May 18, 1993
TO: BOARD OF GOVERNORS NO. 46-93
TAX COMMITTEE NO. 26-93
SEC RULES COMMITTEE NO. 47-93
RE: BILL INTRODUCED TO CREATE NEW TAX REGIME FOR ASSET-BACKED
POOLS
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The attached bill, which was recently introduced by
Congressman Hoagland of the House Ways and Means Committee, would
create a new conduit tax regime for asset-backed pools that
qualify under the bill as financial asset securitization
investment trusts ("FASITs").
To qualify as a FASIT, a pool would be required to hold
substantially all of its assets at each quarter-end in debt
obligations or certain other instruments. Consistent with the
SEC's recent rule exempting certain asset-backed pools from
regulation under the Investment Company Act of 1940, the bill
would require that the FASIT's governing documents prohibit the
FASIT from acquiring or disposing of assets for the "primary
purpose of recognizing gains or decreasing losses resulting from
market value changes."
Under the bill, the FASITs would not be subject to any
entity level tax. Instead, the FASIT's income would first be
allocated to the debt obligations issued by the FASIT. After
deducting the FASIT's expenses, including any interest allocated
to debt instrument holders, any remaining amounts -- the FASIT's
taxable income -- would be allocated to the FASIT's common and
preferred ownership interests.
The bill would be effective on date of enactment.
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We will keep you informed of developments.
Catherine L. Heron
Vice President - Tax & Pension
Attachment