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ARTICLE · 02 JANUARY 2024

Exchange Trust Certificates In REMIC Transactions Qualify As Stripped Bonds Or Coupons

Hogan Lovells Cadwalader
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On November 24, 2023, the IRS released PLR 202347001, ruling that certificates issued from an "exchange trust" qualify as stripped bonds...

United StatesFinance and Banking
Hogan Lovells Cadwalader
Hogan Lovells Cadwalader
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On November 24, 2023, the IRS released PLR 202347001, ruling that certificates issued from an "exchange trust" qualify as stripped bonds or stripped coupons within the meaning of Code Section 1286.

The taxpayer in the PLR issues mortgage-backed securities in which mortgage loans are deposited into a trust that is structured as either a grantor trust or a real estate mortgage investment conduit ("REMIC"). The grantor trust issues pass-through certificates that represent ownership of the underlying mortgage loans, and the REMIC issues REMIC regular interests that are treated as debt instruments for tax purposes. In each case, holders of trust certificates are entitled to receive income and principal from the mortgage loans.

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