clause shall not be limited by any overall in-
come or loss of the FASIT or any portion
thereof.
‘‘(c) VALUATION OF CERTAIN ASSETS AND SECURI-
TIES.—
‘‘(1) REPLACEMENTS
OF
ASSETS
BY
TRANS-
FEROR.—The fair market value of any FASIT own-
ership interests shall be determined without regard
to any future transfers of assets in qualified ex-
changes that the transferor may be obligated or per-
mitted to make.
‘‘(2) 
TREATMENT
OF
REVOLVING
LOAN
POOLS.—In the case of any FASIT holding obliga-
tions 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 ac-
counts will be made, as a proportion of their
aggregate outstanding principal balances.
‘‘(d) INVESTMENT PARTNERSHIP RULES APPLICA-
BLE.—Notwithstanding subsection (a), gain shall be rec-
ognized (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 join-
ing in the filing of a consolidated return).
‘‘SEC. 860K. DISQUALIFIED HOLDERS OF CERTAIN INTER-
ESTS.
‘‘(a) CERTAIN TRANSFERS DISREGARDED.—
‘‘(1) TRANSFERS
TO
DISQUALIFIED
HOLD-
ERS.—The transfer or issuance of an ownership in-
terest or a permitted debt instrument to a disquali-
fied 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 con-
sistent 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 as-
sessment or collection of tax.
‘‘(3) CONSEQUENCES OF DISREGARDING CER-
TAIN EVENTS.—
‘‘(A) TRANSFERS.—If this subsection ap-
plies to a transfer, the transferor shall remain
liable for any taxes due with respect to the
transferred security.
‘‘(B) ISSUANCES
OF
OWNERSHIP
INTER-
ESTS.—If this subsection applies to the issu-
ance of an ownership interest, all other owner-
ship interests whose issuance is not disregarded
under this subsection shall be treated as rep-
resenting ownership of a proportionate share of
the ownership interest whose issuance is dis-
regarded. 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 dur-
ing any taxable year of a pass-thru entity, a dis-
qualified 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 pur-
poses of this title (other than this section), be ap-
plied against (and operate to reduce) the amount in-
cluded in gross income by the pass-thru entity with
respect to the security involved.
‘‘(2) EXCEPTIONS.—Notwithstanding the pre-
ceding paragraph, no tax shall be imposed by para-
graph (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 en-
tity in connection with its sale of goods or serv-
ices.
‘‘(B) DEALERS.—If the pass-thru entity
holds the security for sale to customers in the
ordinary course of business (and promptly iden-
tifies 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 AFFIDA-
VIT.—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 affida-
vit that such record holder is not a dis-
qualified holder, and
‘‘(ii) during such period, the pass-thru
entity does not have actual knowledge that
such affidavit is false.
‘‘(3) ADMINISTRATIVE PROVISIONS.—For pur-
poses of subtitle F, the tax imposed by this sub-
section 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 Unit-
ed 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 de-
scribed 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 para-
graph 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 para-
graph (1)(A) into two or more classes of debt or eq-
uity interests, one or more of which would not qual-
ify 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 ar-
rangement—
‘‘(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 own-
ership 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 pro-
vided 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 obli-
gation 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 prop-
erty,
‘‘(B) such debt obligation was not acquired
by the FASIT for the principal purpose of ac-
quiring 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 provi-
sions of section 856(e)(5) and, except in the
case of real property, without regard to the pro-
visions 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, mini-
mum and maximum prepayment guarantees, cur-
rency fluctuation hedges, and liquidity arrange-
ments) against the risk that payments on debt obli-
gations 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 pay-
ments received on such instruments or contracts are
incidentally payable to holders of ownership inter-
ests),
‘‘(5) to the extent permitted in regulations,
ownership interests in other FASITs, and
‘‘(6) contract rights to acquire any assets de-
scribed 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 (with-
out regard to any characteristics of such inter-
est 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 in-
strument.
‘‘(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 re-
ceive 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 ex-
pected 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 per-
mitted 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 (deter-
mined, except as otherwise provided by regulations,
as of the issuance date based on issue price or pric-
ing date based on a reasonable estimate of the issue
price, and based on a reasonable prepayment as-
sumption for the FASIT’s assets) that is more than
five percentage points higher than the yield to matu-
rity 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 des-
ignated 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 sub-
chapter T applies, and
‘‘(4) any S corporation.
Except as provided in regulations, a person holding an in-
terest in a pass-thru entity as a nominee for another per-
son 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 own-
ership interests or permitted debt instruments).
Æ
HR 1967 IH——2
HR 1967 IH——3