n-08-77.pdf

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Part III - Administrative, Procedural, and Miscellaneous

Guidance regarding WHFITs

Notice 2008-77

SECTION I: PURPOSE
This notice informs trustees and middlemen of widely held fixed investment trusts
(WHFITs) that the Internal Revenue Service (Service) will not assert penalties under
§ 1.671-5(m) of the Income Tax Regulations with respect to calendar year 2008. This
notice also informs trustees and middlemen of widely held mortgage trusts (WHMTs)
that, pending future published guidance, certain modifications of mortgages held by a
WHMT that has entered into a guarantee arrangement are not required to be reported
under the WHFIT reporting rules.
SECTION II: BACKGROUND
A WHFIT is an arrangement classified as a trust under § 301.7701-4(c), provided
that: (i) the trust is a United States person under § 7701(a)(30)(E); (ii) the beneficial
owners of the trust are treated as owners under subpart E, part I, subchapter J, chapter
1 of the Code; and (iii) at least one interest in the trust is held by a middleman. See
§ 1.671-5(b)(22). A WHMT is a WHFIT the assets of which consist only of mortgages,
regular interests in a REMIC, interests in another WHMT, reasonably required reserve
funds, amounts received with respect to these assets, and during a brief initial funding

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period, cash and short-term contracts to purchase these assets. See § 1.671-5(b)(23).
SECTION III: PENALTY RELIEF
Section 1.671-5(n) provides that the WHFIT reporting rules are applicable
January 1, 2007. The preamble to final regulations under § 1.671-5 (T.D. 9308, 2007-8
I.R.B. 523 [71 FR 78351]) (December 29, 2006) informed trustees and middlemen that
the Service would not impose any penalties that would otherwise apply as a result of a
failure to comply with the WHFIT reporting rules with respect to the 2007 calendar year
in cases where the trustee or middleman was unable to change its information reporting
systems to comply with the WHFIT reporting rules.
Recent comments received by the Service indicate that although WHFIT trustees
and middlemen have taken steps to implement the WHFIT reporting rules, additional
time is needed to update the computer and information systems of trustees and
middlemen to fully comply with them. These commentators have requested that the
Service not assert penalties under the WHFIT reporting rules with respect to the 2008
calendar year. In response to these requests, this notice informs middlemen and
trustees of WHFITs that the Service will not assert penalties as a result of a failure to
comply with the WHFIT reporting rules with respect to calendar year 2008.
SECTION IV: REPORTING EXCEPTION FOR CERTAIN MORTGAGE
MODIFICATIONS
The Treasury Department and the Service have determined that pending the
publication of future guidance certain modifications, under the circumstances described
below, that are made to mortgage loans held by a WHMT need not be reported in cases

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where a guarantee arrangement compensates the trust or all the trust interest holders
for any shortfalls that would otherwise be experienced as a result of the modification.
Specifically, this notice excepts from reporting under § 1.671-5(c)(2)(iv) of the
WHFIT rules any modification made to mortgage loans held by a WHMT if all of the
following conditions are satisfied:
(1) The WHMT directly holds mortgage loans that are secured by real property;
(2) The WHMT modifies a mortgage loan under circumstances that do not cause
the trust to be classified other than as a trust as a result of the modification (a
“Modification”) (for example because the Modification does not result in there being a
power to vary the investment under § 301.7701-4(c));
(3) The WHMT has entered into a guarantee arrangement that requires the
guarantor to pay to the WHMT any shortfalls in payments from the mortgage loans held
by the WHMT (including as a result of a Modification) to the extent that mortgage loan
payments are insufficient to make required distributions to trust interest holders under
the governing documents of the WHMT; and
(4) The Modification and the guarantee arrangement, taken together, are such
that the stated interest rate and the aggregate amount of the principal payments paid
with respect to every trust interest of the WHMT is not altered by the Modification.
Any future guidance eliminating or modifying this exception will allow reasonable
time for WHMT trustees and middlemen to alter their computer and information
reporting systems to comply with the change.
SECTION V: REQUEST FOR COMMENTS

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The Treasury Department and the Service request comments regarding the
scope and description of the reporting exception described in SECTION IV in the notice.
Comments should be submitted on or before November 1, 2008, and should include a
reference to Notice 2008-77. Send submissions to CC:PA:LPD:RU (Notice 2008-77),
Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station,
Washington, D.C. 20044. Submissions may be hand-delivered Monday through Friday
between the hours of 8:00 a.m. and 4:00 p.m. to CC:PA:LPD:RU (Notice 2008-77),
Courier's Desk, Internal Revenue Service, 1111 Constitution Avenue, NW, Washington,
DC 20224, or sent electronically via the following email address: Comments@
irscounsel. treas. gov. Please include the notice number 2008-77 in the subject line of
any electronic communication. All materials submitted will be available for public
inspection and copying.
SECTION VI: EFFECTIVE DATE
This notice is effective September 12, 2008. Trustees and middlemen may apply
Section IV of this notice as of January 1, 2007.
SECTION VII: DRAFTING INFORMATION
The principal author of this notice is Faith P. Colson of the Office of Associate
Chief Counsel (Passthroughs & Special Industries). For further information regarding
this notice contact Faith P. Colson at (202) 622-3060 (not a toll-free call).