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[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[H.R. 1967 Introduced in House (IH)]

104th CONGRESS
  1st Session
                                H. R. 1967

 To Facilitate Asset Securitization Through the Creation of Financial 
                Asset Securitization Investment Trusts.

_______________________________________________________________________

                    IN THE HOUSE OF REPRESENTATIVES

                             June 29, 1995

Mr. Shaw (for himself, Mr. Rangel, Mr. Zimmer, Mr. McDermott, Mr. Payne 
 of Virginia, Mrs. Kennelly, Mr. Cardin, Mr. English of Pennsylvania, 
  Mr. Sam Johnson of Texas, Mr. Hancock, Mr. Christensen, Mr. Neal of 
   Massachusetts, Mr. Crane, Mr. Thomas, Mr. Collins of Georgia, Mr. 
Kleczka, Ms. Dunn of Washington, Mr. Houghton, Mr. Matsui, Mrs. Johnson 
of Connecticut, Mr. Herger, Mr. Nussle, and Mr. Portman) introduced the 
 following bill; which was referred to the Committee on Ways and Means

_______________________________________________________________________

                                 A BILL

 
 To Facilitate Asset Securitization Through 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 Securitization Enhancement Act of 
1995.''

SEC. 2. FINANCIAL ASSET SECURITIZATION INVESTMENT TRUSTS.

    (a) The table of subchapter M of chapter 1 of the Internal Revenue 
Code of 1986, is amended by adding the following title:

                   ``PART V--SECURITIZATION TRUSTS''

    (b) The following new heading and table is added immediately 
following section 860G of the Internal Revenue Code of 1986:
                    ``Part V--Securitization Trusts

Sec. 860H. Taxation of financial asset securitization investment 
                            trusts.
Sec. 960I. Taxation of owners of FASIT.
Sec. 860J. Contributions by owners.
Sec. 860K. Disqualified holders of certain interests.
Sec. 860L. Definitions.
    (c) The following new sections are added as part V of subchapter M 
of chapter 1 of the Internal Revenue Code of 1986:

``SEC. 860H. TAXATION OF FINANCIAL ASSET SECURITIZATION INVESTMENT 
              TRUSTS.

    ``(a) Owners, Not Entity, Subject to Tax.--Except as otherwise 
provided in subsection (c), a FASIT shall not be subject to taxation 
under this subtitle and shall not be treated as a trust, partnership, 
corporation or taxable mortgage pool.
    ``(b) Treatment of FASIT Debt Instruments.--For purposes of this 
subtitle any qualified or permitted debt instrument issued by a FASIT 
shall be treated as indebtedness of the FASIT (and as indebtedness of a 
corporation). The amounts includible in gross income by a holder with 
respect to any such debt instrument shall be determined under the 
accrual method of accounting.
    ``(c) Tax on Prohibited Income.--
            ``(1) There is hereby imposed on the FASIT a tax on any 
        prohibited income for the taxable year. Such tax shall be 
        imposed at the rate of 100 percent, except that in the case of 
        any prohibited income described in subparagraph (2)(D) the tax 
        shall be imposed at the highest rate specified in section 
        11(b)(1).
            ``(2) For purposes of this subsection, prohibited income 
        shall mean--
                    ``(A) gross income derived from any asset that is 
                not a permitted asset,
                    ``(B) gain from the disposition of any asset that 
                was acquired by the FASIT for the principal purpose of 
                recognizing gains (or reducing losses) as a result of 
                an increase in the market value of the asset following 
                its acquisition (other than an increase attributable to 
                any bond discount),
                    ``(C) compensation for services (not including, for 
                this purpose, any payments received pursuant to the 
                terms of permitted assets held by the FASIT), and
                    (D) income that would be 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 
                foreclosure property.
    ``(d) Treatment Under Subtitle F.--Except as otherwise provided in 
regulations, for purposes of subtitle F (other than determining who may 
sign a FASIT tax return) a FASIT shall be treated as a partnership with 
a calendar year taxable year and holders of ownership interests in such 
FASIT shall be treated as partners.
    ``(e) Termination of FASIT Status.--An entity that ceases to be a 
FASIT shall be treated as having distributed all of its assets to the 
holders of its interests, in accordance with their terms, immediately 
prior to such cessation.

``SEC. 860I. TAXATION OF OWNERS OF FASIT.

    ``(a) In General.--
            ``(1) Pass-through of fasit income or loss.--
                    ``(A) In general.--The holder of an ownership 
                interest in a FASIT shall take into account his daily 
                portion of the taxable income or net loss of such FASIT 
                for each day during the taxable year on which such 
                holder held such interest.
                    ``(B) Character, etc.--Except as otherwise provided 
                in regulations, items of FASIT income or loss (other 
                than the tax-exempt nature of any interest income) 
                taken into account under this paragraph shall have the 
                same character, source, and other attributes in the 
                hands of a holder of an ownership interest as such 
                items would have if they were incurred directly by such 
                holder.
            ``(2) Daily portion.--The daily portion referred to in 
        paragraph (1) shall be determined--
                    ``(A) by allocating to each day in any accrual 
                period its ratable portion of the FASIT's taxable 
                income (or net loss) for such period,
                    ``(B) by dividing the amounts so allocated to any 
                day among the holders of ownership interests on such 
                day in proportion to their respective holdings on such 
                day, and
                    ``(C) by making appropriate adjustments among 
                holders, consistent with the principles described in 
                section 860J(b)(3)(D).
            ``(3) Taxable income.--Except as otherwise provided in 
        regulations, the taxable income or net loss of a FASIT shall be 
        determined in the same manner as in the case of a corporation 
        using the accrual method and having a calendar year taxable 
        year, except that--
                    ``(A) the basis of any property (and the adjusted 
                issue price of any debt obligation) received by a FASIT 
                in a qualified exchange shall be equal to the 
                property's basis in the hands of the transferor 
                immediately before the exchange,
                    ``(B) the constant yield method, including the 
                rules of section 1272(a)(6), shall be applied in 
                determining all interest, original issue discount, and 
                market discount income and all premium deductions or 
                adjustments with respect to all debt obligations held 
                by the FASIT,
                    ``(C) section 163(e)(5) shall not apply with 
                respect to any debt instrument,
                    ``(D) the amount of the FASIT's prohibited income 
                described in section 860H(b)(2)(D) (relating to net 
                income from foreclosure property) shall be reduced by 
                the amount of tax imposed thereon by section 
                806H(b)(1),
                    ``(E) there shall not be taken into account any 
                item of income, gain, loss or deduction allocable to 
                prohibited income (other than prohibited income 
                described in the preceding subparagraph), and
                    ``(F) any distribution of property with respect to 
                a FASIT security (other than a distribution to which 
                subsection (b)(5) applies) shall be treated as if the 
                FASIT had sold such property for cash (in an amount 
                equal to the property's fair market value) and 
                distributed such cash.
            ``(4) Loss limitation.--
                    ``(A) In general.--The losses taken into account by 
                any holder with respect to an ownership interest under 
                paragraph (1) of this subsection for any accrual period 
                shall not exceed the holder's adjusted basis in such 
                ownership interest as of the close of such period 
                (determined without regard to any basis reduction for 
                such losses for such loses for such period).
                    ``(B) Indefinite carryforward.--A loss disallowed 
                to a holder by reason of subparagraph (A) shall be 
                treated by the holder in the same manner as if it were 
                a loss incurred by the FASIT with respect to such 
                holder in the succeeding accrual period.
    ``(b) Distributions and Basis Rules.--
            ``(1) Distributions.--A distribution by a FASIT with 
        respect to an ownership interest shall not be included in gross 
        income to the extent it does not exceed the adjusted basis of 
        the interest, and shall be treated as gain from the sale or 
        exchange of such interest to the extent it exceeds the adjusted 
        basis of the interest.
            ``(2) Basis rules.--The basis of any person's ownership 
        interest in a FASIT--
                    ``(A) shall be increased by--
                            ``(i) the amount of any money (and the 
                        transferor's basis in any property) contributed 
                        by such person with respect to such interest, 
                        and
                            ``(ii) the amount of any taxable income 
                        taken into account by such person with respect 
                        to such interest under section 860I(a)(1), 
                        section 860I(b)(3) or section 860J(b), and
                    ``(B) shall thereafter be decreased (in the 
                following order but not below zero) by--
                            ``(i) the amount of any distributions to 
                        such person with respect to such interest,
                            ``(ii) the amount of any deductions taken 
                        into account by such person with respect to 
                        such interest under section 860I(b)(3) or 
                        section 860J(b), and
                            ``(iii) the amount of any losses taken into 
                        account by such person with respect to such 
                        interest under section 860I(a)(1).
            ``(3) Secondary purchasers.--In the case of any ownership 
        interest (or portion thereof) not acquired in a qualified 
        exchange (within the meaning of section 860J(a)(2)), the holder 
        shall, at the end of an accrual period--
                    ``(A) take into account as ordinary income the 
                excess, if any, of the fair market value of such 
                ownership interest (or portion) over his adjusted basis 
                therein (determined after the application of section 
                860I(a)(1) for such period), and
                    ``(B) to the extent permitted in regulations, take 
                into account as an ordinary deduction the excess, if 
                any, of his adjusted basis in such interest or portion 
                (determined after the application of section 860I(a)(1) 
                for such period) over the fair market value thereof.
            ``(4) Treatment of certain property transfers.--
        Notwithstanding paragraph (1) and (2), rules similar to those 
        provided by section 707(a)(2)(B) and section 737 shall apply as 
        if the FASIT were a partnership and the holders of its 
        ownership interests were partners.
            ``(5) Limitations on gains and losses.--Notwithstanding any 
        other provision of this subpart, gain or loss shall not be 
        recognized (and appropriate basis adjustments shall be made) 
        upon--
                    ``(A) a distribution of property that is 
                substantially identical to property contributed by the 
                distributee (or by a party bearing a relationship to 
                the distributee described in section 267(b) or section 
                707(b)), or
                    ``(B) any other event prescribed in regulations 
                where recognition of gain or loss would be 
                inappropriate in light of the holder's economic 
                position before and after the event.
    ``(c) Special Treatment of Certain Income.--
            ``(1) In general.--Except as provided in paragraph (3), the 
        taxable income of any holder of FASIT ownership interests for 
        any taxable year shall in no event be less than the taxable 
        income determined solely with respect to such ownership 
        interests.
            ``(2) Coordination with section 172.--The amount of any 
        income required to be taken into account in a taxable year by 
        the holder of a FASIT ownership interest as a result of the 
        application of the preceding paragraph shall be disregarded.
                    ``(A) in determining under section 172 the amount 
                of any net operating loss for such taxable year, and
                    ``(B) in determining taxable income for such 
                taxable year for purposes of the 2nd sentence of 
                section 172(b)(2).
            ``(3) Exception.--Paragraph (1) shall not apply to any 
        FASIT ownership interests to the extent they are comprised of 
        economic interests in the FASIT that--
                    ``(A) were part or all of the consideration 
                received in exchange for the transfer to the FASIT of--
                            ``(i) debt obligations originated by the 
                        holder (including any corporate predecessor), 
                        by any member of the same affiliated group of 
                        corporations joining in the filing of a 
                        consolidated return for the taxable year, or by 
                        any person with respect to whose basis the 
                        holder's basis in such security is determined, 
                        and
                            ``(ii) assets having a relationship to such 
                        debt obligations described in section 
                        860L(b)(4),
                    ``(B) had a fair market value at the time of such 
                exchange at least equal to 2 percent of the total 
                consideration received in the exchange, and
                    ``(C) had an anticipated weighted average life at 
                least equal to 20 percent of the anticipated weighted 
                average life (in the hands of the FASIT) of the debt 
                obligations and assets transferred in the exchange.
            This paragraph shall not apply if the FASIT would have been 
        treated as a corporation under section 7701(i) but for the 
        application of section 860H(a).
            ``(4) Certain transfers of loss assets.--If an asset is 
        transferred in a qualified exchange, and one of the principal 
        purposes of such transfer is avoidance of the limitations of 
        subsection (c)(1), then any losses or deductions properly 
        attributable to the transferred asset (including an excess of 
        interest expense over interest income) shall be disregarded for 
        purposes of subsection (c)(1).

``SEC. 860J. CONTRIBUTIONS BY OWNERS.

    ``(a) Treatment of Qualified Exchanges.--
            ``(1) Nonrecognition of gain and loss.--Notwithstanding any 
        other provision of this subtitle, gain or loss shall not be 
        recognized to the transferor or the FASIT in a qualified 
        exchange.
            ``(2) Definition.--A qualified exchange is any transfer of 
        property to a FASIT by a person that holds any ownership 
        interests of the FASIT immediately after such exchange. 
        Notwithstanding the preceding sentence, to the extent permitted 
        in regulations a transferor may elect not to treat a transfer 
        as a qualified exchange.
            ``(3) Treatment of boot.--
                    ``(A) In general.--The receipt in a qualified 
                exchange of money, debt instruments, or other property 
                other than ownership interests shall be treated as a 
                distribution with respect to the recipient's ownership 
                interests occurring immediately following a 
                contribution to the FASIT.
                    ``(B) Debt instruments.--The issuance of any FASIT 
                debt instrument to a holder of ownership interests 
                shall be treated as if the instrument had been issued 
                to the holder for cash equal to its issue price and 
                such cash had been distributed to the holder with 
                respect to its ownership interests. The issue price of 
                such instrument shall equal its fair market value, 
                except that if such instrument is issued as part of a 
                public offering the issue price shall be determined 
                under section 1273.
    ``(b) Recognition and Amortization of Built-in Gain, Etc.--
            ``(1) In general.--At the end of each accrual period the 
        holder of an ownership interest (other than an ownership 
        interest or portion thereof to which section 860I(b)(3) 
        applies)--
                    ``(A) shall recognize ordinary income equal to any 
                increase during the period, and
                    ``(B) shall be entitled to an ordinary deduction 
                (or similar adjustment for amortizable bond premium) 
                equal to any decrease during the period,
        in the amount described in paragraph (2).
            ``(2) Amount described.--The amount described in this 
        paragraph is the product of--
                    ``(A) FASIT's unrecognized gain.--Any excess of the 
                fair market value of the FASIT's assets over the 
                FASIT's aggregate basis in such assets,
                    ``(B) FASIT's leverage ratio.--One, minus the 
                amount determined by dividing--
                            ``(i) the fair market value of the FASIT's 
                        ownership interests, by
                            ``(ii) the fair market value of the FASIT's 
                        assets, and
                    ``(C) Holder's ownership fraction.--The fraction of 
                the FASIT's ownership interests that are held by the 
                holder.
            ``(3) Special rules.--
                    ``(A) Deferred gain recognition.--Notwithstanding 
                paragraph (1), if FASIT debt securities are issued to a 
                holder of ownership interests in the FASIT and one of 
                the principal purposes of such issuance is to 
                accelerate the recognition of taxable income to such 
                holder, then the gain that would otherwise be 
                accelerated as a result of such issuance shall be 
                deferred until such debt securities are disposed of in 
                a transaction in which gain would be recognized to the 
                holder.
                    ``(B) Anti-stuffing.--If assets are contributed to 
                a FASIT and there is no substantial business purpose 
                for such contribution other than decreasing the ratio 
                described in subparagraph (2)(B), then such assets 
                shall be disregarded in determining such ratio.
                    ``(C) Subpools.--If a single FASIT includes two or 
                more pools of assets that predominantly support 
                separate debt instruments, this subsection shall be 
                applied as if such separate pools and their related 
                debt instruments were separate FASIT's.
                    ``(D) Multiple transferors.--Rules similar to those 
                contained in section 704(c) shall apply to reallocate 
                items of income, gain, loss and deduction among holders 
                of ownership interests to reflect differing amounts of 
                built-in gain or loss at the time property was 
                contributed in qualified exchanges. Allocations of 
                items of income or deduction to any holder under this 
                clause shall not be limited by any overall income or 
                loss of the FASIT or any portion thereof.
    ``(c) Valuation of Certain Assets and Securities.--
            ``(1) Replacements of assets by transferor.--The fair 
        market value of any FASIT ownership interests shall be 
        determined without regard to any future transfers of assets in 
        qualified exchanges that the transferor may be obligated or 
        permitted to make.
            ``(2) Treatment of revolving loan pools.--In the case of 
        any FASIT holding 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, and
                    ``(B) the anticipated cash flows and fair market 
                value of each such obligation shall be determined using 
                a periodic principal payment rate equal to the 
                reasonably anticipated periodic rate at which principal 
                payments on the accounts will be made, as a proportion 
                of their aggregate outstanding principal balances.
    ``(d) Investment Partnership Rules Applicable.--Notwithstanding 
subsection (a), gain shall be recognized (and appropriate basis 
adjustments shall be made) to the extent that gain would be required to 
be recognized 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. 860K. DISQUALIFIED HOLDERS OF CERTAIN INTERESTS.

    ``(a) Certain Transfers Disregarded.--
            ``(1) Transfers to disqualified holders.--The transfer or 
        issuance of an ownership interest or a permitted debt 
        instrument to a disqualified holder shall be disregarded for 
        all Federal tax purposes.
            ``(2) Transfers of noneconomic ownership interests.--To the 
        extent provided in regulations (which, if issued with 
        retroactive effect, shall be consistent with the standards 
        applicable to noneconomic REMIC residual interests) the 
        transfer or issuance of a noneconomic ownership interest to any 
        holder shall be disregarded for all Federal tax purposes if a 
        significant purpose of the transfer or issuance was to enable 
        the transferor or issuer to impede the assessment or collection 
        of tax.
            ``(3) Consequences of disregarding certain events.--
                    ``(A) Transfers.--If this subsection applies to a 
                transfer, the transferor shall remain liable for any 
                taxes due with respect to the transferred security.
                    ``(B) Issuances of ownership interests.--If this 
                subsection applies to the issuance of an ownership 
                interest, all other ownership interests whose issuance 
                is not disregarded under this subsection shall be 
                treated as representing ownership of a proportionate 
                share of the ownership interest whose issuance is 
                disregarded. If at the time of such issuance there are 
                no other outstanding ownership interests whose issuance 
                is not disregarded, the issuing entity shall not 
                qualify as a FASIT.
    ``(b) Treatment of Pass-Thru Entities.--
            ``(1) Imposition of tax.--If, at any time during any 
        taxable year of a pass-thru entity, a disqualified holder 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--
                    ``(A) the highest rate of tax specified in section 
                11(b)(1), multiplied by,
                    ``(B) the portion of the taxable income of such 
                entity, allocable to the interest held by such 
                disqualified holder, that is attributable to the pass-
                thru entity's ownership (directly or through one or 
                more pass-thru entities) of any FASIT ownership 
                interests or permitted debt instruments.
        Any tax imposed by this subsection shall, for purposes of this 
        title (other than this section), be applied against (and 
        operate to reduce) the amount included in gross income by the 
        pass-thru entity with respect to the security involved.
            ``(2) Exceptions.--Notwithstanding the preceding paragraph, 
        no tax shall be imposed by paragraph (1)--
                    ``(A) Certain business loan securitizations.--If 
                the security held by the pass-thru entity represents a 
                retained economic interest in debt obligations 
                originated by the entity in connection with its sale of 
                goods or services.
                    ``(B) Dealers.--If the pass-thru entity holds the 
                security for sale to customers in the ordinary course 
                of business (and promptly identifies it as such upon 
                its acquisition), or is a dealer in securities and 
                holds such security for no more than one month.
                    ``(C) Where holder furnishes affidavit.--With 
                respect to any interest in a pass-thru entity if--
                            ``(i) the record holder of such interest 
                        furnishes to the pass-thru entity an affidavit 
                        that such record holder is not a disqualified 
                        holder, and
                            ``(ii) during such period, the pass-thru 
                        entity does not have actual knowledge that such 
                        affidavit is false.
            ``(3) Administrative provisions.--For purposes of subtitle 
        F, the tax imposed by this subsection shall be treated as an 
        excise tax with respect to which the deficiency procedures of 
        such subtitle apply.
    ``(c) Treatment of Certain Arrangements.--
            ``(1) Scope.--This subsection shall apply to any pass-thru 
        entity that issues any debt or equity interests--
                    ``(A) that are supported by any qualified debt 
                instruments having an original yield to maturity more 
                than 2.5 percentage points above the yield on 
                comparable obligations of the United States, determined 
                in the same manner as under section 860L(e)(5), and
                    ``(B) that would not qualify under section 
                860L(e)(5).
            ``(2) Recharacterization of debt.--If this subsection 
        applies, then solely for the purposes of applying subsection 
        (b)--
                    ``(A) any qualified debt instruments described in 
                the preceding paragraph shall be treated as permitted 
                debt instruments, and
                    ``(B) any debt instruments of the pass-thru entity 
                that are described in the preceding paragraph shall be 
                treated as equity interests in the pass-thru entity.
            ``(3) Arrangements treated as pass-thru entities.--Any 
        arrangement formed or availed of to divide FASIT debt 
        instruments described in paragraph (1)(A) into two or more 
        classes of debt or equity interests, one or more of which would 
        not qualify under section 860L(e)(5), shall be treated as a 
        pass-thru entity for purposes of subsection (b) (even if all of 
        the interests corresponding to equity in the arrangement are 
        held by a single owner).

SEC. 860L. DEFINITIONS AND OTHER RULES OF GENERAL APPLICATION.

    ``For purposes of sections 860H through 860L (and for other 
purposes as indicated)--
    ``(a) FASIT.--
            ``(1) In general.--For purposes of this title, the terms 
        ``financial asset securitization investment trust'' and 
        ``FASIT'' shall mean any entity or arrangement--
                    ``(A) for which an election to be treated as a 
                FASIT applies for the taxable year and all prior 
                taxable years,
                    ``(B) substantially all of the assets of which, on 
                the ninetieth day beginning with its formation and at 
                all times thereafter, consist of permitted assets,
                    ``(C) all of the interests in which are ownership 
                interests, permitted debt instruments or qualified debt 
                instruments, and
                    ``(D) which has one and only one class of ownership 
                interests.
            ``(2) Inadvertent disqualifications of fasits.--
        Notwithstanding the preceding paragraph, an entity's failure to 
        qualify or remain qualified as a FASIT shall be disregarded 
        if--
                    ``(A) the Secretary determines that the event 
                causing such failure was inadvertent and was corrected 
                within a reasonable time of its discovery by the 
                entity, and
                    ``(B) the entity, and each person holding an 
                interest in the entity at any time during the period 
                commencing with the event causing such failure, agrees 
                to make such adjustments as may be required by the 
                Secretary with respect to such period.
    ``(b) Permitted Assets.--Permitted assets shall mean any--
            ``(1) cash or cash items,
            ``(2) debt obligations (but, to the extent provided in 
        regulations, only if any coupons thereon representing rights to 
        contingent interest to which the provisions of section 
        871(h)(4)(A) would apply are not held by the FASIT),
            ``(3) property that was security for a debt obligation held 
        by the FASIT and that was acquired in connection with the 
        default or imminent default of such debt obligation but only 
        if--
                    ``(A) the security interest in such property was 
                not created for the principal purpose of permitting the 
                FASIT to invest in such property,
                    ``(B) such debt obligation was not acquired by the 
                FASIT for the principal purpose of acquiring such 
                property, and
                    ``(C) such property would be in compliance with the 
                limitations of paragraphs (2) and (3) of section 856(e) 
                (without regard to the provisions of section 856(e)(5) 
                and, except in the case of real property, without 
                regard to the provisions of section 856(e)(4)) if the 
                FASIT were a real estate investment trust,
            ``(4) any instrument or contract in the nature of a hedge 
        or guarantee (including, but not limited to, interest rate 
        swaps, credit enhancements, minimum and maximum prepayment 
        guarantees, currency fluctuation hedges, and liquidity 
        arrangements) against the risk that payments on debt 
        obligations held by the FASIT would not be sufficient to fund 
        timely payments on debt instruments issued by the FASIT 
        (whether or not a portion of the payments received on such 
        instruments or contracts are incidentally payable to holders of 
        ownership interests),
            ``(5) to the extent permitted in regulations, ownership 
        interests in other FASITs, and
            ``(6) contract rights to acquire any assets described in 
        this paragraph.
    ``(c) Debt Obligation.--
            ``(1) In general.--A debt obligation shall mean any 
        evidence of indebtedness.
            ``(2) Examples.--Such term shall include (but not be 
        limited to)--
                    ``(A) any trade or service receivable which 
                entitles the holder to a fixed amount, and
                    ``(B) any participation interest (or similar 
                interest) in an evidence of indebtedness (without 
                regard to any characteristics of such interest that 
                would not cause it to be classified as other than an 
                interest in a fixed investment trust).
    ``(d) Debt Instrument.--A debt instrument shall mean any qualified 
debt instrument or permitted debt instrument.
    ``(e) Qualified Debt Instrument.--A qualified debt instrument shall 
mean any instrument issued by a FASIT that is designated as such 
(regardless of its form) if--
            ``(1) it unconditionally entitles the holder to receive a 
        specified principal amount (or other similar amount),
            ``(2) its interest payments (or other similar amounts), if 
        any, are based on one or more rates (including combinations and 
        variations of rates that would be permitted interest payments 
        for a REMIC regular interest under section 860G(a)(1)(B)) that 
        are fixed or whose variations can reasonably be expected to 
        measure contemporaneous variations in the cost of newly 
        borrowed funds in the currency in which the instrument is 
        denominated,
            ``(3) it does not have a stated maturity greater than 30 
        years (or such longer period as may be permitted by 
        regulations),
            ``(4) its issue price does not exceed 125 percent of its 
        stated principal amount, and
            ``(5) it does not have a yield to maturity (determined, 
        except as otherwise provided by regulations, as of the issuance 
        date based on issue price or pricing date based on a reasonable 
        estimate of the issue price, and based on a reasonable 
        prepayment assumption for the FASIT's assets) 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).
    ``(f) Permitted Debt Instrument.--A permitted debt instrument shall 
mean any instrument issued by a FASIT that is designated as such 
(regardless of its form), and that is described in paragraphs (1), (2), 
(3) and (4) of the preceding subsection.
    ``(g) Ownership Interest.--An ownership interest shall mean any 
interest issued by a FASIT that is designated as such (regardless of 
its form).
    ``(h) FASIT Security.--A FASIT security shall mean any ownership 
interest or debt instrument issued by a FASIT.
    ``(i) Pass-Thru Entity.--A `pass-thru entity' shall mean--
            ``(1) any regulated investment company, real estate 
        investment trust, or common trust fund,
            ``(2) any partnership, trust, or estate,
            ``(3) any organization to which part I of subchapter T 
        applies, and
            ``(4) any S corporation.
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.
    ``(j) Disqualified Holder.--A disqualified holder shall mean any 
holder other than a pass-thru entity or a corporation that is not 
exempt from corporate income taxation and that is a United States 
person (or, to the extent provided in regulations, that is otherwise 
subject to United States tax on the income with respect to its 
ownership interests or permitted debt instruments).
                                 <all>
HR 1967 IH----2
HR 1967 IH----3
```