Reg. § 301.7701(i)-4 Special rules for certain entities.
(a) States and municipalities
(1) In general Regardless of whether an entity satisfies any of the requirements of section , an entity is not classified as a taxable mortgage pool if—
(i) The entity is a State, territory, a possession of the United States, the District of Columbia, or any political subdivision thereof (within the meaning of ), or is empowered to issue obligations on behalf of one of the foregoing;
(ii) The entity issues the debt obligations in the performance of a governmental purpose; and
(iii) The entity holds the remaining interests in all assets that support those debt obligations until the debt obligations issued by the entity are retired.
(2) Governmental purpose The term governmental purpose means an essential governmental function within the meaning of section . A governmental purpose does not include the mere packaging of debt obligations for re-sale on the secondary market even if any profits from the sale are used in the performance of an essential governmental function.
(3) Determinations by the Commissioner If an entity is not described in of this section, but has a similar purpose, then the Commissioner may determine that the entity is not classified as a taxable mortgage pool.
(b) REITs [Reserved]
(c) Subchapter S corporations
(1) In general An entity that is classified as a taxable mortgage pool may not elect to be an S corporation under section or maintain S corporation status.
(2) Portion of an S corporation treated as a separate corporation An S corporation is not treated as a member of an affiliated group under section solely because a portion of the S corporation is treated as a separate corporation under section .
[T.D. 8610, 60 FR 40092, Aug. 7, 1995]