SAFE HARBOR PROVIDED FOR REPORTING MORTGAGE POINTS.

Rev. Proc. 92-11

SECTION 1. PURPOSE

This revenue procedure provides guidance on who is required by section 6050H(b)(2)(C) of the Internal Revenue Code to report points, and creates a safe harbor for the amount of points that may be reported, when the points are received in connection with the financing of the purchase of a principal residence.

SEC. 2. BACKGROUND

01 Section 6050H(a) of the Code provides that any person who is engaged in a trade or business, and who in the course of that trade or business receives from any individual interest aggregating $600 or more for any calendar year on any mortgage, must make an information return (Form 1098, Mortgage Interest Statement) with respect to each individual from whom the interest is received.

02 For information returns the due date for which (determined without regard to extensions) is after December 31, 1991, section 6050H(b)(2) of the Code provides that the information return must contain (A) the name and address of the individual from whom the interest was received, (B) the amount of interest (other than points) received for the calendar year, (C) the amount of points on the mortgage received during the calendar year and whether the points were paid directly by the borrower, and (D) any other information that the Secretary may prescribe.

03 Section 6050H(d)(2) of the Code provides that every person who is required to make an information return under section 6050H(a) must also furnish to each individual whose name is required to be set forth in an information return a written statement that includes the information that is required to be reported to the Internal Revenue Service under section 6050H(b)(2)(C). This written statement must be furnished on or before January 31 of the year following the calendar year covered by the information return.

04 Section 1.6050H-1(a) of the Income Tax Regulations provides that an interest recipient (as defined in section 1.6050H-1(c)) who receives at least $600 of interest on a qualified mortgage for a calendar year must file an information return with the Service and furnish a statement to the payor of record on the mortgage. Section 1.6050H-1(c)(l) defines an interest recipient as a person that is engaged in a trade or business and that, in the course of the trade or business, receives interest on a mortgage.

05 With respect to any person required to file an information return under section 6050H(a) of the Code, section 6721(a) imposes a penalty for any failure to file a return on or before the required filing date, and for any failure to include all of the information required to be shown on the return or the inclusion of incorrect information. In addition, section 6722(a) imposes a penalty for any similar failure with respect to a written statement that is required to be furnished under section 6050H(d). Under section 6724(a), however, no penalty shall be imposed under either section 6721 or 6722 with respect to any failure if it is shown that the failure is due to reasonable cause and not to willful neglect.

06 Notice 90-70, 1990-2 C.B. 351, provides guidance for determining what amounts are to be reported as points under section 6050H(b)(2)(C) of the Code.

07 Rev. Rul. 92-2, 1992-3 I.R.B. ___, holds that points that are received directly or indirectly by a mortgage broker in connection with the financing of the purchase of a principal residence are reportable under section 6050H of the Code to the same extent as if paid to and retained by the lender.

08 Rev. Proc. 92-12, 1992-3 I.R.B. ___, states that in order to minimize possible disputes regarding the deductibility of points paid in connection with the acquisition of a principal residence, the Internal Revenue Service will, as a matter of administrative practice, treat points as deductible for the taxable year during which they are paid by a cash basis taxpayer if certain requirements are satisfied.

SEC. 3. APPLICATION

The following rules apply to the reporting of information under section 6050H of the Code with respect to points received in connection with the financing of the purchase of a principal residence:

01 Under section 1.6050H-1(a) of the regulations, only an "interest recipient" (as defined in section 1.6050H-1(c)(l)) shall make the information return required by section 6050H(a) of the Code. In determining who is an interest recipient, the lender of record (determined under section 3.02 of this revenue procedure) or a designee (determined under section 3.03 of this revenue procedure), and no other person, is treated as the person who receives interest (i.e., points) on a mortgage under section 1.6050H-1(c)(l). The lender of record or designee is treated as receiving all of the points paid by the borrower in connection with the loan transaction.

02 The "lender of record" is the person who is named as the lender on the loan documents and whose right to receive payments from the borrower is secured by the borrower's principal residence at the time the loan is made.

03 A lender of record (determined under section 3.02 of this revenue procedure) or a designee (determined under this section 3.03) may enter into a designation agreement to transfer responsibility for making the information return for the points described in section 6050H(b)(2)(C) of the Code to another person (the "designee") who was involved in the original loan transaction (e.g., a mortgage broker) or is a subsequent purchaser of the loan. The designation agreement must be in writing, identify the mortgage(s) for which the designee is to report, and be signed by both the designator and the designee. The designator must retain a copy of the designation agreement for four years following the close of the calendar year in which the loan is made. The designation agreement need not be filed with the Service.

04 An interest recipient may report under section 6050H(b)(2)(C) of the Code any amount that satisfies the requirements of Rev. Proc. 92-12, 1992-3 I.R.B. ___. One of those requirements, contained in section 3.05 of Rev. Proc. 92-12, is that the amount must be paid directly by the borrower. For purposes of this section 3.04, that requirement will be treated as satisfied if the amount to be treated as paid directly by the borrower was not loaned for this purpose by an interest recipient as part of the overall transaction. In order for a designee to rely upon this safe harbor, each designation agreement must contain the designator's representation that it did not lend the amount to be treated as paid directly by the borrower for this purpose as part of the overall transaction.

SEC. 4. EFFECTIVE DATE AND SPECIAL RULE FOR 1991 RETURNS AND STATEMENTS

01 This revenue procedure is effective for information returns and written statements the due date for which (determined without regard to extensions) is after December 31, 1991.

02 Solely for information returns and written statements the due date for which (determined without regard to extensions) is in 1992, if a lender of record or a designee fails to include correct information with respect to points received directly or indirectly by another person (e.g., a mortgage broker), that failure will be deemed to be a failure due to reasonable cause for purposes of section 6724.

DRAFTING INFORMATION

The principal author of this revenue procedure is Douglas Fahey of the Office of Assistant Chief Counsel (Income Tax and Accounting). For further information regarding this revenue procedure, contact J. Peter Baumgarten on (202) 377-9583 (not a toll-free call).