Treasury Regulations · 26 CFR
§ 1.67-3T. Allocation of expenses by real estate mortgage investment conduits (temporary).
Regulation text, no changes From the eCFR, current as of October 15, 2026. The eCFR is an authoritative but unofficial editorial compilation of the Code of Federal Regulations; the official text is the annual CFR on govinfo. Compare it with this section on ecfr.gov (external site) or the official annual CFR on govinfo (external site).
Regulation under 26 U.S.C. § 67
Cite as 26 CFR § 1.67-3T
At a glance
Read from the text and its source citation. Not part of the regulation.
- Status
- In the current eCFR
- Issued
- March 9, 1988 by T.D. 8186
- Last amended
- September 30, 1991 by T.D. 8366
- Issued under
- 26 U.S.C. § 67
- Length
- 4,295 words · about 19 min to read
- Defines
- 5 terms
- Cross-references
- cites 10 Code sections and 5 regulations; cited by 4
Corporation X holds a residual interest in REMIC R in its capacity as a nominee or custodian for individual A, the beneficial owner of the interest. Because the owner of the interest for Federal income tax purposes is an individual, the interest is owned by a pass-through interest holder.
Individual retirement account I holds a residual interest in a REMIC. Because an individual retirement account is not a person described in paragraph (a)(2)(i)(A) of this section, the interest is not held by a pass-through interest holder.
For purposes of this paragraph (a)(2)(ii)(B), in determining whether a REMIC would be classified as an investment trust or is substantially similar to an investment trust, all interests in the REMIC shall be treated as ownership interests in the REMIC, without regard to whether or not they would be classified as debt for Federal income tax purposes in the absence of a REMIC election.
Corporation M transfers mortgages to a bank under a trust agreement as described in Example (2) of § 301.7701-4(c)(2). There are two classes of certificates. Holders of class C certificates are entitled to receive 90 percent of the payment of principal and interest on the mortgages; holders of class D certificates are entitled to receive the remaining 10 percent. The two classes of certificates are identical except that, in the event of a default on the underlying mortgages, the payment rights of class D certificates holders are subordinated to the rights of class C certificate holders. M sells the class C certificates to investors and retains the class D certificates. The trust would be classified as an investment trust under § 301.7701-4(c)(1) but for its qualification a REMIC under section 860D the class C certificates represent regular interests in the REMIC and the class D certificates represent residual interest in the REMIC. The REMIC is a single-class REMIC within the meaning of paragraph (a)(2)(ii)(B)(1) of this section and, accordingly, holders of both the class C and class D certificates who are described in paragraph (a)(2)(i)(A) (1), (2), or (3) of this section are treated as pass-through interest holders.
Assume that the facts are the same as in Example (1) except that M structures the REMIC to include a second regular interest represented by class E certificates. The principal purpose of M in structuring the REMIC to include class E certificates is to avoid allocating allocable investment expenses to class C certificate holders. The class E certificate holders are entitled to receive the payments otherwise due the class D certificate holders until they have been paid a stated amount of principal plus interest. The fair market value of the class E certificate is ten percent of the fair market value of the class D certificate and, therefore, less than one percent of the fair market value of the REMIC. The REMIC would not be classified as an investment trust under § 301.7701-4(c)(1) because the existence of the class E certificates is not incidental to the trust's purpose of facilitating direct investment in the assets of the trust. Nevertheless, because the fair market value of the class E certificates is de minimis, the REMIC is substantially similar to an investment trust under § 301.7701-4(c)(1). In addition, avoidance of the requirement to allocate allocable investment expenses to regular interest holders is the principal purpose of M in structuring the REMIC to include class E certificates. Therefore, the REMIC is a single-class REMIC within the meaning of paragraph (a)(2)(ii)(B)(2) of this section, and, accordingly, holders of both residual and regular interests who are described in paragraph (a)(2)(i)(A) (1), (2), or (3) of this section are treated as pass-through interest holders.
Entities that do not meet the requirements of paragraphs (a)(3)(i)(G) (1) and (2), such as qualified pension plans, individual retirement accounts, and insurance companies holding assets in separate asset accounts to fund variable contracts defined in section 817(d), are not described in this paragraph (a)(3)(i).
(i) During the calendar quarter ending March 31, 1989, REMIC X, which is not a single-class REMIC, incurs $900 of allocable investment expenses. At the beginning of the calendar quarter, X has 4 residual interest holders, who hold equal proportionate shares, and 10 regular interest holders. The residual interest holders, all of whom have calendar-year taxable years, are as follows:
A, an individual,
C, a C corporation that is a nominee for individual I.
S, an S corporation, and
M, a C corporation that is not a nominee.
(ii) Except for A, all of the residual interest holders hold their interests in X for the entire calendar quarter. On January 31, 1989, A sells his interest to S. Thus, for the first month of the calendar quarter, each residual interest holder holds a 25 percent interest (100%/4 interest holders) in X. For the last two months, S's holding is increased to 50 percent and A's holding is decreased to zero. The daily amount of allocable investment expenses for the calendar quarter is $10 ($900/90 days).
(iii) The amount of allocable investment expenses apportioned to the residual interest holders is as follows:
(A) $75 ($10 × 25% × 30 days) is allocated to A for the 30 days that A holds an interest in X during the calendar quarter. A includes $75 in gross income in calendar year 1989. The amount of A's expenses described in section 212 is increased by $75 in calendar year 1989. A's deduction under section 212 (including the $75 amount of the allocation) is subject to the limitations contained in section 67.
(B) $225 ($10 × 25% × 90 days) is allocated to C. Because C is a nominee for I, C does not include $225 in gross income or increase its deductible expenses by $225. Instead, I includes $225 in gross income in calendar year 1989, her taxable year. The amount of I's expenses described in section 212 is increased by $225. I's deduction under section 212 (including the $225 amount of the allocation) is subject to the limitations contained in section 67.
(C) $375 (($10 × 25% × 30 days) + ($10 × 50% × 60 days)) is allocated to S. S includes in gross income $375 of allocable investment expenses in calendar year 1989. The amount of S's expenses described in section 212 for that taxable year is increased by $375. S allocates the $375 to its shareholders in accordance with the rules described in sections 1366 and 1377 in calendar year 1989. Thus, each shareholder of S includes its pro rata share of the $375 in gross income in its taxable year in which or with which calendar year 1989 ends. The amount of each shareholder's expenses described in section 212 is increased by the amount of the shareholder's allocation for the shareholder's taxable year in which or with which calendar year 1989 ends. The shareholder's deduction under section 212 (including the allocation under this section) is subject to the limitations contained in section 67.
(D) No amount is allocated to M. However, M's interest is taken into account for purposes of determining the proportionate share of those residual interest holders to whom an allocation is required to be made.
(iv) No allocation is made to the 10 regular interest holders pursuant to paragraph (a) of this section. In addition, the interests held by these interest holders are not taken into account for purposes of determining the proportionate share of the residual interest holders to whom an allocation is required to be made.
the nominee shall make an information return on Form 1099 for each calendar year beginning after December 31, 1987, with respect to the pass-through interest holder and state on this information return the information described in paragraph (f)(3)(ii) (A) and (B) of this section.
[T.D. 8186, 53 FR 7507, Mar. 9, 1988, as amended by T.D. 8366, 56 FR 49515, Sept. 30, 1991]
Terms defined here
Where the text says “the term … means”. Select a term to jump to its definition.
Cross-references
Computed from the citations in the text of 26 CFR.
Code sections it cites
- § 860D REMIC defined
- § 860G Other definitions and special rules
- § 584 Common trust funds
- § 817 Treatment of variable contracts
- § 212 Expenses for production of income
- § 162 Trade or business expenses
- § 860B Taxation of holders of regular interests
- § 860C Taxation of residual interests
- § 1366 Pass-thru of items to shareholders
- § 6049 Returns regarding payments of interest
Regulations it cites
- § 301.7701-4 Trusts.
- § 1.67-1T 2-percent floor on miscellaneous itemized deductions (temporary).
- § 1.860F-4 REMIC reporting requirements and other administrative rules.
- § 1.6049-7 Returns of information with respect to REMIC regular interests and collateralized debt obligations.
- § 1.6049-4 Return of information as to interest paid and original issue discount includible in gross income after December 31, 1982.
Cited by 4 other regulations
- § 1.67-2T Treatment of pass-through entities (temporary).
- § 1.67-3 Allocation of expenses by real estate mortgage investment conduits.
- § 1.860F-4 REMIC reporting requirements and other administrative rules.
- § 1.6049-7 Returns of information with respect to REMIC regular interests and collateralized debt obligations.
Amendment history
From the source citation at the end of the section, newest first. T.D. is a Treasury decision; FR is the Federal Register.
- Amended by T.D. 8366 (56 FR 49515)
- Issued by T.D. 8186 (53 FR 7507)
Where it sits in 26 CFR
- Subchapter A Income tax
- Part 1 Income taxes
- Definition of Gross Income, Adjusted Gross Income, and Taxable Income
Nearby sections
- § 1.66-5 Effective date.
- § 1.67-1T 2-percent floor on miscellaneous itemized deductions (temporary).
- § 1.67-2T Treatment of pass-through entities (temporary).
- § 1.67-3 Allocation of expenses by real estate mortgage investment conduits.
- § 1.67-3T Allocation of expenses by real estate mortgage investment conduits (temporary).
- § 1.67-4 Costs paid or incurred by estates or non-grantor trusts.