Form 1066, U.S. Real Estate Mortgage Investment Conduit (REMIC) Income Tax Return; Schedule Q (Form 1066) Quarterly Notice to Residual Interest Holder of REMIC Taxable Income or Net Loss

APPROVED AS CORRECTED
JC 11/28/2007

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Instructions for Form 1066

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2007

Department of the Treasury
Internal Revenue Service

Deletions

Instructions for Form 1066
U.S. Real Estate Mortgage Investment Conduit
(REMIC) Income Tax Return
Section references are to the Internal
Revenue Code unless otherwise noted.

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General Instructions
Purpose of Form
Form 1066 is used to report the
income, deductions, and gains and
losses from the operation of a REMIC.
In addition, the form is used by the
REMIC to report and pay the taxes on
net income from prohibited
transactions, net income from
foreclosure property, and contributions
after the startup day.

Who Must File
An entity must file Form 1066 if it
elected to be treated as a REMIC for its
first tax year (and the election is still in
effect) and it meets the section 860D(a)
requirements listed below.
A REMIC is any entity:

• To which an election to be treated as

a REMIC applies for the tax year and
all prior tax years;
• All of the interests in which are
regular interests or residual interests;
• That has one (and only one) class of
residual interests and all distributions, if
any, with respect to such interests are
pro rata;
• Substantially all of the assets of
which consist of qualified mortgages
and permitted investments (as of the
close of the third month beginning after
the startup day (defined in the
instructions for Item B — Date REMIC
started, on page 4) and at all times
thereafter);
• That has a calendar tax year; and
• For which reasonable arrangements
have been designed to ensure that
residual interests are not held by
disqualified organizations (as defined in
section 860E(e)(5)), and information
needed to apply section 860E(e) will be
made available by the entity.
Cat. No. 64231R

The last item in the above list
does not apply to REMICs with
CAUTION a startup day before April 1,
1988 (or those formed under a binding
contract in effect on March 31, 1988).
See section 860G for definitions and
special rules. See section 860D(a)
regarding qualification as a REMIC
during a qualified liquidation.

!

Making the Election
The election to be treated as a REMIC
is made by timely filing, for the first tax
year of its existence, a Form 1066
signed by an authorized person. Once
the election is made, it stays in effect
for all years until it is terminated.

First Tax Year
For the first tax year of a REMIC’s
existence, the REMIC must furnish the
following in a separate statement
attached to the REMIC’s initial return.
• Information concerning the terms of
the regular interests and the designated
residual interest of the REMIC, or a
copy of the offering circular or
prospectus containing such information.
• A description of the prepayment and
reinvestment assumptions made in
accordance with section 1272(a)(6) and
its regulations, including documentation
supporting the selection of the
prepayment assumption.

Termination of Election
If the entity ceased to qualify as a
REMIC under the requirements of
section 860D(a) in 2007, the election to
be a REMIC is terminated for 2007 and
all future years. For 2007 and all future
years you must file the tax form for
similarly organized entities
(corporations, partnerships, trusts, etc.).

When To File
Generally, REMICs must file the 2007
Form 1066 by April 15, 2008. However,
if the entity will file its final return in
2007, Form 1066 is due by the 15th
day of the 4th month following the date
the REMIC ceased to exist.
If you need more time to file a
REMIC return, get Form 7004,
Application for Automatic 6-Month
Extension of Time To File Certain
Business Income Tax, Information, and
Other Returns, to request an automatic
6-month extension. You must file Form

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Instructions for Form 1066

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7004 by the regular due date of the
REMIC return.

Rounding Off to Whole
Dollars

Period Covered

The REMIC may round off cents to
whole dollars on its returns and
schedules. If the REMIC does round to
whole dollars, it must round all
amounts. To round, drop amounts
under 50 cents and increase amounts
from 50 to 99 cents to the next dollar
(for example, $1.39 becomes $1 and
$2.50 becomes $3).

File the 2007 return for:
1. Calendar year 2007;
2. Short tax years beginning and
ending in 2007; or
3. Short tax years beginning and
ending in 2008, if the 2008 Form 1066
is not available by the time the REMIC
is required to file its return. However,
the REMIC must show its 2008 tax year
on the 2007 Form 1066 and incorporate
any tax law changes that are effective
for tax years beginning after December
31, 2007.

!

CAUTION

In the case of 2 or 3 above, fill
in the tax year space at the top
of the form.

Where To File
If the REMIC’s principal business,
office, or agency is located in the
United States, then file the return at:
Department of the Treasury, Internal
Revenue Service Center, Ogden, UT
84201-0007.
If the REMIC’s principal business,
office, or agency is located in a foreign
country or U.S. possession, then file
the return at: Internal Revenue Service
Center, P.O. box 409101, Ogden, UT
84409.

Accounting Method
A REMIC must compute its taxable
income (or net loss) using the accrual
method of accounting. See section
860C(b).
Begin
Under the accrual method, an
bulleted amount is includible in income when:
items
1. All the events have occurred that
with
fix the right to receive the income,
initial
which is the earliest of the date:
caps.
a. the required performance takes
place,
b. payment is due, or
c. payment is received and
2. The amount can be determined
with reasonable accuracy.
See Regulations section 1.451-1(a)
for details.
Generally, an accrual basis taxpayer
can deduct accrued expenses in the tax
year when:
• All events that determine the liability
have occurred,
• The amount of the liability can be
figured with reasonable accuracy, and
• Economic performance takes place
with respect to the expense.
There are exceptions to the
economic performance rule for certain
items, including recurring expenses.
See section 461(h) and the related
regulations for the rules for determining
when economic performance takes
place.

If two or more amounts must be
added to figure the amount on a line,
include cents when adding the amounts
and round off only the total.

Recordkeeping
The REMIC records must be kept as
long as their contents may be material
in the administration of any Internal
Revenue law. Copies of the filed tax
returns should also be kept as part of
the REMIC’s records. See Pub. 583,
Starting a Business and Keeping
Records, for more information.

Final Return
If the REMIC ceases to exist during the
year, check the box on Form 1066,
page 1, item D(1).
The box on Schedule Q (Form
1066), item E(1) should also be
checked to indicate when the schedule
is for the final quarter of the year.

Amended Return
If the REMIC files its return and later
becomes aware of changes it must
make to income, deductions, etc., the
REMIC should then file an amended:
• Form 1066 and check the box on
page 1, item D(4); and
• Schedule Q (Form 1066), for each
residual interest holder, and check the
box at item E(2). Give corrected
Schedules Q (Form 1066) to each
residual interest holder.
If a REMIC does not meet the
small REMIC exception under
CAUTION sections 860F(e) and 6231, and
related regulations, or makes the
election described in section
6231(a)(1)(B)(ii) not to be treated as a
small REMIC, the amended return will
be a request for administrative
adjustment, and Form 8082, Notice of
Inconsistent Treatment or
Administrative Adjustment Request
(AAR), must be filed by the Tax Matters
Person. See sections 860F(e) and 6227
for more information.

!

If the REMIC’s federal return is
changed for any reason, it may affect
its state return. This would include
changes made as a result of an
examination of the REMIC return by the
IRS. Contact the state tax agency
where the state return is filed for more
information.

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Assembling the Return
If you need more space to report items
shown on the forms or schedules,
attach separate sheets reporting the
items. Use the same size and format as
on the printed forms. But show the
totals on the printed forms. Be sure to
put the REMIC’s name and employer
identification number (EIN) on each
sheet.
You must complete every applicable
entry space on Form 1066. If you
attach statements, do not write “See
Attached” instead of completing the
entry spaces on this form.

Other Forms and Returns
That May Be Required
Form 1096, Annual Summary and
Transmittal of U.S. Information Returns.
Use this form to summarize and send
information returns to the Internal
Revenue Service Center.
Form 1098, Mortgage Interest
Statement. This form is used to report
the receipt from any individual of $600
or more of mortgage interest and points
in the course of the REMIC’s trade or
business.
Forms 1099-A, B, C, INT, LTC, MISC,
OID, R, S, and SA. Use these
information returns to report
acquisitions or abandonments of
secured property; proceeds from broker
and barter exchange transactions;
cancellation of a debt; interest income;
certain payments made under a
long-term care insurance contract and
certain accelerated death benefits;
miscellaneous income payments;
original issue discount; distributions
from pensions, annuities, retirement or
profit-sharing plans, individual
retirement arrangement (IRAs),
insurance contracts, etc.; proceeds
from real estate transactions; and
distributions from an HSA, Archer MSA,
or Medicare Advantage MSA. Also, use
these returns to report amounts that
were received as a nominee on behalf
of another person.
Generally, a REMIC must file Forms
1099-INT and 1099-OID, as
appropriate, to report accrued income
of $10 or more of regular interest
holders. See Regulations section
1.6049-7. Also, every REMIC must file
Forms 1099-MISC if it makes payments
of rents, commissions, or other fixed or
determinable income (see section
6041) totaling $600 or more to any one
person in the course of its trade or
business during the calendar year.
For more details, see the 2007
General Instructions for Forms 1099,
1098, 5498, and W-2G.
Form 8275, Disclosure Statement,
and Form 8275-R, Regulation
Disclosure Statement. Use these forms
to disclose items or positions taken on

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a tax return that are not otherwise
adequately disclosed on the return or
that are contrary to Treasury
regulations (to avoid parts of the
accuracy-related penalty or certain
preparer penalties).
Form 8300, Report of Cash Payments
Over $10,000 Received in a Trade or
Business. Generally, this form is used
to report the receipt of more than
$10,000 in cash or foreign currency in
one transaction or a series of related
transactions.
Form 8811, Information Return for
Real Estate Mortgage Investment
Conduits (REMICs) and Issuers of
Collateralized Debt Obligations. A
REMIC uses this form to provide the
information required by Regulations
section 1.6049-7(b)(1)(ii). This
information will be published in Pub.
938, Real Estate Mortgage Investment
Conduits
(REMICs) Reporting
Deletions
Information (And Other Collateralized
Debt Obligations (CDOs)). This
publication contains a directory of
REMICs.
Pub. 938 is not printed. Instead, it is
available on the IRS website. For more
information about Pub. 938, visit www.
irs.gov.
Form 8822, Change of Address. This
form is used to inform the IRS of a new
REMIC address if the change is made
after filing Form 1066.

Payment of Tax Due
The REMIC must pay the tax due (page
1, Section II, line 3) in full by the 15th
day of the 4th month following the end
of the tax year. Enclose with Form 1066
a check or money order for the amount
due payable to the “United States
Treasury.”
The REMIC may be required to
deposit its tax using the Electronic
Federal Tax Payment System (EFTPS).
If this requirement applies, use EFTPS
to deposit the tax.
If the REMIC is not required to
deposit its tax using EFTPS, it may do
so voluntarily. To do this, the REMIC
must be enrolled in EFTPS.
For information about EFTPS, visit
www.eftps.gov or see Publication 966,
The Secure Way to Pay Your Federal
Taxes for Business and Individual
Taxpayers-EFTPS.

Interest and Penalties
Interest. Interest is charged on taxes
not paid by the due date, even if an
extension of time to file is granted.
Interest is also charged on penalties
imposed for failure to file, negligence,
fraud, substantial valuation
misstatements, substantial
understatements of tax, and reportable
transaction understatements; the
interest is charged from the due date
(including extensions) to the date of

payment. The interest charge is figured
at a rate determined under section
6621.
Late filing penalty. A penalty may be
charged if the return is filed after the
due date (including extensions) or the
return does not show all the information
required, unless each failure is due to
reasonable cause. If the failure is due
to reasonable cause, attach an
explanation to the return. If no taxes
are due, the penalty is $50 for each
month or part of a month (up to 5
months) the return is late or does not
include the required information,
multiplied by the total number of
persons who were residual interest
holders in the REMIC during any part of
the REMIC’s tax year for which the
return is due. If tax is due, the penalty
is the amount stated above plus 5% of
the unpaid tax for each month or part of
a month the return is late, up to a
maximum of 25% of the unpaid tax, or if
the return is more than 60 days late, a
$100 minimum or the balance of tax
due on the return, whichever is smaller.
Late payment penalty. The penalty
for not paying the tax when due is
usually 1/2 of 1% of the unpaid tax for
each month or part of a month the tax
is unpaid. The penalty cannot exceed
25% of the unpaid tax. The penalty will
not be charged if you can show
reasonable cause for not paying on
time.
Other penalties. Penalties can also
be imposed for negligence, substantial
understatements of tax, reportable
transaction understatements, and fraud.
See sections 6662, 6662A, and 6663.

Contributions to the REMIC
Generally, no gain or loss is recognized
by the REMIC or any of the regular or
residual interest holders when property
is transferred to the REMIC in
exchange for an interest in the REMIC.
The adjusted basis of the interest
received equals the adjusted basis of
the property transferred to the REMIC.
The basis to the REMIC of property
transferred by a regular or residual
interest holder is its fair market value
immediately after its transfer.
If the transferor holds a regular
interest and if the issue price of the
regular interest is more than its
adjusted basis, the excess is included
in income by the regular interest holder
for the applicable tax years as if the
excess were market discount on a bond
and the holder had made an election
under section 1278(b) to include this
market discount currently. If the
transferor holds a residual interest and
if the issue price of the regular interest
is more than its adjusted basis, the
excess is amortized and included in the
residual interest holder’s income ratably
over the anticipated weighted average

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life of the REMIC (as defined in
Regulations section 1.860E-1(a)(3)(iv)).
If the transferor holds a regular
interest and if the adjusted basis of the
regular interest is more than its issue
price, the regular interest holder treats
the excess as amortizable bond
premium subject to the rules of section
171. If the transferor holds a regular
interest and if the adjusted basis of the
regular interest is more than its issue
price, the excess is deductible ratably
over the anticipated weighted average
life of the REMIC (as defined in
Regulations section 1.860E-1(a)(3)(iv)).

Payments Subject to
Withholding at Source
If there are any nonresident alien
individuals, foreign partnerships, or
foreign corporations as regular interest
holders or residual interest holders, and
the REMIC has items of gross income
from sources within the United States
(see sections 861 through 865), see
Form 1042, Annual Withholding Tax
Return for U.S. Source Income of
Foreign Persons.

Who Must Sign
Startup day after November 9, 1988.
For a REMIC with a startup day after
November 9, 1988, Form 1066 may be
signed by any person who could sign
the return of the entity in the absence of
the REMIC election. Thus, the return of
a REMIC that is a corporation or trust
would be signed by a corporate officer
or a trustee, respectively. For REMICs
with only segregated pools of assets,
the return would be signed by any
person who could sign the return of the
entity owning the assets of the REMIC
under applicable state law.
Startup day before November 10,
1988. A REMIC with a startup day
before November 10, 1988, may elect
to apply the rules for REMICs with a
startup day after November 9, 1988 (as
described in Regulations section
1.860F-4(c)(2)(iii)). Otherwise, Form
1066 must be signed by a residual
interest holder or, as provided in
section 6903, by a fiduciary as defined
in section 7701(a)(6) who is acting for
the REMIC and who has furnished
adequate notice as described in
Regulations section 301.6903-1(b).
In the prior paragraph, the term
“startup day” means any day selected
by a REMIC that is on or before the first
day on which interests in such REMIC
are issued. Otherwise, “startup day” is
defined in the instructions for Item B —
Date REMIC started below.
later
Paid preparer’s information. If
someone prepares the return and does
not charge the REMIC, that person
should not sign the return or complete
the paid preparer’s space. Generally,
anyone who is paid to prepare the

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REMIC return must sign the return and
fill in the “Paid Preparer’s Use Only”
area.
The paid preparer must complete the
required preparer information and:
• Sign the return in the space provided
for the preparer’s signature.
• Give the REMIC a copy of the return.
Note. A paid preparer may sign
original returns, amended returns, or
requests for filing extensions by rubber
stamp, mechanical device, or computer
software program.

Paid Preparer Authorization
If the REMIC wants to allow the IRS to
discuss its 2007 tax return with the paid
preparer who signed it, check the ‘‘Yes’’
box in the signature area of the return.
This authorization applies only to the
individual whose signature appears in
the ‘‘Paid Preparer’s Use Only’’ section
of the REMIC’s return. It does not apply
to the firm, if any, shown in that section.
If the “Yes” box is checked, the
REMIC is authorizing the IRS to call the
paid preparer to answer any questions
that may arise during the processing of
its return. The REMIC is also
authorizing the paid preparer to:
• Give the IRS any information that is
missing from the return;
• Call the IRS for information about the
processing of the return or the status of
any related refund or payment(s); and
• Respond to certain IRS notices that
the REMIC has shared with the
preparer about math errors, offsets, and
return preparation.
The REMIC is not authorizing the
paid preparer to receive any refund
check, bind the REMIC to anything
(including any additional tax liability), or
otherwise represent the REMIC before
the IRS.
The authorization cannot be
revoked. However, the authorization will
automatically end no later than the due
date (excluding extensions) for filing the
REMIC’s 2008 tax return. If the REMIC
wants to expand the paid preparer’s
authorization or revoke the
authorization before it ends, see Pub.
947, Practice Before the IRS and
Power of Attorney.

Specific Instructions
General Information
Name, address, and EIN. Print or
type the REMIC’s legal name and
address on the appropriate lines.
Include the suite, room, or other unit
number after the street address. If a
preaddressed label is used, include this
information on the label. If the Post
Office does not deliver mail to the street
address and the REMIC has a P.O.
box, show the box number instead. If

the REMIC receives its mail in care of a
third party (such as an accountant or
attorney), enter on the street address
line “C/O” followed by the third party’s
name and street address or P.O. box. If
the REMIC has changed its address
since it last filed a return (including a
change to an “in care of” address),
check the box for “Address change.”
Note. If a change in address occurs
after the return is filed, use Form 8822,
Change of Address, to notify the IRS of
the new address.
Enter the REMIC’s EIN on Form
1066, page 1, item A. If the REMIC
does not have its own EIN, it must
apply for one. A REMIC may apply for
an EIN:
• By telephone at 1-800-829-4933 from
7:00 a.m. to 10:00 p.m. Monday
through Friday in the REMIC’s local
time zone.
• By mailing or faxing Form SS-4,
Application for Employer Identification
Number.
If the REMIC has not received its EIN
by the time the return is due, write
“Applied for” in the space for the EIN.
For more details, see Pub. 583.

!

Unlike most entities, a REMIC
may not apply for an EIN online.

CAUTION

Item B — Date REMIC started. Enter
the “startup day” selected by the
REMIC.
The startup day is the day on which
the REMIC issued all of its regular and
residual interests. However, a sponsor
may contribute property to a REMIC in
exchange for regular and residual
interests over any period of 10
consecutive days and the REMIC may
designate any one of those 10 days as
the startup day. The day so designated
is then the startup day, and all interests
are treated as issued on that day.
Item C — Total assets at end of tax
year. Enter the total assets of the
REMIC. If there are no assets at the
end of the tax year, enter the total
assets as of the beginning of the tax
year.

Section I
Line 1 — Taxable interest. Enter the
total taxable interest. “Taxable interest”
is interest that is included in ordinary
income from all sources except interest
exempt from tax and interest on
tax-free covenant bonds. You may elect
to reduce the amount of interest
accrued on taxable bonds by the
amount of amortizable bond premium
on those bonds attributable to the
current tax year. See sections 171(c)
and 171(e) for details.
Line 2 — Accrued market discount
under section 860C(b)(1)(B). Enter
the amount of market discount
attributable to the current tax year

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determined on the basis of a constant
interest rate under the rules of section
1276(b)(2).
Line 3 — Capital gain or (loss). Enter
the amount shown on page 2, Schedule
D, line 12 or 13 (if any).
Line 4 — Ordinary gain or (loss).
Enter the net gain or (loss) from Form
4797, Sales of Business Property, Part
II.
Line 5 — Other income. Attach a
schedule, listing by type and amount,
any other taxable income not reported
on lines 1 through 4. If there is only one
item of other income, describe it in
parentheses to the left of the entry
space on line 5 instead of attaching a
schedule. If the REMIC issued regular
interests at a premium, the net amount
of the premium is income that must be
prorated over the term of these
interests. Include this income on line 5.
Deductions — (Lines 7 through 14).
Include only deductible amounts on
lines 7 through 14. A REMIC is not
allowed any of the following deductions
in computing its taxable income.
• The net operating loss deduction.
• The deduction for taxes paid or
accrued to foreign countries and U.S.
possessions.
• The deduction for charitable
contributions.
• The deduction for depletion under
section 611 for oil and gas wells.
• Losses or deductions allocable to
prohibited transactions.
Line 9 — Amount accrued to regular
interest holders in the REMIC that is
deductible as interest. Regular
interests in the REMIC are treated as
indebtedness for federal income tax
purposes. Enter the amount of interest,
including original issue discount,
accruing to regular interest holders for
the tax year. Do not deduct any
amounts paid or accrued for residual
interests in the REMIC.
Line 10 — Other interest. Do not
include interest deducted on line 9 or
interest on indebtedness incurred or
continued to purchase or carry
obligations on which the interest is
wholly exempt from income tax. You
may elect to include amortization of
bond premium on taxable bonds
acquired before 1988 unless you
elected to offset amortizable bond
premium against the interest accrued
on the bond (see the Section I, line 1,
instructions). Do not include any
amount attributable to a tax-exempt
bond.
Line 11 — Taxes. If you have to pay
tax on net income from foreclosure
property, you should include this tax
(from Schedule J, line 10) on line 11.
Note. See section 164(d) for
apportionment of taxes on real property
between the seller and purchaser.

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Enter taxes accrued during the tax
year but do not include the following:
• Federal income taxes (except the tax
on net income from foreclosure
property);
• Foreign or U.S. possession income
taxes;
• Taxes not imposed on the REMIC; or
• Taxes, including state or local sales
taxes, that are paid or incurred in
connection with an acquisition or
disposition of property. Such taxes
must be treated as a part of the cost of
the acquired property or, in the case of
a disposition, as a reduction in the
amount realized on the disposition.
Line 12 — Depreciation. See the
instructions for Form 4562,
Depreciation and Amortization, or Pub.
946, How To Depreciate Property, to
figure the amount of depreciation to
enter on this line. You must complete
and attach Form 4562 if the REMIC
placed property in service during 2007,
claims a section 179 expense
deduction, or claims depreciation on
Deletions
any
car or other listed property.
Line 13 — Other deductions. Attach a
schedule, listing by type and amount,
any other allowable deductions for
which no line is provided on Form
1066. If there is only one item of other
deductions, describe it in parentheses
to the left of the entry on line 13 instead
of attaching a schedule.

Schedule D
General Instructions
Purpose of schedule. For a REMIC
with a startup day before November 12,
1991, use Schedule D to report the sale
or exchange of capital assets. To report
sales or exchanges of property other
than capital assets, see Form 4797 and
its instructions.
A REMIC with a startup day after
November 11, 1991, must use Form
4797 instead of Schedule D because all
of its gains and losses from the sale or
exchange of any property are treated
as ordinary gains and losses.
Report every sale or exchange of
property in detail, even though there is
no gain or loss.
For details, see Pub. 544, Sales and
Other Dispositions of Assets.
Capital gain distributions. On line 7,
report the sum of capital gain
distributions and the REMIC’s share of
the undistributed capital gain from a
mutual fund or other regulated
investment company.
For details, see Pub. 564, Mutual
Fund Distributions.
Losses on worthless securities. If
any securities that are capital assets
become worthless during the tax year,
the loss is a loss from the sale or

exchange of capital assets as of the
last day of the tax year.
Losses from wash sales. The
REMIC cannot deduct losses from a
wash sale of stock or securities. A
wash sale occurs if the REMIC acquires
(by purchase or exchange), or has a
contract or option to acquire,
substantially identical stock or
securities within 6 months before or
after the date of the sale or exchange.
See section 860F(d) for details.
Installment sales. If the REMIC sold
property (except publicly traded stock
or securities) at a gain and will receive
any payment in a tax year after the year
of sale, it must use the installment
method and Form 6252, Installment
Sale Income, unless it elects not to use
the installment method.
If the REMIC wants to elect out of
the installment method, it must report
the full amount of the gain on a timely
filed return (including extensions). If the
REMIC filed its original return on time
without making the election, it may
make the election on an amended
return filed not later than 6 months after
the due date of the return (excluding
extensions). Write “Filed pursuant to
section 301.9100-2” at the top of the
amended return.

Specific Instructions
Column (d) — Sales price. Enter
either the gross sales price or the net
sales price from the sale. On sales of
stocks and bonds, report the gross
amount as reported to the REMIC by
the REMIC’s broker on Form 1099-B,
Proceeds From Broker and Barter
Exchange Transactions, or similar
statement. However, if the broker
advised the REMIC that gross proceeds
(gross sales price) minus commissions
and option premiums were reported to
the IRS, enter that net amount in
column (d).
Column (e) — Cost or other basis. In
general, the cost or other basis is the
cost of the property plus purchase
commissions and improvements, minus
depreciation. If the REMIC got the
property in a tax-free exchange,
involuntary conversion, or wash sale of
stock, it may not be able to use the
actual cash cost as the basis. If the
REMIC uses a basis other than cash
cost, attach an explanation.
When selling stock, adjust the basis
by subtracting all the nontaxable
distributions received before the sale.
This includes nontaxable dividends
from utility company stock and mutual
funds. Also, adjust the basis for any
stock splits.
See section 852(f) for the treatment
of certain load charges incurred in
acquiring stock in a mutual fund with a
reinvestment right.

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Increase the cost or other basis by
any expense of sale, such as broker’s
fee, commission, and option premium,
before making an entry in column (e),
unless the REMIC reported net sales
price in column (d).
For details, see Pub. 551, Basis of
Assets.

Schedule J
Part I—Tax on Net Income from
Prohibited Transactions
Losses not included. Do not net
losses from prohibited transactions
against income or gains from prohibited
transactions in determining the
amounts to enter on lines 1a through
1d. These losses are not deductible in
computing net income from prohibited
transactions.
For purposes of lines 1a and 1d, the
term “prohibited transactions” does not
include any disposition that is required
to prevent default on a regular interest
where the threatened default resulted
from a default on one or more qualified
mortgages, or to facilitate a clean-up
call. A clean-up call is the redemption
of a class of regular interests when, by
reason of prior payments with respect
to those interests, the administrative
costs associated with servicing that
class outweigh the benefits of
maintaining the class. It does not
include the redemption of a class in
order to profit from a change in interest
rates.
Line 1a — Gain from certain
dispositions of qualified mortgages.
Enter the amount of gain from the
disposition of any qualified mortgage
transferred to the REMIC other than a
disposition from:
• The substitution of a qualified
replacement mortgage for a qualified
mortgage or the repurchase in lieu of
substitution of a defective obligation;
• The foreclosure, default, or imminent
default of the mortgage;
• The bankruptcy or insolvency of the
REMIC; or
• A qualified liquidation.
See section 860F(a) for details and
exceptions.
Line 1b — Income from nonpermitted
assets. Enter the amount of any
income received or accrued during the
year attributable to any asset other than
a qualified mortgage or permitted
investment. See section 860G(a) for
definitions.
Line 1c — Compensation for
services. Enter the receipt by the
REMIC of any amount representing a
fee or other compensation for services.
Line 1d — Gain from the disposition
of cash flow investments (except
from a qualified liquidation). Enter
the amount of gain from the disposition

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of any cash flow investment except
from a qualified liquidation. A “cash flow
investment” is any investment of
amounts received under qualified
mortgages for a temporary period (not
more than 13 months) before
distribution to holders of interests in the
REMIC. See section 860F(a)(4) for the
definition of a qualified liquidation.

Part II—Tax on Net Income
From Foreclosure Property
For a definition of foreclosure property,
see instructions on page 7 for Schedule
L, line 1c. Net income from foreclosure
property must also be included in the
computation of taxable income (or net
loss) shown on Form 1066, page 1,
Section I.
Line 6 — Gross income from
foreclosure property. Do not include
on line 6 amounts described in section
856(c)(3)(A), (B), (C), (D), (E), or (G).
Line 8 — Deductions. Only those
expenses that are directly connected
with the production of the income
shown on line 7 may be deducted to
figure net income from foreclosure
property. Allowable deductions include
depreciation on foreclosure property,
interest accrued on debt of the REMIC
attributable to the carrying of
foreclosure property, real estate taxes,
and fees charged by an independent
contractor to manage foreclosure
property. Do not deduct general
overhead and administrative expenses.
Line 10 — Tax on net income from
foreclosure property. The REMIC is
allowed a deduction for the amount of
tax shown on this line. Include this
amount in computing the deduction for
taxes entered on Form 1066, page 1,
Section I, line 11.

Part III—Tax on Contributions
After the Startup Day
Do not complete this part if the startup
day was before July 1, 1987. For this
purpose, startup day means any day
selected by a REMIC that is on or
before the first day on which interests in
the REMIC are issued.
Line 11 — Tax. Enter the amount of
contributions received during the
calendar year after the startup day (as
defined in the prior paragraph). Do not
include cash contributions described
next.
• Any contribution to facilitate a
clean-up call or a qualified liquidation.
• Any payment in the nature of a
guarantee.
• Any contribution during the 3-month
period beginning on the startup day.
• Any contribution to a qualified
reserve fund by any holder of a residual
interest in the REMIC.
Attach a schedule showing your
computation.

Designation of Tax Matters
Person (TMP)
A REMIC may designate a TMP in the
same manner that a partnership may
designate a tax matters partner under
Regulations section 301.6231(a)(7)-1.
When applying that section, treat all
holders of a residual interest in the
REMIC as general partners. The
designation may be made by
completing the Designation of Tax
Matters Person section on Form 1066,
page 4.

Additional Information
Be sure to answer the questions and
provide other information in items E
through L.
Item E — Type of entity. Check the
box for the entity type of the REMIC
recognized under state or local law. If
the REMIC is not a separate entity
under state or local law, check the box
for “Segregated Pool of Assets,” and
state the name and type of entity that
owns the assets in the spaces
provided.
Item F — Number of residual interest
holders. Enter the number of persons
who were residual interest holders at
any time during the tax year.
Item G — Consolidated REMIC
proceedings. Generally, the tax
treatment of REMIC items is
determined at the REMIC level in a
consolidated REMIC proceeding, rather
than in separate proceedings with
individual residual interest holders.
Check the box for item G if any of
the following apply.
• The REMIC had more than 10
residual interest holders at any time
during the tax year (a husband and wife
count as one holder).
• Any residual interest holder was a
nonresident alien, or was other than an
individual, a C corporation, or an
estate, unless there was at no time
during the tax year more than one
holder of the residual interest.
• The REMIC has elected to be subject
to the rules for consolidated REMIC
proceedings.
“Small REMICs,” as defined in
sections 860F(e), 6231(a)(1)(B), and
the regulations of both, are not subject
to the rules for consolidated REMIC
proceedings, but may make an election
to be covered by them. This election
can be revoked only with the consent of
the Commissioner.
Item H — Foreign financial accounts.
Check the “Yes” box if either 1 or 2
below applies to the REMIC. Otherwise,
check the “No” box.
1. At any time during the 2007
calendar year, the REMIC had a
financial interest in or signature or other
authority over any foreign financial
account, including bank, securities, or

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other types of financial accounts in a
foreign country (see Form TD F
90-22.1, Report of Foreign Bank and
Financial Accounts); and
a. The combined value of the
accounts was more than $10,000 at
any time during the calendar year and
b. The account was not with a U.S.
military banking facility operated by a
U.S. financial institution.
2. The REMIC owns more than 50%
of the stock in any corporation that
would answer “Yes” to item 1 above.
If the “Yes” box is checked:

• Enter the name of the foreign country
or countries. Attach a separate sheet if
more space is needed.
• File Form TD F 90-22.1 by June 30,
2007, with the Department of the
Treasury at the address shown on the
form. Because TD F 90-22.1 is not a
tax form, do not file it with Form 1066.
You can order Form TD F 90-22.1 by
calling 1-800-TAX-FORM
(1-800-829-3676) or you can download
it from the IRS website at www.irs.gov.
Item I — Foreign trust. The REMIC
may be required to file Form 3520,
Annual Return To Report Transactions
With Foreign Trusts and Receipt of
Certain Foreign Gifts, if:
• It directly or indirectly transferred
money or property to a foreign trust (for
this purpose, any U.S. person who
created a foreign trust is considered a
transferor);
• It is treated as the owner of any part
of the assets of a foreign trust under
the grantor trust rules; or
• It received a distribution from a
foreign trust.
For more information, see the
Instructions for Form 3520.
Note. An owner of a foreign trust must
ensure that the trust files an annual
information return on Form 3520-A,
Annual Information Return of Foreign
Trust With a U.S. Owner. For details,
see the Instructions for Form 3520-A.
To report information required under
section 6038B the REMIC may be
required to file Form 926, Return by a
U.S. Transferor of Property to a Foreign
Corporation, or Form 8865, Return of
U.S. Persons With Respect to Certain
Foreign Partnerships. See the
instructions for these forms for more
information.
Item L — Sum of the daily accruals.
Enter the total of the daily accruals for
all residual interests for the calendar
year. See section 860E(c)(2) for details.

Schedule L
Balance Sheets per Books
The amounts shown should agree with
the REMIC’s books and records. Attach
a statement explaining any differences.

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Line 1a — Cash flow investments.
These are any investments of amounts
received under qualified mortgages for
a temporary period (not more than 13
months) before distribution to holders of
interests in the REMIC.
Line 1b — Qualified reserve assets.
The term “qualified reserve asset”
means any intangible property which is
held for investment and as part of a
qualified reserve fund. For a definition
of qualified reserve fund, including
exceptions, see sections 860G(a)(7)(B)
and (C).
Line 1c — Foreclosure property. This
is any real property (including interests
in real property), and any personal
property incident to such real property,
acquired by the REMIC as a result of
the REMIC’s having bid in the property
at foreclosure, or having otherwise
reduced the property to ownership or
possession by agreement or process of
law, after there was a default or
imminent default on a qualified
mortgage held by the REMIC.
Generally, this property ceases to be
foreclosure property at the close of the
third tax year following the tax year in
which the REMIC acquired the
property. See sections 860G(a)(8),
856(e), and Regulations section
1.856-6 for more details.
Note. Solely for purposes of section
860D(a), the determination of whether
any property is foreclosure property will
be made without regard to section
856(e)(4).
Line 7 — Regular interests. These
are interests in the REMIC that are
issued on the startup day with fixed
terms and that are designated as
regular interests, if:
1. Such interest unconditionally
entitles the holder to receive a specified
principal amount or other similar
amounts; and
2. Interest payments (or similar
amounts), if any, with respect to the
interest at or before maturity are
payable based on a fixed rate (or at a
variable rate described in Regulations
section 1.860G-1(a)(3)), or consist of a
specified portion of the interest
payments on qualified mortgages and
this portion does not vary during the
period that the interest is outstanding.
The interest will meet the
requirements of 1 even if the timing (but
not the amount) of the principal
payments (or other similar amounts) is
contingent on the extent of
prepayments on qualified mortgages
and the amount of income from
permitted investments.
An interest will still qualify as a
regular interest even if the specified
principal amount of the regular interest
(or the amount of interest accrued on
the regular interest) can be reduced as

a result of the nonoccurrence of one or
more contingent payments with respect
to any reverse mortgage loan held by
the REMIC if, on the startup day for the
REMIC, the sponsor reasonably
believes that all principal and interest
due under the regular interest will be
paid at or prior to the liquidation of the
REMIC.

Schedule M
Reconciliation of Residual
Interest Holders’ Capital
Accounts
Show what caused the changes in the
residual interest holders’ capital
accounts during the tax year.
The amounts shown should agree
with the REMIC’s books and records
and the balance sheet amounts. Attach
a statement explaining any differences.
Include in column (d):
• Tax-exempt interest income,
• Other tax-exempt income,
• Income from prohibited transactions,
• Income recorded on the REMIC’s
books but not included on this return,
and
• Allowable deductions not charged
against book income this year.
Include in column (e):
• Capital losses over the $3,000
limitation (for a REMIC with a startup
day before November 12, 1991),
• Other nondeductible amounts (such
as losses from prohibited transactions
and expenses connected with the
production of tax-exempt income),
• Deductions allocable to prohibited
transactions,
• Expenses recorded on books not
deducted on this return, and
• Taxable income not recorded on the
books this year.

Schedule Q
Quarterly Notice to
Residual Interest Holder
of REMIC Taxable
Income or Net Loss
Allocation
Purpose of Schedule
Schedule Q (Form 1066) shows each
residual interest holder’s share of the
REMIC’s quarterly taxable income (or
net loss), the excess inclusion for the
residual interest holder’s interest, and
the residual interest holder’s share of
the REMIC’s section 212 expenses for
the quarter.
Although the REMIC is not subject to
income tax (except on net income from
prohibited transactions, net income
from foreclosure property, and
contributions made after the startup

-7-

day), the residual interest holders are
liable for tax on their shares of the
REMIC’s taxable income, whether or
not distributed, and must include their
shares on their tax returns.

General Instructions
For each calendar quarter, complete
Schedule Q (Form 1066) for each
person who was a residual interest
holder at any time during the quarter.
File Schedule Q with Form 1066. Give
one copy to the residual interest holder
by the last day of the month following
the month in which the calendar quarter
ends. Keep one copy with a copy of
Form 1066 as part of the REMIC’s
records.

Specific Instructions
On each Schedule Q, enter the name,
address, and identifying number for
each residual interest holder and
REMIC. For each residual interest
holder that is an individual, you must
enter the residual interest holder’s
social security number (SSN) (or
individual taxpayer identification
number (ITIN) for a resident or
nonresident alien). For all other residual
interest holders, you must enter the
residual interest holder’s EIN. However,
if a residual interest holder is an IRA,
enter the identifying number of the IRA
trust. Do not enter the SSN (or ITIN) of
the individual for whom the IRA is
maintained.
Item A — What type of entity is this
residual interest holder? State on
this line whether the residual interest
holder is an individual, a corporation,
an estate, a trust, a partnership, an
exempt organization, a nominee
(custodian), or another REMIC. If the
residual interest holder is a nominee,
use the following codes to indicate in
parentheses the type of entity the
nominee represents:
I – Individual, C – Corporation, F –
Estate or Trust, P – Partnership, E –
Exempt Organization, R – REMIC, or
IRA – Individual Retirement
Arrangement.
Item B — Residual interest holder’s
percentage of ownership. Enter in
item B2 the percentage at the end of
the calendar quarter. However, if a
residual interest holder’s percentage of
ownership changed during the quarter,
enter in item B1 the percentage
immediately before the change. If there
are multiple changes in the percentage
of ownership during the quarter, attach
a statement giving the date and
percentage before each change.
Item C — REMIC assets. Enter in item
C the percentage of the REMIC’s
assets during the calendar quarter
represented by each of the following
categories of assets:
• Real estate assets under section
856(c)(5)(B), and

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• Assets described in section

7701(a)(19)(C) (relating to the definition
of a domestic building and loan
association).
These percentages must be
computed using the average adjusted
basis of the assets held during the
calendar quarter. To do this, the REMIC
must make the appropriate computation
as of the close of each month, week, or
day and then average the monthly,
weekly, or daily percentages for the
quarter. The monthly, weekly, or daily
computation period must be applied
uniformly during the calendar quarter to
both categories of assets, and may not
be changed in succeeding calendar
quarters without IRS consent. If the
percentage of the REMIC’s assets for
either category is at least 95%, the
REMIC may show “95 or more” for that
category in item C.
If less than 95% of the assets of the
REMIC are real estate assets (as
defined in section 856(c)(5)(B)), the
REMIC must also report to any real
estate investment trust that holds a
residual interest the information
specified in Regulations section
1.860F-4(e)(1)(ii)(B).
Item F — Reconciliation of residual
interest holder’s capital account.
See the instructions for Schedule M on
page 7.
Line 1a — Taxable income (net loss)
of the REMIC for the calendar
quarter. Enter the REMIC’s taxable
income (net loss) for the calendar
quarter. The sum of the totals for the 4
quarters in the calendar year must
equal the amount shown on Form
1066, Section I, line 15.
Line 1b — Your share of the taxable
income (net loss) for the calendar
quarter. Enter the residual interest
holder’s share of the taxable income
(net loss) shown on line 1a (determined
by adding the holder’s daily portions
under section 860C(a)(2) for each day
in the quarter the holder held the
residual interest). If line 1a is a loss,
enter the residual interest holder’s full
share of the loss, without regard to the
adjusted basis of the residual interest
holder’s interest in the REMIC.

Line 2a — Sum of the daily accruals
under section 860E for all residual
interests for the calendar quarter.
Enter the product of the sum of the
adjusted issue prices of all residual
interests at the beginning of the quarter
and 120% of the long-term federal rate
(determined on the basis of
compounding at the end of each
quarter and properly adjusted for the
length of such quarter). See section
860E(c) for details.
Line 2b — Sum of the daily accruals
under section 860E for your interest.
Enter zero if line 2a is zero. Otherwise,
divide the amount shown on line 2a by
the number of days in the quarter.
Multiply the result by the residual
interest holder’s percentage of
ownership for each day in the quarter
that the residual interest holder owned
the interest. Total the daily amounts
and enter the result.
Line 3 — Complete lines 3a and 3b
only for residual interest holders
who are individuals or other
pass-through interest holders (as
defined in Temporary Regulations
section 1.67-3T).
Line 3a — Section 212 expenses of
the REMIC for the calendar quarter.
Enter the REMIC’s allocable section
212 expenses for the calendar quarter.
The term “allocable section 212
expenses” means the aggregate
amount of the expenses paid or
accrued in the calendar quarter for
which a deduction is allowable under
section 212 in determining the taxable
income of the REMIC for the calendar
quarter.
Section 212 expenses generally
include operational expenses such as:
• rent,
• salaries,
• legal fees,
• accounting fees,
• litigation expenses, and
• the cost of preparing and distributing
reports and notices to interest holders.
Line 3b — Your share of section 212
expenses for the calendar quarter.
Enter the residual interest holder’s
share of the amount shown on line 3a.

Begin bullets with
initial caps.

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Privacy Act and Paperwork
Reduction Act Notice. We ask for the
information on this form to carry out the
Internal Revenue laws of the United
States. You are required to give us the
information. We need it to ensure that
you are complying with these laws and
to allow us to figure and collect the right
amount of tax. Section 6109 requires
return preparers to provide their
identifying numbers on the return.
You are not required to provide the
information requested on a form that is
subject to the Paperwork Reduction Act
unless the form displays a valid OMB
control number. Books or records
relating to a form or its instructions
must be retained as long as their
contents may become material in the
administration of any Internal Revenue
law. Generally, tax returns and return
information are confidential, as required
by section 6103.
The time needed to complete and
file this form and related schedule will
vary depending on individual
circumstances. The estimated average
times are:
Form 1066
Recordkeeping
32 hr., 3 min.
Learning about
the law or the
form . . . . . . .
8 hr., 51 min.
Preparing the
form . . . . . . . 12 hr., 33 min.
Copying,
assembling,
and sending the
form to the IRS
48 min.

Schedule Q
(Form 1066)
6 hr., 27 min.
1 hr., 40 min.
1 hr., 52 min.

If you have comments concerning
the accuracy of these time estimates or
suggestions for making this form and
related schedule simpler, we would be
happy to hear from you. You can write
to the Internal Revenue Service, Tax
Products Coordinating Committee,
SE:W:CAR:MP:T:T:SP, 1111
Constitution Ave. NW, IR-6526,
Washington, DC 20224. Do not send
the tax form to this office. Instead, see
Where To File on page 2.