§ 301.7701(i)-4(a) States and municipalities
§ 301.7701(i)-4(a)(1) In general. Regardless of whether an entity satisfies any of the requirements of section 7701(i)(2)(A), an entity is not classified as a taxable mortgage pool if—
§ 301.7701(i)-4(a)(1)(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 § 1.103-1(b) of this chapter), or is empowered to issue obligations on behalf of one of the foregoing;
§ 301.7701(i)-4(a)(1)(ii) The entity issues the debt obligations in the performance of a governmental purpose; and
§ 301.7701(i)-4(a)(1)(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.
§ 301.7701(i)-4(a)(2) Governmental purpose. The term governmental purpose means an essential governmental function within the meaning of section 115. 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.
§ 301.7701(i)-4(a)(3) Determinations by the Commissioner. If an entity is not described in paragraph (a)(1) of this section, but has a similar purpose, then the Commissioner may determine that the entity is not classified as a taxable mortgage pool.
§ 301.7701(i)-4(b) REITs. [Reserved]
§ 301.7701(i)-4(c) Subchapter S corporations
§ 301.7701(i)-4(c)(1) In general. An entity that is classified as a taxable mortgage pool may not elect to be an S corporation under section 1362(a) or maintain S corporation status.
§ 301.7701(i)-4(c)(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 1361(b)(2)(A) solely because a portion of the S corporation is treated as a separate corporation under section 7701(i).