1066 Instructions for Form 1066

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2018

Department of the Treasury
Internal Revenue Service

Instructions for Form 1066
U.S. Real Estate Mortgage Investment Conduit
(REMIC) Income Tax Return

DRAFT AS OF
August 23, 2018

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 IRS.gov/Form1066.

What’s New

Bipartisan Budget Act. The Bipartisan
Budget Act of 2015 (BBA) created a new
centralized partnership audit regime that
applies to a REMIC for tax years
beginning after December 31, 2017.
Under the centralized partnership audit
regime, any adjustments to the
partnership-related items of a REMIC are
determined at the REMIC level.

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
1-800-THE-LOST (1-800-843-5678) if 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 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.

Electing out of the centralized partnership audit regime. A REMIC can elect
out of the centralized partnership audit
regime for a tax year if the REMIC meets
certain conditions. For more information,
see the instructions for Item G—Electing
out of the centralized partnership audit
regime, later.

General Instructions

Partnership representative. Under the
centralized partnership audit regime, a
REMIC is required to designate a
partnership representative if it has more
than one residual interest holder and it
didn't elect out of the centralized
partnership audit regime. The partnership
representative will have the sole authority
to act on behalf of the REMIC under the
centralized partnership audit regime. The
person designated by the REMIC as the
partnership representative must have a
substantial presence in the United States.
For more information, see Designation of
Partnership Representative, later.

Who Must File

Tax on net income from foreclosure
property. For tax years beginning after
December 31, 2017, the Tax Cuts and
Jobs Act (P.L. 115-97) reduced the tax on
net income from foreclosure property from
35% to 21%.

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National Center for Missing & Exploited
Children® (NCMEC). Photographs of
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Aug 23, 2018

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.
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;
Cat. No. 64231R

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 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 2018, the election to be a REMIC is
terminated for 2018 and all future years.
For 2018 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 2018
Form 1066 by March 15, 2019. However,
if the entity will file its final return in 2018,
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.

accrual method of accounting, see Pub.
538.

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).

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.

DRAFT AS OF
August 23, 2018

Period Covered

File the 2018 return for:
1. Calendar year 2018;
2. Short tax years beginning and
ending in 2018; or
3. Short tax years beginning and
ending in 2019, if the 2019 Form 1066 isn't
available by the time the REMIC is
required to file its 2019 return. Even
though the REMIC is filing the 2019 tax
return on a 2018 Form 1066, any tax law
changes effective after December 31,
2018, 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 (PDSs) designated by the IRS to
meet the “timely mailing as timely filing”
rule for tax returns. Go to IRS.gov/PDS for
the current list of PDSs.
The PDS can tell you how to get written
proof of the mailing date.
For the IRS mailing address to use if
you’re using a PDS, go to IRS.gov/
PDSstreetAddresses.
PDSs can't deliver items to P.O.
boxes. You must use the U.S.
CAUTION 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). For more information about the

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, 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 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
-2-

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, go to IRS.gov/
Pub938.

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. 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.

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 life of the
REMIC (as defined in Regulations section
1.860E-1(a)(3)(iv)).

DRAFT AS OF
August 23, 2018

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, go to 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 make a same-day wire
payment. 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, go to IRS.gov/
SameDayWire.

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 $210 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
$200 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 equals the
adjusted basis of the property transferred
to the REMIC.
-3-

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

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. A paid preparer may sign original
returns, amended returns, or requests for
filing extensions by rubber stamp,
mechanical device, or computer software
program.

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/EIN. 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.

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 startup 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.

DRAFT AS OF
August 23, 2018

Paid Preparer Authorization

If the REMIC wants to allow the IRS to
discuss its 2018 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.

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.

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.

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.

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 2019 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.

Section I

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

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 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.
-4-

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 of Form
1066.
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.
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.

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.

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.

DRAFT AS OF
August 23, 2018

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 2018, claims a section 179
expense deduction, or claims depreciation
on any car or other listed property.
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

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 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
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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.

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—Electing out of the centralized
partnership audit regime. A REMIC
with only one residual interest holder
doesn't need to complete line G because
the REMIC isn't subject to the centralized
partnership audit regime. If the REMIC has
more than one residual interest holder, it
may be eligible to elect out of the
centralized partnership audit regime for
the tax year if it has 100 or fewer residual
interest holders in that year, each of which
is either an individual, a C corporation, a
foreign entity that would be treated as a C
corporation if it was domestic, an S
corporation, or an estate of a deceased

residual interest holder. The election is
made by checking the box on line G of a
timely filed Form 1066. If the REMIC
makes this election, it must also attach
Schedule B-2 (Form 1065) to Form 1066
and provide all of the information
requested on the Schedule B-2 for each
residual interest holder and the
shareholders of any S corporation residual
interest holders. The REMIC must notify
each residual interest holder of the
election within 30 days of making the
election.
If the REMIC has more than one
residual interest holder and didn't elect out
of the centralized partnership audit
regime, it must complete the Designation
of Partnership Representative on page 4
of Form 1066. For more information, see
Designation of Partnership
Representative, later.

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.

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.

DRAFT AS OF
August 23, 2018

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 2018
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, do the
following.
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

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.
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) and 856(e), and Regulations
section 1.856-6 for more details.
Note. Solely for purposes of section
860D(a), the determination of whether any
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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

C—Corporation.
F—Estate or Trust.
P—Partnership.
E—Exempt Organization.
R—REMIC.
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.

DRAFT AS OF
August 23, 2018

Designation of Partnership
Representative

Unless the REMIC has made a valid
election out of the centralized partnership
audit regime or has only one residual
interest holder, the REMIC must designate
a partnership representative. The
partnership representative can be any
person with a substantial presence in the
United States. The partnership
representative will have the sole authority
to act on behalf of the REMIC. If an entity
is designated as partnership
representative, the REMIC must also
appoint an individual to act on the entity's
behalf (a designated individual). The
designated individual must also have a
substantial presence in the United States.

How to designate. An original
designation of a partnership
representative must be made on the
REMIC's Form 1066 filed for each
respective REMIC tax year.
Partnership Representative authority.
The REMIC and all its residual interest
holders (and any other person whose tax
liability is determined in whole or in part by
taking into account directly or indirectly
adjustments determined under the
centralized partnership audit regime) are
bound by the actions of the partnership
representative in dealings with the IRS. A
designation for a partnership tax year
remains in effect until the designation is
terminated by:
Valid resignation of the partnership
representative,
Valid revocation of the partnership
representative, or
Determination by the IRS that the
designation is not in effect.
Substantial presence. In order for either
a partnership representative or a
designated individual to have substantial
presence in the United States, the
partnership representative (and the
designated individual, if applicable) must:
Make themselves available to meet in
person with the IRS in the United States at
a reasonable time and place, as
determined by the IRS;
Have a street address that is in the
United States;
Have a telephone number with a United
States area code; and
Have a United States taxpayer
identification number.

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. 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.
-7-

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).
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 IRS.gov/irb/
2012-03_IRB#NOT-2012-5.
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.

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).

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.

DRAFT AS OF
August 23, 2018

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

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

-8-

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
related schedule simpler, we would be
happy to hear from you. You can send us
comments from IRS.gov/FormComments.
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
office. Instead, see Where To File, earlier.