Company: RWT-PA
Filing Date: 2025-03-03
Form Type: S-3ASR
Source: 0001104659-25-019828
Chunk: 53

Company: REDWOOD TRUST INC
Filing Date: 2025-03-03
Form: S-3ASR
Chunk 53
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 the participation feature will be treated as gain from sale of the underlying
property, which generally will be qualifying income for purposes of both the 75% and 95% gross income tests, provided that the property
is not inventory or dealer property of the borrower or ours.

Any amount includible in
our gross income with respect to a regular or residual interest in a REMIC generally is treated as interest on an obligation secured
by a mortgage on real property. If, however, less than 95% of the assets of a REMIC consists of real estate assets (determined as if
we held such assets), we will be treated as receiving directly our proportionate share of the income of the REMIC for purposes of determining
the amount that is treated as interest on an obligation secured by a mortgage on real property.

Among the assets we may hold
are certain mezzanine loans secured by equity interests in a pass-through entity that directly or indirectly owns real property, rather
than a direct mortgage on the real property. The IRS issued Revenue Procedure 2003-65, or the Revenue Procedure, which provides a safe
harbor pursuant to which a mezzanine loan will be treated by the IRS as a real estate asset for purposes of the REIT asset tests, and
interest derived from it will be treated as qualifying mortgage interest for purposes of the 75% gross income test. Although the Revenue
Procedure provides a safe harbor on which taxpayers may rely, it does not prescribe rules of substantive tax law. From time to time,
we may own mezzanine loans that do not meet all of the requirements for reliance on this safe harbor. There can be no assurance that
the IRS will not challenge the qualification of any mezzanine loans we may own as real estate assets or the interest generated by such
loans as qualifying income under the 75% gross income test. If we acquire or make corporate mezzanine loans or other commercial real
estate corporate loans, such loans will not qualify as real estate assets and interest income with respect to such loans will not be
qualifying income for the 75% gross income test. To the extent that such non-qualification causes us to fail the 75% gross income test,
we could be required to pay a penalty tax or fail to qualify as a REIT.

We expect that any commercial
mortgage-backed securities, or CMBS, that we may invest in will be treated either as interests in a grantor trust or as interests in
a REMIC for