§860I. Gain recognition on contributions to a FASIT and in other cases

(a) Treatment of property acquired by FASIT

(1) Property acquired from holder of ownership interest or related person

If property is sold or contributed to a FASIT by the holder of the ownership interest in such FASIT (or by a related person) gain (if any) shall be recognized to such holder (or person) in an amount equal to the excess (if any) of such property's value under subsection (d) on the date of such sale or contribution over its adjusted basis on such date.

(2) Property acquired other than from holder of ownership interest or related person

Property which is acquired by a FASIT other than in a transaction to which paragraph (1) applies shall be treated-

(A) as having been acquired by the holder of the ownership interest in the FASIT for an amount equal to the FASIT's cost of acquiring such property, and

(B) as having been sold by such holder to the FASIT at its value under subsection (d) on such date.

(b) Gain recognition on property outside FASIT which supports regular interests

If property held by the holder of the ownership interest in a FASIT (or by any person related to such holder) supports any regular interest in such FASIT-

(1) gain shall be recognized to such holder (or person) in the same manner as if such holder (or person) had sold such property at its value under subsection (d) on the earliest date such property supports such an interest, and

(2) such property shall be treated as held by such FASIT for purposes of this part.

(c) Deferral of gain recognition

The Secretary may prescribe regulations which-

(1) provide that gain otherwise recognized under subsection (a) or (b) shall not be recognized before the earliest date on which such property supports any regular interest in such FASIT or any indebtedness of the holder of the ownership interest (or of any person related to such holder), and

(2) provide such adjustments to the other provisions of this part to the extent appropriate in the context of the treatment provided under paragraph (1).

(d) Valuation

For purposes of this section-

(1) In general

The value of any property under this subsection shall be-

(A) in the case of a debt instrument which is not traded on an established securities market, the sum of the present values of the reasonably expected payments under such instrument determined (in the manner provided by regulations prescribed by the Secretary)-

(i) as of the date of the event resulting in the gain recognition under this section, and

(ii) by using a discount rate equal to 120 percent of the applicable Federal rate (as defined in section 1274(d)), or such other discount rate specified in such regulations, compounded semiannually, and

(B) in the case of any other property, its fair market value.

(2) Special rule for revolving loan accounts

For purposes of paragraph (1)-

(A) each extension of credit (other than the accrual of interest) on a revolving loan account shall be treated as a separate debt instrument, and

(B) payments on such extensions of credit having substantially the same terms shall be applied to such extensions beginning with the earliest such extension.

(e) Special rules

(1) Nonrecognition rules not to apply

Gain required to be recognized under this section shall be recognized notwithstanding any other provision of this subtitle.

(2) Basis adjustments

The basis of any property on which gain is recognized under this section shall be increased by the amount of gain so recognized.

(Added Pub. L. 104–188, title I, §1621(a), Aug. 20, 1996, 110 Stat. 1859 .)

Treatment of Existing Securitization Entities

Section 1621(e) of Pub. L. 104–188 provided that:

"(1) In general.-In the case of the holder of the ownership interest in a pre-effective date FASIT-

"(A) gain shall not be recognized under section 860L(d)(2) of the Internal Revenue Code of 1986 on property deemed contributed to the FASIT, and

"(B) gain shall not be recognized under section 860I of such Code on property contributed to such FASIT,

until such property (or portion thereof) ceases to be properly allocable to a pre-FASIT interest.

"(2) Allocation of property to pre-fasit interest.-For purposes of paragraph (1), property shall be allocated to a pre-FASIT interest in such manner as the Secretary of the Treasury may prescribe, except that all property in a FASIT shall be treated as properly allocable to pre-FASIT interests if the fair market value of all such property does not exceed 107 percent of the aggregate principal amount of all outstanding pre-FASIT interests.

"(3) Definitions.-For purposes of this subsection-

"(A) Pre-effective date fasit.-The term 'pre-effective date FASIT' means any FASIT if the entity (with respect to which the election under section 860L(a)(3) of such Code was made) is in existence on August 31, 1997.

"(B) Pre-fasit interest.-The term 'pre-FASIT interest' means any interest in the entity referred to in subparagraph (A) which was issued before the startup day (other than any interest held by the holder of the ownership interest in the FASIT)."

Section Referred to in Other Sections

This section is referred to in section 860L of this title.