FASIT, a corporation to which the provisions of section 11 apply, or another pass-through entity, and

      ‘(2) during such period, the pass-through entity receiving the affidavit does not have actual knowledge that such affidavit is false.

    ‘(i) WAIVER- The Secretary may waive the tax imposed by subsection (a) on any transfer if--

      ‘(1) within a reasonable time after discovery that the transfer was subject to tax under subsection (a) steps are taken so that the interest is no longer held by the prohibited holder, and

      ‘(2) there is paid to the Secretary such amounts as the Secretary may require.

    ‘(j) ADMINISTRATIVE PROVISIONS- For purposes of subtitle F, the taxes imposed by this section shall be treated as excise taxes with respect to which the deficiency procedures of such subtitle apply.

‘SEC. 855G. ADDITIONAL TAXES.

    ‘(a) PROHIBITED TRANSACTION TAX-

      ‘(1) IMPOSITION OF TAX- A tax is hereby imposed for each taxable year of a FASIT equal to 100 percent of the net income derived from prohibited transactions (disregarding any losses from prohibited transactions).

      ‘(2) PROHIBITED TRANSACTION- For purposes of this subsection, the term ‘prohibited transaction’ means--

        ‘(A) any acquisition or disposition of assets other than in accordance with the terms and conditions set forth in the agreements, indentures, or other instruments pursuant to which its qualified debt instruments and ownership interests are issued,

        ‘(B) any acquisition or disposition of assets for the primary purpose of recognizing gains or decreasing losses resulting from market value changes,

        ‘(C) any acquisition of a debt instrument for the primary purpose of realizing income from the operation, management, rental, leasing, or sale of property acquired or to be acquired in connection with the default or imminent default thereof, and

        ‘(D) the receipt of any income attributable to an asset which is not described in section 855A(a)(3).

    ‘(b) TAX ON INCOME FROM FORECLOSURE PROPERTY-

      ‘(1) IN GENERAL- A tax is hereby imposed for each taxable year on the net income from foreclosure property of each FASIT. Such tax shall be computed by multiplying the net income from foreclosure property by the highest rate of tax specified in section 11(b).

      ‘(2) NET INCOME FROM FORECLOSURE PROPERTY- For purposes of this part, the term ‘net income from foreclosure property’ means the amount which would be the FASIT’s net income from foreclosure property under section 857(b)(4)(B) if the FASIT were a real estate investment trust and all property acquired by the FASIT in connection with the default or imminent default of a debt obligation were treated as if it were real property and as if it were foreclosure property.’

SEC. 3. CONFORMING AMENDMENTS.

    (a) The last sentence of paragraph (1) of section 582(c) of the Internal Revenue Code of 1986 is amended to read as follows: ‘For purposes of the preceding sentence, any regular or residual interest in a REMIC and any ownership interest or qualified debt instrument issued by a FASIT shall be treated as an evidence of indebtedness.’

    (b) Sections 593(d)(4), 856(c)(6)(E), and 7701(a)(19)(C) of the Internal Revenue Code of 1986, are each amended by adding at the ends thereof the following sentence: ‘The provisions of this section applicable to regular and residual interests in a REMIC shall also apply to interests and instruments in a FASIT.’

SEC. 4. EFFECTIVE DATE.

    The amendments made by sections 2 and 3 shall be effective upon the date of enactment.