1066 Instructions for Form 1066

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2016

Instructions for Form 1066

Department of the Treasury
Internal Revenue Service

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

Future Developments

For the latest information about
developments related to Form 1066 and
its separate instructions, such as
legislation enacted after they were
published, go to www.irs.gov/form1066.

What's New
Due date change. The due date to file
Form 1066 has changed to the 15th day
of the 3rd month following the end of the
tax year. Your 2016 Form 1066 must be
filed by March 15, 2017.
Increased failure-to-file penalty. If
taxes are due, the minimum penalty
under section 6651 for failure to file
Form 1066 within 60 days of the due
date has increased to $205.

Photographs of Missing
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may appear in instructions on pages
that would otherwise be blank. You can
help bring these children home by
looking at the photographs and calling
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you recognize a child.

How To Get Forms and
Publications
Internet. You can access the IRS
website 24 hours a day, 7 days a week,
at www.irs.gov to:
Download forms, instructions, and
publications;
Order IRS products online;
Research your tax questions online;
Search publications online by topic or
keyword;
View Internal Revenue Bulletins
(IRBs) published in the last few years;
and
Sign up to receive local and national
tax news by email.

General Instructions
Purpose of Form

File Form 1066 to report the income,
deductions, and gains and losses from
the operation of a REMIC. In addition,
the form is filed 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:
That elects to be treated as a REMIC
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 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, later) and at all
times thereafter;
That has a calendar tax year; and
For which reasonable arrangements
have been designed to ensure that
residual interests aren't 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.
The last item in the above list
doesn't apply to REMICs with a
CAUTION 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
Nov 30, 2016

Cat. No. 64231R

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 2016, the election to
be a REMIC is terminated for 2016 and
all future years. For 2016 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 2016
Form 1066 by March 15, 2017.
However, if the entity will file its final
return in 2016, Form 1066 is due by the
15th day of the 3rd month following the
date the REMIC ceased to exist.
If you need more time to file Form
1066, file Form 7004, Application for
Automatic Extension of Time To File
Certain Business Income Tax,
Information, and Other Returns, to
request an automatic extension. You
must file Form 7004 by the regular due
date of Form 1066.

Period Covered

File the 2016 return for:
1. Calendar year 2016;
2. Short tax years beginning and
ending in 2016; or
3. Short tax years beginning and
ending in 2017, if the 2017 Form 1066
isn't available by the time the REMIC is
required to file its 2017 return. Even

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though the REMIC is filing the 2017 tax
return on a 2016 Form 1066, any tax law
changes effective after December 31,
2016, have to be applied on the tax
return.

!

CAUTION

In the case of 2 or 3, fill in the
dates for the short tax year at
the top of the form.

Private Delivery Services

REMICs can use certain private delivery
services designated by the IRS to meet
the “timely mailing as timely filing/
paying” rule for tax returns and
payments. These private delivery
services include only the following.

DHL Express: DHL Express 9:00,
DHL Express 10:30, DHL Express
12:00, DHL Express Worldwide, DHL
Express Envelope, DHL Import Express
10:30, DHL Import Express 12:00, DHL
Import Express Worldwide
Federal Express (FedEx): FedEx First
Overnight, FedEx Priority Overnight,
FedEx Standard Overnight, FedEx
2Day, FedEx International Next Flight
Out, FedEx International Priority, FedEx
International First, and FedEx
International Economy
United Parcel Service (UPS): UPS
Next Day Air Early A.M., UPS Next Day
Air, UPS Next Day Air Saver, UPS 2nd
Day Air, UPS 2nd Day Air A.M., UPS
Worldwide Express Plus, and UPS
Worldwide Express
For the IRS mailing address to use if
you are using a private delivery service,
go to IRS.gov and enter “private delivery
service” in the search box.
The private delivery service can tell
you how to get written proof of the
mailing date.
Private delivery services can't
deliver items to P.O. boxes. You
CAUTION must use the U.S. Postal
Service to mail any item to an IRS P.O.
box address.

!

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
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
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).
Under the accrual method, an
amount is includible in income when:
1. All the events have occurred that
fix the right to receive the income, which
is the earliest of the date:
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.

Rounding Off to Whole Dollars

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).
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.
-2-

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, or other
items, the REMIC should then file:
Form 1065X, Amended Return or
Administrative Adjustment Request
(AAR); and
An amended 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 doesn’t 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 1065X 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.

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, don’t 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 IRS.

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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
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 arrangements
(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 General
Instructions for Certain Information
Returns.
Form 8275, Disclosure Statement,
and Form 8275-R, Regulation Disclosure Statement. Use these forms to
disclose items or positions taken on a
tax return that aren't 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
Information (And Other Collateralized
Debt Obligations (CDOs)). This
publication contains a directory of
REMICs.
Pub. 938 isn't printed. Instead, it is
available on the IRS website. For more
information about Pub. 938, visit
www.irs.gov/pub938.
Form 8822-B, Change of Address or
Responsible Party—Business. 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 3rd month following the
end of the tax year.

Electronic deposit requirement.
REMICs must use electronic funds
transfer (EFT) to make all federal tax
deposits (such as deposits of
employment tax, excise tax, and income
tax). Generally, an EFT is made using
the Electronic Federal Tax Payment
System (EFTPS). If you don't want to
use EFTPS, you can arrange for your
tax professional, financial institution,
payroll service, or other trusted third
party to make electronic deposits on
your behalf.
To get more information about
EFTPS or to enroll in EFTPS, visit
www.eftps.gov or call 1-800-555-4477.
Additional information about EFTPS is
also available in Pub. 966.
Same-day wire payment option. If
the REMIC fails to submit a deposit
transaction on EFTPS by 8 p.m. Eastern
time the day before the date a deposit is
due, it can still make its deposit on time
by using the Federal Tax Collection
Service (FTCS). To use the same-day
wire payment method, the REMIC will
need to make arrangements with its
financial institution ahead of time.
Please check with the financial
institution regarding availability,
deadlines, and costs. Financial
institutions may charge a fee for
payments made this way. To learn more
about the information required by a
financial institution to make a same-day
wire payment, visit the IRS website at
www.irs.gov/payments and click on
Same-day wire.

Interest and Penalties
Interest. Interest is charged on taxes
not paid by the due date, even if an
-3-

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. 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
doesn't show all the information
required, unless each failure is due to
reasonable cause.
If you receive a notice about a
penalty after you file this return, reply to
the notice with an explanation of why
the return was late. We will determine if
you meet the reasonable-cause criteria.
Don't attach an explanation when you
file your return.
If taxes are due, we will charge a
section 6651 penalty of 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 60 days or more late, a
$205 minimum or the balance of the tax
due on the return, whichever is smaller.
If no tax is due, we may charge a
section 6698 penalty of $195 for each
person who was a residual interest
holder in the REMIC at any time during
the year for each month or part of a
month the return is late, for up to 12
months. Although we can charge both
the section 6651 and section 6698
penalties when taxes are due, we will
generally charge only one of the
penalties, whichever is greater.
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 can't exceed 25% of the unpaid
tax. The penalty won't 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

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equals the adjusted basis of the
property transferred to the REMIC.

entity owning the assets of the REMIC
under applicable state law.

The basis to the REMIC of property
transferred by a regular or residual
interest holder is its fair market value
immediately after its transfer.

Paid preparer's information. If
someone prepares the return and
doesn't charge the REMIC, that person
shouldn't sign the return or complete the
paid preparer's space. Generally,
anyone who is paid to prepare the
REMIC return must sign the return and
fill in the “Paid Preparer Use Only” area.
The paid preparer must:
Complete the required preparer
information,
Sign the return in the space provided
for the preparer's signature, and
Give the REMIC a copy of the return.

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 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 residual
interest and if the adjusted basis of the
residual 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

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 2016 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 Use Only" section of
the REMIC's return. It doesn't 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 isn't 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 can't be revoked.
However, the authorization will
automatically end no later than the due
date (excluding extensions) for filing the
REMIC's 2017 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.
-4-

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 the Post Office doesn't
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
item D(3),“Address change.”
Note. If a change in address or
responsible party occurs after the return
is filed, use Form 8822-B to notify the
IRS of the change.
Enter the REMIC's EIN on Form
1066, page 1, item A. If the REMIC
doesn't have its own EIN, it must apply
for one. A REMIC may apply for an EIN
by one of the methods discussed below.
Online by going to IRS.gov and
entering “EIN” in the search box. The
EIN is issued immediately once the
application information is validated.
By mailing or faxing Form SS-4 to the
IRS.
If the REMIC hasn't 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.
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

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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
determined on the basis of a constant
interest rate under the rules of section
1276(b)(2).
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
statement 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
statement.
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.
Generally, cancellation of REMIC
debt (for example, cancellation of
unpaid principal and accrued but unpaid
interest owed to a REMIC regular
interest holder) should be recognized as
income and reported on line 5. Attach a
supporting statement to line 5 to
separately disclose income from
cancellation of REMIC debt.
REMICs with a start-up date before
November 12, 1991, enter any capital
gain or (loss) on line 5. The REMIC can
use the Schedule D, included in the
2011 Form 1066, or a statement
showing the same information as it
appears on the Schedule D, included in
the 2011 Form 1066, to figure the
capital gain (loss). Attach the schedule
or statement to Form 1066.
Deductions—(Lines 7 through 14).
Include only deductible amounts on
lines 7 through 14. A REMIC isn't
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. Don't deduct any amounts
paid or accrued for residual interests in
the REMIC.
Line 10—Other interest. Don't 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). Don't 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.
Enter taxes accrued during the tax
year but don't 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 2016, claims
a section 179 expense deduction, or
claims depreciation on any car or other
listed property.
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Line 13—Other deductions. Attach a
statement listing by type and amount
any other allowable deductions (such as
bad debt 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 statement.

Schedule J
Part I—Tax on Net Income from
Prohibited Transactions
Losses not included. Don't 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 aren't deductible in computing
net income from prohibited transactions.
For purposes of lines 1a and 1d, the
term “prohibited transactions” doesn't
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 doesn't 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.

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Line 1d—Gain from the disposition
of cash flow investments (except
from a qualified liquidation). Enter
the amount of gain from the disposition
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 the instructions for Schedule L,
line 1c, later. 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. Don't 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. Don't
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
Don't 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). See
section 860G(d). Don't 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 statement 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 3.

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 isn't 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 (spouses 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.
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“Small REMICs,” as defined in
sections 860F(e), 6231(a)(1)(B), and
the regulations of both, aren't 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 2016
calendar year, the REMIC had a
financial interest in or signature or other
authority over any foreign financial
account, including bank, securities, or
other types of financial accounts in a
foreign country (see FinCEN Form 114,
Report of Foreign Bank and Financial
Accounts (FBAR)); and
a. The combined value of the
accounts was more than $10,000 at any
time during the calendar year and
b. The account wasn't 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 where the foreign
account(s) is held. Attach a separate
sheet if more space is needed.
Electronically file FinCEN Form 114,
also referred to as FBAR, with the
Department of the Treasury using the
FinCEN's BSA E-Filing System.
Because FinCEN Form 114 isn't a tax
form, don't file it with Form 1066.
See www.fincen.gov for more
information.
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

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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.
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 doesn't vary during the
period that the interest is outstanding.

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.

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.

Purpose of Schedule

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),
-7-

Schedule Q
Quarterly Notice to
Residual Interest Holder of
REMIC Taxable Income or
Net Loss Allocation
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 isn't subject to
income tax (except on net income from
prohibited transactions, net income from
foreclosure property, and contributions
made after the startup 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.
Note: Schedule Q (Form 1066) is a
separate tax form that isn't part of Form
1066.

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.

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However, if a residual interest holder is
an IRA, enter the identifying number of
the IRA trust. Don't 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
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). However, if a
REMIC is an “eligible REMIC” as
defined in Notice 2012-5, and a
percentage of its assets represented by
either of the categories of assets
described under REMIC assets, earlier,
was less than 95% but at least 80%,
then the REMIC need only specify in
Item C that the percentage for that
category was at least 80%. For more
information, see Notice 2012-5 available
on page 291 of Internal Revenue
Bulletin 2012-3 at www.irs.gov/pub/irsirbs/irb12-03_IRB/ar11.html.
Item F—Reconciliation of residual
interest holder's capital account.
See the instructions for Schedule M,
earlier.
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.
-8-

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.
Paperwork Reduction Act Notice.
We ask for the information on this form
to carry out the Internal Revenue laws of
the United States. You're 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.
You’re 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 burden for business
taxpayers filing this form and the related
schedule is approved under OMB
control number 1545–0123 and is
included in the estimates shown in the
instructions for their business income
tax return.
If you have comments concerning the
accuracy of the time estimates or
suggestions for making this form and

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related schedule simpler, we would be
happy to hear from you. You can send
us comments from www.irs.gov/
formspubs. Click on More Information
and then click on Give us feedback. Or

you can send your comments to Internal
Revenue Service, Tax Forms and
Publications Division, 1111 Constitution
Ave. NW, IR-6526, Washington, DC
20224. Don't send the tax form to this

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office. Instead, see Where To File,
earlier.