[Code of Federal Regulations]
[Title 26, Volume 6]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.475(c)-2]

[Page 563]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.475(c)-2  Definitions--security.

    (a) Items that are not securities. The following items are not 
securities within the meaning of section 475(c)(2) with respect to a 
taxpayer and, therefore, are not subject to section 475--
    (1) A security (determined without regard to this paragraph (a)) if 
section 1032 prevents the taxpayer from recognizing gain or loss with 
respect to that security;
    (2) A debt instrument issued by the taxpayer (including a synthetic 
debt instrument, within the meaning of Sec. 1.1275-6(b)(4), that Sec. 
1.1275-6(b) treats the taxpayer as having issued); or
    (3) A REMIC residual interest, or an interest or arrangement that is 
determined by the Commissioner to have substantially the same economic 
effect, if the residual interest or the interest or arrangement is 
acquired on or after January 4, 1995.
    (b) Synthetic debt that Sec. 1.1275-6(b) treats the taxpayer as 
holding. If Sec. 1.1275-6 treats a taxpayer as the holder of a 
synthetic debt instrument (within the meaning of Sec. 1.1275-6(b)(4)), 
the synthetic debt instrument is a security held by the taxpayer within 
the meaning of section 475(c)(2)(C).
    (c) Negative value REMIC residuals acquired before January 4, 1995. 
A REMIC residual interest that is described in paragraph (c)(1) of this 
section or an interest or arrangement that is determined by the 
Commissioner to have substantially the same economic effect is not a 
security within the meaning of section 475(c)(2).
    (1) Description. A residual interest in a REMIC is described in this 
paragraph (c)(1) if, on the date the taxpayer acquires the residual 
interest, the present value of the anticipated tax liabilities 
associated with holding the interest exceeds the sum of--
    (i) The present value of the expected future distributions on the 
interest; and
    (ii) The present value of the anticipated tax savings associated 
with holding the interest as the REMIC generates losses.
    (2) Special rules applicable to negative value REMIC residuals 
acquired before January 4, 1995. Solely for purposes of this paragraph 
(c)--
    (i) If a transferee taxpayer acquires a residual interest with a 
basis determined by reference to the transferor's basis, then the 
transferee is deemed to acquire the interest on the date the transferor 
acquired it (or is deemed to acquire it under this paragraph (c)(2)(i)).
    (ii) Anticipated tax liabilities, expected future distributions, and 
anticipated tax savings are determined under the rules in Sec. 1.860E-
2(a)(3) and without regard to the operation of section 475.
    (iii) Present values are determined under the rules in Sec. 1.860E-
2(a)(4).

[T.D. 8700, 61 FR 67725, Dec. 24, 1996]