Change To Note

All REMICs with a principal business, office, or agency located in the United States must send their Form 1066 to the Internal Revenue Service Center, Ogden, UT 84201-0007. All REMICs with a principal business, office, or agency located in a foreign country or U.S. possession must send their Form 1066 to the Internal Revenue Service Center, Philadelphia, PA 19255.

Photographs of Missing Children

The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Photographs of missing children selected by the Center 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

Personal computer. You can access the IRS Web Site 24 hours a day, 7 days a week at www.irs.gov to:

• Order IRS products on-line.
• Download forms, instructions, and publications.
• See answers to frequently asked tax questions.
• Search publications on-line by topic or keyword.
• Send us comments or request help by e-mail.
• Sign up to receive local and national tax news by e-mail.

You can also reach us using file transfer protocol at ftp.irs.gov.

CD-ROM. Order Pub. 1796, Federal Tax Products on CD-ROM, and get:

• Current year forms, instructions, and publications.
• Prior year forms, instructions, and publications.
• Frequently requested tax forms that may be filled in electronically, printed out for submission, and saved for recordkeeping.
• The Internal Revenue Bulletin.

Buy the CD-ROM on the Internet at www.irs.gov/cdorders from the National Technical Information Service (NTIS) for $22 (no handling fee) or call 1-877-CDFORMS (1-877-233-6767) toll free to buy the CD-ROM for $22 (plus a $5 handling fee).

By phone and in person. You can order forms and publications 24 hours a day, 7 days a week, by calling 1-800-TAX-FORM (1-800-829-3676). You can also get most forms and publications at your local IRS office.

General Instructions

Purpose of Form

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

Who Must File

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

A REMIC is any entity:

1. To which an election to be treated as a REMIC applies for the tax year and all prior tax years,
2. All of the interests in which are regular interests or residual interests,
3. That has one (and only one) class of residual interests and all distributions, if any, with respect to such interests are pro rata,
4. Substantially all of the assets of which consist of qualified mortgages and permitted investments (as of the close of the 3rd month beginning after the startup day (defined in the instructions for Item B, on page 4) and at all times thereafter),
5. That has a calendar tax year, and
6. For which reasonable arrangements have been designed to ensure that (a) residual interests are not held by disqualified organizations (as defined in section 860E(e)(5)), and (b) information needed to apply section 860E(e) will be made available by the entity.

Note: Paragraph 6 does not apply to REMICs with a startup day before April 1, 1988 (or those formed under a binding contract in effect on March 31, 1988).

See section 860G for definitions and special rules. See section 860D(a) regarding qualification as a REMIC during a qualified liquidation.

Making the Election

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

First Tax Year

For the first tax year of a REMIC's existence, the REMIC must furnish the following in a separate statement attached to the REMIC's initial return:

1. 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, and
2. 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 2002, the election to be a REMIC is terminated for 2002 and all future years. For 2002 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 2002 Form 1066 by April 15, 2003. However, if 2002 is the entity's final return, Form 1066 is due by the 15th day of the 4th month following the date the REMIC ceased to exist.

If you need more time to file a REMIC return, get Form 8736, Application for Automatic Extension of Time To File U.S. Return for a Partnership, REMIC, or for Certain Trusts, to request an automatic 3-month extension. You must file Form 8736 by the regular due date of the REMIC return.

If you have filed Form 8736 and you still need more time to file the REMIC return, get Form 8800, Application for Additional Extension of Time To File U.S. Return for a Partnership, REMIC, or for Certain Trusts, to request an additional extension of up to 3 months. The REMIC must provide a full explanation of the reasons for requesting the extension in order to get this additional extension. Ask for the additional extension early so that if it is denied, the return can still be filed on time.

Period Covered

File the 2002 return for:

1. Calendar year 2002,
2. Short tax years beginning and ending in 2002, or
3. Short tax years beginning and ending in 2003, if the 2003 Form 1066 is not available by the time the REMIC is required to file its return. However, the REMIC must show its 2003 tax year on the 2002 Form 1066 and incorporate any tax law changes that are effective for tax years beginning after December 31, 2002.

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

Where To File

File Form 1066 at the applicable IRS address listed below.

If the REMIC's principal business, office, or agency is located in:	Use the following Internal Revenue Service Center address:
The United States	Ogden, UT 84201-0007
A foreign country or U.S. possession	Philadelphia, PA 19255

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:

• 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
• 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

You may round off cents to whole dollars on the return and schedules. To do so, drop amounts less than 50 cents and increase amounts from 50 cents through 99 cents to the next higher dollar.

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 at item D(1), page 1, Form 1066.

The item E(1) box of Schedule Q (Form 1066) should also be checked to indicate when the schedule is for the final quarter of the year.

Amended Return

If the REMIC files its return and later becomes aware of changes it must make to income, deductions, etc., the REMIC should then file an amended:

• Form 1066 and check the box at item D(4), page 1.
• 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.

Note: If a REMIC does not meet the small REMIC exception under sections 860F(e) and 6231, and related regulations, or makes the election described in section 6231(a)(1)(B)(ii) not to be treated as a small REMIC, the amended return will be a request for administrative adjustment, and Form 8082, Notice of Inconsistent Treatment or Administrative Adjustment Request (AAR), must be filed by the Tax Matters Person. See sections 860F(e) and 6227 for more information.

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

Assembling the Return

If you need more space on the forms or schedules, attach separate sheets. 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 on each sheet.

You must complete every applicable entry space on Form 1066. If you attach statements, do not write See Attached instead of completing the entry spaces on this form.

Other Forms and Returns That May Be Required

Form 1096, Annual Summary and Transmittal of U.S. Information Returns. Use this form to summarize and send information returns to the Internal Revenue Service Center.

Form 1098, Mortgage Interest Statement. This form is used to report the receipt from any individual of $600 or more of mortgage interest and points in the course of the REMIC's trade or business.

Forms 1099-A, B, C, INT, LTC, MISC, MSA, OID, R, and S. Use these information returns to report acquisitions or abandonments of secured property; proceeds from broker and barter exchange transactions; cancellation of a debt; interest income; certain payments made under a long-term insurance contract and certain accelerated death benefits; miscellaneous income payments; distributions from an Archer MSA or Medicare+Choice MSA; original issue discount; distributions from pensions, annuities, retirement or profit-sharing plans, IRAs, insurance contracts, etc.; and proceeds from real estate transactions. Also, use these returns to report amounts that were received as a nominee on behalf of another person.

For more details, see the Instructions for Forms 1099, 1098, 5498, and W-2G.

Note: 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.

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 are not otherwise adequately disclosed on the return or that are contrary to Treasury regulations (to avoid parts of the accuracy-related penalty or certain preparer penalties).

Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business. Generally, this form is used to report the receipt of more than $10,000 in cash or foreign currency in one transaction (or a series of related transactions).

Form 8811, Information Return for Real Estate Mortgage Investment Conduits (REMICs) and Issuers of Collateralized Debt Obligations. A REMIC uses this form to provide the information required by Regulations section 1.6049-7(b)(1)(ii). This information will be published in Pub. 938, Real Estate Mortgage Investment Conduits (REMICs) Reporting Information. This publication contains a directory of REMICs.

Note: Pub. 938 is not printed. Instead, it is available on CD-ROM or the Internet. See How To Get Forms and Publications on page 1 of the instructions for details.

Form 8822, Change of Address, may be 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 (line 3, Section II, page 1) in full by the 15th day of the 4th month following the end of the tax year. Enclose with Form 1066 a check or money order for the amount due payable to the United States Treasury.

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, gross valuation overstatement, and substantial understatement of tax 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 (a) the return is filed after the due date (including extensions), or (b) the return does not show all the information required, unless each failure is due to reasonable cause. If the failure is due to reasonable cause, attach an explanation to the return. If no taxes are due, the penalty is $50 for each month or part of a month (up to 5 months) the return is late or does not include the required information, multiplied by the total number of persons who were residual interest holders in the REMIC during any part of the REMIC's tax year for which the return is due. If tax is due, the penalty is the amount stated above plus 5% of the unpaid tax for each month or part of a month the return is late, up to a maximum of 25% of the unpaid tax, or if the return is more than 60 days late, a $100 minimum or the balance of tax due on the return, whichever is smaller.

Late payment penalty. The penalty for not paying the tax when due is usually � of 1% of the unpaid tax for each month or part of a month the tax is unpaid. The penalty cannot exceed 25% of the unpaid tax. The penalty will not be charged if you can show reasonable cause for not paying on time.

Other penalties. Penalties can also be imposed for negligence, substantial understatement of tax, and fraud. See sections 6662 and 6663.

Contributions to the REMIC

Generally, no gain or loss is recognized by the REMIC or any of the regular or residual interest holders when property is transferred to the REMIC in exchange for an interest in the REMIC. The adjusted basis of the interest received equals the adjusted basis of the property transferred to the REMIC.

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

If the issue price of a 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 issue price of a residual 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 adjusted basis of a 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 adjusted basis of a 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.

Startup day before November 10, 1988. A REMIC with a startup day before November 10, 1988, may elect to apply the rules for REMICs with a startup day after November 9, 1988 (as described in Regulations section 1.860F-4(c)(2)(iii)). Otherwise, Form 1066 must be signed by a residual interest holder or, as provided in section 6903, by a fiduciary as defined in section 7701(a)(6) who is acting for the REMIC and who has furnished adequate notice as described in Regulations section 301.6903-1(b).

Note: For this purpose, the term startup day means any day selected by a REMIC that is on or before the first day on which interests in such REMIC are issued. Otherwise, startup day is defined in the instructions for Item B on page 4.

Facsimile signature. A facsimile signature is acceptable if the following conditions are met:

• Each group of returns sent to the IRS must be accompanied by a letter signed by the person authorized to sign the returns declaring, under penalties of perjury, that the facsimile signature appearing on the returns is the signature adopted by that person to sign the returns filed and that the signature was affixed to the returns by that person or at that person's direction. The letter must also list each return by the name and employer identification number of the REMIC;
• After the facsimile signature is affixed, no entries on the return may be altered other than to correct discernible arithmetic errors;
• A manually signed copy of the letter submitted to the IRS with the returns, as well as a record of any arithmetic errors corrected, must be retained on behalf of the REMICs listed in the letter and must be available for inspection by the IRS.

Paid preparer's information. If someone prepares the return and does not charge the REMIC, that person should not sign the return.

Generally, anyone who is paid to prepare the REMIC return must sign the return and fill in the Paid Preparer's Use Only area of the return.

The preparer required to sign the REMIC's return must complete the required preparer information and:

• Sign in the space provided for the preparer's signature. A facsimile signature is acceptable if the conditions under Regulations section 1.6695-1(b)(4)(iv) are met.

  Note: While the cite addresses use of a facsimile signature by a preparer of a fiduciary return, a preparer of a REMIC return may also use a facsimile signature if those same conditions are met.

• Give the REMIC a copy of the return in addition to the copy to be filed with the IRS.

First | Next

Instructions Index | 2002 Tax Help Archives | Tax Help Archives | Home