(e) Tax on transfers of residual interests to certain organizations, etc.
(1) In general
A tax is hereby imposed on any transfer of a residual interest in a REMIC to a disqualified organization.
(2) Amount of tax
The amount of the tax imposed by paragraph (1) on any transfer of a residual interest shall be equal to the product of—
(A) the amount (determined under regulations) equal to the present value of the total anticipated excess inclusions with respect to such interest for periods after such transfer, multiplied by
(B) the highest rate of tax specified in section 11(b)(1).
(3) Liability
The tax imposed by paragraph (1) on any transfer shall be paid by the transferor; except that, where such transfer is through an agent for a disqualified organization, such tax shall be paid by such agent.
(4) Transferee furnishes affidavit
The person (otherwise liable for any tax imposed by paragraph (1)) shall be relieved of liability for the tax imposed by paragraph (1) with respect to any transfer if—
(A) the transferee furnishes to such person an affidavit that the transferee is not a disqualified organization, and
(B) as of the time of the transfer, such person does not have actual knowledge that such affidavit is false.
(5) Disqualified organization
For purposes of this section, the term “disqualified organization” means—
(A) the United States, any State or political subdivision thereof, any foreign government, any international organization, or any agency or instrumentality of any of the foregoing,
(B) any organization (other than a cooperative described in section 521) which is exempt from tax imposed by this chapter unless such organization is subject to the tax imposed by section 511, and
(C) any organization described in section 1381(a)(2)(C).
For purposes of subparagraph (A), the rules of section 168(h)(2)(D) (relating to treatment of certain taxable instrumentalities) shall apply; except that, in the case of the Federal Home Loan Mortgage Corporation, clause (ii) of such section shall not apply.
(6) Treatment of pass-thru entities
(A) Imposition of tax
If, at any time during any taxable year of a pass-thru entity, a disqualified organization is the record holder of an interest in such entity, there is hereby imposed on such entity for such taxable year a tax equal to the product of—
(i) the amount of excess inclusions for such taxable year allocable to the interest held by such disqualified organization, multiplied by
(ii) the highest rate of tax specified in section 11(b)(1).
(B) Pass-thru entity
For purposes of this paragraph, the term “pass-thru entity” means—
(i) any regulated investment company, real estate investment trust, or common trust fund,
(ii) any partnership, trust, or estate, and
(iii) any organization to which part I of subchapter T applies.
Except as provided in regulations, a person holding an interest in a pass-thru entity as a nominee for another person shall, with respect to such interest, be treated as a pass-thru entity.
(C) Tax to be deductible
Any tax imposed by this paragraph with respect to any excess inclusion of any pass-thru entity for any taxable year shall, for purposes of this title (other than this subsection), be applied against (and operate to reduce) the amount included in gross income with respect to the residual interest involved.
(D) Exception where holder furnishes affidavit
No tax shall be imposed by subparagraph (A) with respect to any interest in a pass-thru entity for any period if—
(i) the record holder of such interest furnishes to such pass-thru entity an affidavit that such record holder is not a disqualified organization, and
(ii) during such period, the pass-thru entity does not have actual knowledge that such affidavit is false.
(7) Waiver
The Secretary may waive the tax imposed by paragraph (1) on any transfer if—
(A) within a reasonable time after discovery that the transfer was subject to tax under paragraph (1), steps are taken so that the interest is no longer held by the disqualified organization, and
(B) there is paid to the Secretary such amounts as the Secretary may require.
(8) Administrative provisions
For purposes of subtitle F, the taxes imposed by this subsection shall be treated as excise taxes with respect to which the deficiency procedures of such subtitle apply.
Amendments
1996—Subsec. (a)(1). Pub. L. 104–188, § 1616(b)(10)(A), substituted “The” for “Except as provided in paragraph (2), the”.
Subsec. (a)(2). Pub. L. 104–188, § 1616(b)(10)(B), (C), redesignated par. (3) as (2), struck out “, except that paragraph (2) shall be applied separately with respect to each corporation which is a member of such group and to which section 593 applies” after “of this subsection”, and struck out former par. (2) which read as follows: “Exception for certain financial institutions.—Paragraph (1) shall not apply to any organization to which section 593 applies. The Secretary may by regulations provide that the preceding sentence shall not apply where necessary or appropriate to prevent avoidance of tax imposed by this chapter.”
Subsec. (a)(3). Pub. L. 104–188, § 1616(b)(10)(B), redesignated par. (5) as (3). Former par. (3) redesignated (2).
Subsec. (a)(4). Pub. L. 104–188, § 1616(b)(10)(B), (D), redesignated par. (6) as (4), struck out at end “The preceding sentence shall not apply to any organization to which section 593 applies, except to the extent provided in regulations prescribed by the Secretary under paragraph (2).”, and struck out former par. (4) which related to certain subsidiaries being treated as single corporations to which section 593 applied.
Subsec. (a)(5). Pub. L. 104–188, § 1616(b)(10)(B), redesignated par. (5) as (3).
Subsec. (a)(6). Pub. L. 104–188, § 1616(b)(10)(B), redesignated par. (6) as (4).
Pub. L. 104–188, § 1704(h)(1), added par. (6).
1988—Subsec. (a)(3), (4). Pub. L. 100–647, § 1006(t)(15), added pars. (3) and (4).
Subsec. (a)(5). Pub. L. 100–647, § 1006(t)(27), added par. (5).
Subsec. (c)(2)(B). Pub. L. 100–647, § 1006(t)(13), (17), substituted “issue price of the residual interest (adjusted for contributions)” for “issue price of residual interest” in introductory text, and in cl. (ii) inserted “(but not below zero)” after “decreased”.
Subsec. (d). Pub. L. 100–647, § 1006(t)(23), inserted at end “Rules similar to the rules of the preceding sentence shall apply also in the case of regulated investment companies, common trust funds, and organizations to which part I of subchapter T applies.”
Subsec. (e). Pub. L. 100–647, § 1006(t)(16)(B), added subsec. (e).
Subsec. (f). Pub. L. 100–647, § 1006(t)(26), added subsec. (f).
Effective Date of 1996 Amendment
Amendment by section 1616(b)(10) of Pub. L. 104–188 applicable to taxable years beginning after Dec. 31, 1995, but not applicable to any residual interest held by a taxpayer if such interest has been held by such taxpayer at all times since Oct. 31, 1995, see section 1616(c)(1), (4) of Pub. L. 104–188, set out as a note under section 593 of this title.
Pub. L. 104–188, title I, § 1704(h)(2), Aug. 20, 1996, 110 Stat. 1881, provided that:
“The amendment made by paragraph (1) [amending this section] shall take effect as if included in the amendments made by section 671 of the Tax Reform Act of 1986 [
Pub. L. 99–514] unless the taxpayer elects to apply such amendment only to taxable years beginning after the date of the enactment of this Act [Aug. 20, 1996].”
Effective Date of 1988 Amendment
Pub. L. 100–647, title I, § 1006(t)(16)(D)(ii)–(iv), Nov. 10, 1988, 102 Stat. 3425, provided that:
“(ii) The amendments made by subparagraphs (B) and (C) [amending this section and
section 26 of this title] (except to the extent they relate to paragraph (6) of section 860E(e) of the 1986 Code as added by such amendments) shall apply to transfers after March 31, 1988; except that such amendments shall not apply to any transfer pursuant to a binding written contract in effect on such date.
“(iii)
Except as provided in clause (iv), the amendments made by subparagraphs (B) and (C) (to the extent they relate to paragraph (6) of section 860E(e) of the 1986 Code as so added) shall apply to excess inclusions for periods after March 31, 1988 but only to the extent such inclusions are—
“(I) allocable to an interest in a pass-thru entity acquired after March 31, 1988, or
“(II) allocable to an interest in a pass-thru entity acquired on or before March 31, 1988, but attributable to a residual interest acquired by the pass-thru entity after March 31, 1988.
For purposes of the preceding sentence, any interest in a pass-thru entity (or residual interest) acquired after March 31, 1988, pursuant to a binding written contract in effect on such date shall be treated as acquired before such date.
“(iv) In the case of any real estate investment trust, regulated investment company, common trust fund, or publicly traded partnership, no tax shall be imposed under section 860E(e)(6) of the 1986 Code (as added by the amendment made by subparagraph (B)) for any taxable year beginning before January 1, 1989.”
Amendment by section 1006(t)(13), (15), (17), (23), (26), (27) of Pub. L. 100–647 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Pub. L. 99–514, to which such amendment relates, see section 1019(a) of Pub. L. 100–647, set out as a note under section 1 of this title.