Company: ADAMM
Filing Date: 2025-09-05
Form Type: S-3
Source: 0001104659-25-087812
Chunk: 71

Company: ADAMAS TRUST, INC.
Filing Date: 2025-09-05
Form: S-3
Chunk 71
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 has issued private letter rulings to other REITs holding that excess MSRs produce qualifying income for purposes of the 75% gross income test. Any income that is qualifying income for the 75% gross income test is also qualifying income for the 95% gross income test. A private letter ruling may be relied upon only by the taxpayer to whom it is issued, and the IRS may revoke a private letter ruling. Based on the analysis in those private letter rulings and other IRS guidance regarding excess MSRs, we generally intend to treat our investments in excess MSRs as producing qualifying income for purposes of both the 75% and 95% gross income tests to the extent the underlying mortgage loans produce qualifying income for purposes of those tests, as described above. However, we do not intend to seek our own private letter ruling. Thus, the IRS could take the position that our excess MSRs do not produce qualifying income, presumably by treating a portion of the income we receive from an excess MSR as reasonable compensation for servicing the underlying mortgage loans. A successful challenge of our treatment of our excess MSRs could result in our being treated as failing the 75% gross income test and/or the 95% gross income test. If we failed either of those tests but qualified for a “savings” provision described under “— Failure to Satisfy Gross Income Tests,” we would be required to pay a penalty tax, which could be material, in order to maintain our REIT qualification. If we did not qualify for that “savings” provision, we would fail to qualify as a REIT. See “— Failure to Qualify.”

We have purchased, and may purchase in the future, Agency RMBS through “to be announced” forward contracts (“TBAs”), and we may recognize income or gains on the disposition of those TBAs, through “dollar roll” transactions or otherwise. There is no direct authority with respect to the qualification of gains from dispositions of TBAs as gains from the sale of real property (including interests in real property and interests in mortgages on real property) or other qualifying income for purposes of the 75% gross income test. However, we intend to treat income and gains from our TBAs as qualifying income for purposes of the 75% gross income test, based on a legal opinion of Vinson & Elkins L.L.P. substantially to the effect that any gain recognized in connection with the settlement of our TBAs, whether physically settled or settled by an offsetting TBA, should be qualifying income for