Tax Type
Corporation Income Tax
Description
Real Estate Mortgage Investment Conduits
Topic
Taxability of Persons and Transactions
Date Issued
07-06-1987
July 6, 1987
Re: Request for Ruling; Income Tax
Real Estate Mortgage Investment Conduits (REMIC)
Dear ****************
This is in response to your letter of March 11, 1987, in which you request a ruling on the treatment of Real Estate Mortgage Investment Conduits (REMIC) for purposes of the Virginia Income Tax.
The REMIC provisions, I.R.C. §860A et seq., were added to the Internal Revenue Code by the Tax Reform Act of 1986. For federal purposes a REMIC is treated as a conduit, or pass through entity, in that the income of a REMIC is taxed to the holders of interests but the REMIC itself is generally not subject to tax.
The Proposed REMIC
The taxpayer is a corporation which operates a banking business in another state. It is subject to the corporate income tax in Virginia along with several of its affiliates. The taxpayer proposes to convey a portion of its real estate loans to an entity which will elect to be treated as a REMIC.
The entity will be organized as a trust under the laws of another state with an unrelated bank acting as trustee. The trust will not have any employees or have any property located in any state other than the one in which the trustee is located. One of the taxpayer's affiliates will act as servicer of the mortgage loans owned by the REMIC. As such, the affiliate will be responsible for collecting payments on the mortgages and remitting such funds to the trustee.
Virginia Treatment of the REMIC
Although the REMIC will be a trust, federal law will not tax the REMIC as a trust. The REMIC will be required to file a federal partnership return for information purposes. The REMIC will pay no federal tax unless it engages in prohibited transactions or is subject to the inadvertent termination rules.
Virginia will require a Virginia partnership return from a REMIC which is located in Virginia. If a federal tax is imposed on a REMIC then a Virginia tax will similarly be imposed on a REMIC located in Virginia. Since the REMIC which is the subject of this ruling will not be located in Virginia and will have no property located in Virginia (other than a security interest in real estate), the REMIC will not be required to file a Virginia partnership return. However, if the REMIC should acquire real estate located in Virginia through foreclosure then a Virginia partnership return would be required.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner