Scenario 1: Corporation A owns debt instruments and retains all FASIT interests
- Corporation A holds $ x in debt instruments that are no traded on an established securities market.
- Corporation A transfers debt instruments to a FASIT.
- Corporations A retains both the ownership interest and regular interests in FASIT.
Scenario 3: Bank owns debt instruments and sells debt instruments to Corporation A which retains all FASIT interests
- Bank owns debt instruments and sells $ x in debt instruments to Corporation A.
- Corporation A transfers debt instruments to FASIT.
- Corporation A retains both the ownership interests and the regular interest.
Scenario 4: Corporation A owns the debt instruments retains the ownership interest and sells FASIT regular interests to Bank
- Corporation A owns $ x in debt instruments that are not traded on an established securities market.
- Corporation A transfers debt instruments to FASIT
- Corporation A retains ownership interest and sells regular interests (sale to Bank or public).
III. Tax Analysis
A. Scenario 1: Corporation A owns debt instruments and retains all FASIT interests
- Creation of entity that qualifies as a FASIT
Any entity such as a corporation, partnership, trust, or segregated asset pool may qualify as a FASIT.
In order for an entity to be treated as a FASIT, it must make an election to be classified as FASIT.
The FASIT can be composed of only two types of interest: regular interest and the ownership interest.
There may only be on ownership interest and it must be held directly by an “eligible corporation.
As of the close of the third month after the day of its formation and at all times thereafter, substantially alls of the assets of the FASIT must consist of “permitted assets”.
As a result of classifying the entity as a FASIT, a FASIT will not be treated as a trust, partnership, corporation or taxable mortgage pool for federal income tax purposes and therefore, will not be subject to tax.