Recommendations for 2026-27 IRS Priority Guidance Plan/Notice 2026-23

Summary

SIFMA and SIFMA AMG provided comments to the Internal Revenue Service (IRS) in response to Notice 2026-23, offering suggestions regarding regulatory guidance to be placed on the 2026-27 Priority Guidance Plan.

Excerpt

We are pleased to confirm our firm support for the suggestion provided by Nareit®, the National Association of Real Estate Investment Trusts®, in its letter dated May 29, 2026, to clarify that overnight U.S. Treasury reverse repurchase transactions subject to the clearing mandate issued by the Securities and Exchange Commission (the "SEC") and cleared through the centralized clearing procedures of the Fixed Income Clearing Corporation ("FICC") (or any similar SEC-regulated and approved centralized clearinghouse) are not treated as securities subject to the 5% asset test of section 856(c)(4)(B)(iv)(I).

The SEC's clearing mandate for transactions involving U.S. Treasury securities is intended to mitigate counterparty credit risk and thereby broaden the market for U.S. Treasury securities. Through its clearing procedures and regulations, the FICC - through acting as buyer for every seller and seller for every buyer - virtually eliminates counterparty credit risk (i.e., risk of loss in the case of a default by a counterparty) on the transactions it clears. As a result, overnight U.S Treasury reverse repurchase transactions cleared through the FICC are highly safe and highly liquid.

If FICC-cleared overnight U.S. Treasury reverse repurchase transactions are required to be treated as "securities" issued by a single issuer (the FICC), mortgage REITs could be unduly restricted in their ability to invest in such repos and to effectively manage their interest rate risk. While the 5% asset test is intended to lessen risk by limiting exposure concentration to a single issuer, given the clearing mandate, a REIT will no longer be able to diversify its reverse repurchase agreements across multiple issuers and will instead be restricted to invest no more than 5% in U.S. Treasury reverse repurchase transactions as there will be no alternative but to clear the transactions through the FICC.