Effect of original issue discount rules on the residual interest of a real estate mortgage investment conduit

This thesis investigates the unintended adverse tax effects that result from the interaction of the original issue discount (OID) rules with the rules governing real estate mortgage investment conduits, "REMICs" and provides tax practitioners with a better understanding of how a REMIC's taxable income is calculated. The OID rules, as they apply to the "regular interests" of a REMIC, achieve economically correct result. Regular interest holders report taxable income in an amount equal to the interest income and OID that accrues to the REMIC during the taxable year. From an economic standpoint, the regular interest holder typically receives sufficient cash flows to pay the taxes that arise from the recognition of a portion of the OID. Conversely, the amount of taxable income that the "residual interest" holder must recognize during any taxable year does not necessarily follow the economic income derived from the transaction.