Final Rules For REMIC/FASIT Residual Safe Harbor Transfers

On December 8, 2000, the Internal Revenue Service released an advance copy of Revenue Procedure 2001-12 ("Rev. Proc. 2001-12"), which will appear in Internal Revenue Bulletin 2001-2, dated January 8, 2001. Rev. Proc. 2001-12 adds an alternative "safe harbor" for transfers of noneconomic residual interests ("NERs") in REMICs and FASITs to certain qualifying entities in addition to the minimum transfer price safe harbor in proposed regulations (the "Proposed Regulations") issued in February 2000. Under the new safe harbor, the reasonability of the actual transfer price is taken into account in determining whether the transferor reasonably expects the transferee to pay the tax on the NER. The modified rules are effective retroactively to February 4, 2000.