I
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 Penn-
sylvania, 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 Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as ‘‘The Securitization En-
hancement 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 im-
mediately 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.—Ex-
cept 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 cor-
poration). 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 per-
cent, except that in the case of any prohibited in-
come 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 prin-
cipal 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 includ-
ing, 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 de-
fault of a debt obligation were foreclosure prop-
erty.
‘‘(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 in-
terests 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 dis-
tributed 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 own-
ership interest in a FASIT shall take into ac-
count 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 in-
terest.
‘‘(B) CHARACTER, ETC.—Except as other-
wise provided in regulations, items of FASIT
income or loss (other than the tax-exempt na-
ture of any interest income) taken into account
under this paragraph shall have the same char-
acter, 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 re-
ferred to in paragraph (1) shall be determined—
‘‘(A) by allocating to each day in any ac-
crual 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 in-
terests on such day in proportion to their re-
spective 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 ac-
crual method and having a calendar year taxable
year, except that—
‘‘(A) the basis of any property (and the ad-
justed issue price of any debt obligation) re-
ceived 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 dis-
count, and market discount income and all pre-
mium 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 prohib-
ited income described in section 860H(b)(2)(D)
(relating to net income from foreclosure prop-
erty) shall be reduced by the amount of tax im-
posed thereon by section 806H(b)(1),
‘‘(E) there shall not be taken into account
any item of income, gain, loss or deduction allo-
cable to prohibited income (other than prohib-
ited income described in the preceding subpara-
graph), and
‘‘(F) any distribution of property with re-
spect to a FASIT security (other than a dis-
tribution 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 owner-
ship interest under paragraph (1) of this sub-
section for any accrual period shall not exceed
the holder’s adjusted basis in such ownership
interest as of the close of such period (deter-
mined 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 sub-
paragraph (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) con-
tributed by such person with respect to
such interest, and
‘‘(ii) the amount of any taxable in-
come 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 inter-
est,
‘‘(ii) the amount of any deductions
taken into account by such person with re-
spect 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 ac-
quired 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 ap-
plication of section 860I(a)(1) for such period),
and
‘‘(B) to the extent permitted in regula-
tions, take into account as an ordinary deduc-
tion the excess, if any, of his adjusted basis in
such interest or portion (determined after the
application of section 860I(a)(1) for such pe-
riod) 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 sub-
stantially identical to property contributed by
the distributee (or by a party bearing a rela-
tionship to the distributee described in section
267(b) or section 707(b)), or
‘‘(B) any other event prescribed in regula-
tions 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 para-
graph (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 de-
termined solely with respect to such ownership inter-
ests.
‘‘(2) COORDINATION WITH SECTION 172.—The
amount of any income required to be taken into ac-
count 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 tax-
able year, and
‘‘(B) in determining taxable income for
such taxable year for purposes of the 2nd sen-
tence of section 172(b)(2).
‘‘(3) EXCEPTION.—Paragraph (1) shall not
apply to any FASIT ownership interests to the ex-
tent 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 prede-
cessor), by any member of the same affili-
ated group of corporations joining in the
filing of a consolidated return for the tax-
able year, or by any person with respect to
whose basis the holder’s basis in such secu-
rity 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 antici-
pated 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 sec-
tion 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 in-
terest expense over interest income) shall be dis-
regarded 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 imme-
diately after such exchange. Notwithstanding the
preceding sentence, to the extent permitted in regu-
lations a transferor may elect not to treat a transfer
as a qualified exchange.
‘‘(3) TREATMENT OF BOOT.—
‘‘(A) IN GENERAL.—The receipt in a quali-
fied 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 im-
mediately 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 in-
strument 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 in-
strument shall equal its fair market value, ex-
cept that if such instrument is issued as part
of a public offering the issue price shall be de-
termined 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 de-
duction (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 de-
scribed 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 inter-
ests 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 acceler-
ated as a result of such issuance shall be de-
ferred until such debt securities are disposed of
in a transaction in which gain would be recog-
nized to the holder.
‘‘(B) ANTI-STUFFING.—If assets are con-
tributed to a FASIT and there is no substantial
business purpose for such contribution other
than decreasing the ratio described in subpara-
graph (2)(B), then such assets shall be dis-
regarded in determining such ratio.
‘‘(C) SUBPOOLS.—If a single FASIT in-
cludes two or more pools of assets that pre-
dominantly support separate debt instruments,
this subsection shall be applied as if such sepa-
rate 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 contrib-
uted in qualified exchanges. Allocations of items
of income or deduction to any holder under this