IRS Eases Tax Rules On Mortgage Securtization Trusts That Engage In Loan Modifications Aimed At Reducing Foreclosures

Mondaq.com reports:

• Many pools of mortgages are held in tax advantaged entities that qualify for tax purposes as REMICs that avoid double taxation under the Internal Revenue Code. But for an entity to qualify as a REMIC, the pooled mortgages must be basically treated as static pools of mortgage loans. Loan modifications could force a REMIC to lose its favorable tax treatment, and once REMIC status is lost, it is lost forever. This means that REMIC efforts to minimize foreclosures through loan modifications can threaten favorable tax status of the REMIC and its owners.

• To address these risks, the Internal Revenue Service and U.S. Department of the Treasury have taken actions to expand safe harbor rules that apply to REMICS. Through a number of recently issued revenue procedures, the IRS has provided assurances that REMICs can retain their favorable tax status when mortgage servicers make certain loan modifications as part of programs aimed to reduce foreclosures. The safe harbors allow REMICs to engage in certain, previously prohibited activities that in the past could have resulted in significant tax penalties.

For more, see Relaxed REMIC Requirements: IRS And Treasury Efforts To Address The Subprime Mortgage Crisis.