Extension of safe harbors; loan forbearance, mortgage loans, lease arrangements of certain trusts (COVID-19)

Extension of safe harbors; loan forbearance, loans

The IRS today released an advance version of Rev. Proc. 2021-12 to extend—until September 30, 2021—certain safe harbors that were previously granted in response to the coronavirus (COVID-19) pandemic and related to loan forbearance programs and modifications to mortgage loans and to lease arrangements of certain trusts.


Rev. Proc. 2021-12 [PDF 64 KB] provides for extensions of the following safe harbors through September 30, 2021 (from December 31, 2020):

  • Safe harbors provided by Rev. Proc. 2020-26 (April 2020) under which modifications to certain mortgage loans in connection with a forbearance program related to the COVID-19 pandemic are not treated as replacing the unmodified obligation with a newly issued obligation, or as manifesting a power to vary for purposes of determining the federal income tax status of certain securitization vehicles—such as investment trusts and real estate mortgage investment conduits (REMICs)—that hold the loans. Rev. Proc. 2020-26 also sets forth a safe harbor under which certain securitization vehicles are not treated as having improper knowledge of an anticipated default on the grounds that they acquired a mortgage loan with respect to which the borrower had participated in a forbearance program. Read TaxNewsFlash

  • Safe harbors provided by Rev. Proc. 2020-34 (June 2020) that allows eligible trusts to make certain modifications to their mortgage loans or lease agreements, or to accept certain additional cash contributions, without jeopardizing their tax status as grantor trusts.  Modifications to the mortgage assets or lease agreements and cash contributions that meet the safe harbor criteria will not be deemed to create a “power to vary” that would jeopardize grantor trust treatment under Reg. section 301.7701-4(c) and Rev. Rul. 2004-86. In addition, the safe harbor provided by Rev. Proc. 2020-34 states that a cash contribution from one or more new trust interest-holders—to acquire a trust interest or a non-pro rata cash contribution from one or more current trust interest-holders—is to be treated as a purchase and sale under section 1001, of a portion of each non-contributing (or lesser contributing) trust interest-holder’s proportionate interest in the trust’s assets. Read TaxNewsFlash

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