CPA Asks IRS For Guidance On Prepayment Assumption To Use For 'Re- REMIC's' Assets.

Ronald Goldman, a CPA in Beaumont, Tex., has requested that the IRS issue immediate guidance on the correct prepayment assumption under section 1272(a)(6) to be applied to a so-called re-REMIC's assets.

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May 8, 1995

Internal Revenue Service

Dear Sir or Madam:

We have been engaged to prepare several REMIC tax returns. The assigned collateral of the newly established REMICs are regular interests of other REMICs that were issued in prior years (herein after termed the "Old REMICs"). We will refer to the newly established REMICs as "ReREMICs." The ReREMICs were created to generally "divide" the previously issued REMIC regular interests into interest only and principal only components, or an inverse floater and a floater.

We believe that is clear that the Statute permits and contemplates ReREMICs transactions since Internal Revenue Code Section 860G(a)(3)(C) provides that a qualified mortgage includes a regular interest in another REMIC.

Since ReREMIC transactions are now becoming more frequent, we respectfully request that the Service issue immediate guidance on the prepayment assumption under IRC Section 1272(a)(6) for the ReREMIC's assets. In other words, should the ReREMIC use the original prepayment assumption of the Old REMICs or the prepayment assumption used to price the securities of the ReREMICs? In either case, we recognize that we must model the Old REMICs to prepare the tax returns of the ReREMICs, but we can find no guidance on the speeds to run the projections of cash flows on the Old REMICs regular interests to apply to the ReREMICs' issued regular interests. The change in the reported income to both the regular interests and residual holders of the ReREMICs can be materially different depending on the methodology employed.

Once again, we respectfully request immediate guidance on this important issue. This is becoming a frequent occurrence and guidance will provide for consistent treatment among issuers.

Sincerely,

Ronald Goldman, CPA