[Code of Federal Regulations]
[Title 26, Volume 18]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR301.7701(i)-4]

[Page 680]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 301_PROCEDURE AND ADMINISTRATION--Table of Contents
 
                               Definitions
 
Sec. 301.7701(i)-4  Special rules for certain entities.

    (a) States and municipalities--(1) In general. Regardless of whether 
an entity satisfies any of the requirements of section 7701(i)(2)(A), an 
entity is not classified as a taxable mortgage pool if--
    (i) The entity is a State, territory, a possession of the United 
States, the District of Columbia, or any political subdivision thereof 
(within the meaning of Sec. 1.103-1(b) of this chapter), or is 
empowered to issue obligations on behalf of one of the foregoing;
    (ii) The entity issues the debt obligations in the performance of a 
governmental purpose; and
    (iii) The entity holds the remaining interests in all assets that 
support those debt obligations until the debt obligations issued by the 
entity are retired.
    (2) Governmental purpose. The term governmental purpose means an 
essential governmental function within the meaning of section 115. A 
governmental purpose does not include the mere packaging of debt 
obligations for re-sale on the secondary market even if any profits from 
the sale are used in the performance of an essential governmental 
function.
    (3) Determinations by the Commissioner. If an entity is not 
described in paragraph (a)(1) of this section, but has a similar 
purpose, then the Commissioner may determine that the entity is not 
classified as a taxable mortgage pool.
    (b) REITs. [Reserved]
    (c) Subchapter S corporations--(1) In general. An entity that is 
classified as a taxable mortgage pool may not elect to be an S 
corporation under section 1362(a) or maintain S corporation status.
    (2) Portion of an S corporation treated as a separate corporation. 
An S corporation is not treated as a member of an affiliated group under 
section 1361(b)(2)(A) solely because a portion of the S corporation is 
treated as a separate corporation under section 7701(i).

[T.D. 8610, 60 FR 40092, Aug. 7, 1995]