# Prop. Treas. Reg. § 1.475(b)-3: Exemption of securities in certain securitization  transactions.

Proposed regulation, not in force. FI-42-94, 60 FR 397, published 1995-01-04 <https://www.federalregister.gov/documents/1995/01/04/95-13/mark-to-market-for-dealers-in-securities>. Interprets 26 U.S.C. § 475.

Par. 6. Section 1.475(b)-3 is added to read as follows:

(a) Exemption of contributed assets. If a taxpayer expects to contribute securities (for example, mortgages) to a trust or other entity, including a REMIC, in exchange for interests therein (including ownership interests or debt issued by the trust or other entity), the contributed securities qualify as held for investment (within the meaning of section 475(b)(1)(A)) or not held for sale (within the meaning of section 475(b)(1)(B)) only if the taxpayer expects each of the interests received (whether or not a security within the meaning of section 475(c)(2)) to be either held for investment or not held for sale to customers in the ordinary course of the taxpayer's trade or business.

(b) Exemption of resulting interests--(1) General rule. If a taxpayer contributes securities to a trust or other entity in exchange for interests therein (including ownership interests or debt issued by the trust or other entity) and if, for federal income tax purposes, the ownership of the interests received is not treated as ownership of the securities contributed, the interests received may be identified as being described in section 475(b)(1), even if some or all of the contributed securities were not so described and could not have been so identified. For purposes of determining the timeliness of an identification of an interest received, the interest is treated as acquired on the day of its receipt.

(2) Examples. The following examples illustrate the principles of paragraph (b)(1) of this section.

Example 1. Identification of REMIC regular interests. If a taxpayer holds mortgages that are marked to market under section 475 and the taxpayer contributes the mortgages to a REMIC in exchange for REMIC regular interests that are described in section 475(b)(1), the taxpayer may identify the regular interests as exempt from mark- to-market treatment. This is permissible because REMIC regular interests are debt securities issued by the REMIC and do not represent continued ownership of the contributed mortgages.

Example 2. Identification of interests in a grantor trust. If a taxpayer contributes securities to a grantor trust and receives beneficial interests therein and if the taxpayer marked the contributed securities to market under section 475, the taxpayer cannot identify the beneficial interests in the grantor trust as exempt from mark-to-market treatment. Because ownership of a beneficial interest in a grantor trust represents continued ownership of an undivided interest in the contributed assets, no new security has been acquired.