[Code of Federal Regulations]
[Title 26, Volume 7]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.597-3]

[Page 377-378]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.597-3  Other rules.

    (a) Ownership of assets. For all income tax purposes, an Institution 
is treated as the owner of all assets covered by a Loss Guarantee, yield 
maintenance agreement, or cost to carry or cost of funds reimbursement 
agreement, regardless of whether Agency (or a Controlled Entity) 
otherwise would be treated as the owner under general principles of 
income taxation.
    (b) Debt and equity interests received by Agency. Debt instruments, 
stock, warrants, or other rights to acquire stock of an Institution (or 
any of its affiliates) that Agency or a Controlled Entity receives in 
connection with a transaction in which FFA is provided are not treated 
as debt, stock or other equity interests of or in the issuer for any 
purpose of the Internal Revenue Code while held by Agency or a 
Controlled Entity. On the date Agency or a Controlled Entity transfers 
an interest described in this paragraph (b) to a holder other than 
Agency or a Controlled Entity, the interest is treated as having been 
newly issued by the issuer to the holder with an issue price equal to 
the sum of the amount of money and the fair market value of property 
paid by the new holder in exchange for the interest.
    (c) Agency Obligations--(1) In general. Except as otherwise provided 
in this paragraph (c), the original issue discount rules of sections 
1271 et seq. apply to Agency Obligations.
    (2) Issue price of Agency Obligations provided as Net Worth 
Assistance. The issue price of an Agency Obligation that is provided as 
Net Worth Assistance and that bears interest at either a single fixed 
rate or a qualified floating rate (and provides for no contingent 
payments) is the lesser of the sum of the present values of all payments 
due under the obligation, discounted at a rate equal to the applicable 
Federal rate (within the meaning of section 1274(d) (1) and (3)) in 
effect for the date

[[Page 378]]

of issuance, or the stated principal amount of the obligation. The issue 
price of an Agency Obligation that bears a qualified floating rate of 
interest (within the meaning of Sec. 1.1275-5(b)) is determined by 
treating the obligation as bearing a fixed rate of interest equal to the 
rate in effect on the date of issuance under the obligation.
    (3) Adjustments to principal amount. Except as provided in Sec. 
1.597-5(d)(2)(iv), this paragraph (c)(3) applies if Agency modifies or 
exchanges an Agency Obligation provided as Net Worth Assistance (or a 
successor obligation). The issue price of the modified or new Agency 
Obligation is determined under paragraphs (c) (1) and (2) of this 
section. If the issue price is greater than the adjusted issue price of 
the existing Agency Obligation, the difference is treated as FFA. If the 
issue price is less than the adjusted issue price of the existing Agency 
Obligation, the difference is treated as an adjustment to FFA under 
Sec. 1.597-2(d)(4).
    (d) Successors. To the extent necessary to effectuate the purposes 
of the regulations under section 597, an entity's treatment under the 
regulations applies to its successor. A successor includes a transferee 
in a transaction to which section 381(a) applies or a Bridge Bank to 
which another Bridge Bank transfers deposit liabilities.
    (e) [Reserved]
    (f) Losses and deductions with respect to covered assets. Prior to 
the disposition of an asset covered by a Loss Guarantee, the asset 
cannot be charged off, marked to a market value, depreciated, amortized, 
or otherwise treated in a manner that supposes an actual or possible 
diminution of value below the greater of the asset's highest guaranteed 
value or the highest price at which the asset can be put.
    (g) Anti-abuse rule. The regulations under section 597 must be 
applied in a manner consistent with the purposes of section 597. 
Accordingly, if, in structuring or engaging in any transaction, a 
principal purpose is to achieve a tax result that is inconsistent with 
the purposes of section 597 and the regulations thereunder, the 
Commissioner can make appropriate adjustments to income, deductions and 
other items that would be consistent with those purposes.

[T.D. 8641, 60 FR 66097, Dec. 21, 1995, as amended by T.D. 9048, 68 FR 
12290, Mar. 14, 2003]