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US Treasury And IRS Issue Guidance On Fannie And Freddie Stock Ownership,
by Glen Shapiro, LawAndTax-News.com, New York
Friday, October 31, 2008
The US Treasury Department and the Internal Revenue Service (IRS) have issued a revenue
procedure which provides that certain gains and losses from indirect ownership
of Fannie Mae and Freddie Mac preferred stock can be treated as ordinary income
and loss.
The Emergency Economic Stabilization Act of 2008 (EESA) provided banks and
certain financial institutions ordinary treatment for gains and losses on direct
investments in preferred stock of Fannie Mae and Freddie Mac. It also directed
the Treasury Department to issue guidance with respect to the treatment of these
gains or losses when realized indirectly through certain investment vehicles.
Revenue Procedure 2008-64 provides banks and certain other financial institutions
the benefit of ordinary treatment on gains and losses that they are experiencing
on certain indirect investments in this preferred stock.
Many financial institutions have invested in Fannie Mae and Freddie Mac preferred
stock indirectly through certain adjustable rate preferred programs and other
vehicles. Pursuant to the authority granted in EESA, the revenue procedure includes
guidance describing when these financial institutions receive ordinary treatment
on:
gains and losses on this stock recognized by a trust or other entity taxed
as a partnership in which the financial institution is a partner;
gains and losses on the sale of an interest in a partnership that owns this
stock;
gains and losses on the sale of this stock that the financial institution
received in a distribution from a partnership;
gains and losses on this stock recognized by certain subsidiaries of financial
institutions; and
gains and losses on the sale of this stock that the financial institution
received in certain "transferred basis" transactions.
Rev. Proc. 2008-64 is effective immediately and includes rules for application
to transactions that occurred prior to its issuance. The revenue procedure also
requests comments from taxpayers regarding the guidance.
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