Who's that knocking at my REMIC trust door?

[Judge Roy Bean]

More mortgage document shenanigans being looked at:

(Reuters) - The Internal Revenue Service has launched a review of the tax-exempt status of a widely-held form of mortgage-backed securities called REMICs.

But if the IRS concludes that the REMIC investments failed to comply with strict requirements in the federal tax code, the REMIC would have to pay a 100 percent tax on the income from those investments.

That means that the IRS could confiscate the full amount. Tax law experts said the REMICs also could be subjected to additional penalties for failing to file tax returns on the income.

http://www.reuters.com/article/2011/04/ ... UX20110427

[Judge Roy Bean]

Should we start figuring out the odds that the IRS is going to find that REMIC investments fail to comply with the necessary requirements?

The real question is, how independent is the IRS?

The DOJ has effectively been neutered to allow the Attorneys General to negotiate with (read: Protect from criminal prosecution) the foreclosure fraud perpetrators but will the IRS play along?

[The Observer]

The IRS will have no choice but to play along should DoJ refuse to file charges or suits against the perps. The IRS cannot initiate litigation on its own.

[jcolvin2]

The IRS will have no choice but to play along should DoJ refuse to file charges or suits against the perps. The IRS cannot initiate litigation on its own.

The IRS can issue a Notice of Deficiency for the 100% tax on the net income from prohibited transactions set out in section 860F(a)(1) to a REMIC. If a REMIC choses to litigate the matter in the Tax Court prepayment, the DOJ will not be involved.

Alternatively, the REMIC can pay the tax, file a claim for refund, and ultimately bring suit in the district court or the Court of Federal Claims.

If the REMIC pursues the refund route, the government will be represented by the Department of Justice, but probably by the Tax Division rather than the local US Attorney's Offices. The Tax Division has a reputation of being somewhat less succeptible to political pressure than the local US Attorney's Offices.

[Judge Roy Bean]

This has to be keeping a few folks up at night.

One has to look back at the reasoning behind what has been going on to really understand what the perpetrators may now have to worry about.

If you originate a loan with fraudulently-created documents (i.e., altered borrower data, modified HUD-1 documents, an inflated appraisal, etc., etc.), you know that at some point in the future the borrower will go into default - BUT - it can't come back to haunt you, the individual(s) involved in the scheme if the evidence simply disappears.

Then comes the servicer and its foreclosure mill law firm who are more than willing to turn to LPS/DocX to recreate missing documents; they "reverse engineer" loan docs to be used to portray the loan as being legitimate as well as being in default status.

All well and good until someone starts asking for hard evidence of WHEN the loan magically appeared in the trust and the reverse engineered documents don't cover that adequately.

Which brings up other IRS-related questions:
(1) What happens when and if the original loan documents can't be produced by the trustee and/or document custodian under an IRS subpoena?
and
(2) Would the IRS see the "reverse-engineered" documents as attempts to defraud the IRS - such that it would expose the creator(s) to criminal charges?

Keeping in mind it was the IRS that took down Al Capone, is there now a chance the IRS Tax Division could take down the people the DoJ won't touch?

[The Observer]

Keeping in mind it was the IRS that took down Al Capone, is there now a chance the IRS Tax Division could take down the people the DoJ won't touch?

Again, the question is how can the IRS initiate legal action on its own if DoJ won't give permission?

[Judge Roy Bean]

...

Again, the question is how can the IRS initiate legal action on its own if DoJ won't give permission?

I can see the DoJ backing off when the victims of civil foreclosure matters are citizens and the state/local courts are the gatekeepers, but when the "victim" of the crime (forgery, perjury, etc.) is the U.S. Treasury, isn't the DoJ compelled to act?