Base Offering Circular - Single Family 29 the  Contingent  Payment  Regulations,  a  secondary  market  purchaser  of  a  Non-VRDI  Security  or  an  Interest Weighted  Security  at  a  discount  generally  would  continue  to  accrue  interest  and  determine  adjustments  on  such Security  based  on  the  original  projected  payment  schedule  devised  by  the  issuer  of  such  Security.    See  “Certain Federal  Income  Tax  Consequences  —  Original  Issue  Discount  —  Interest  Weighted  Securities  and  Non-VRDI Securities” herein.  The Holder of such a Security would be required, however, to allocate the difference between the  adjusted  issue  price  of  the  Security  and  its  basis  in  the  Security  as  positive  adjustments  to  the  accruals  or projected payments on the Security over the remaining term of the Security in a reasonable manner (e.g., based on a constant yield to maturity). Treasury  regulations  implementing  the  market  discount  rules  have  not  yet  been  issued,  and  uncertainty exists  with  respect  to  many  aspects  of  those  rules.    For  example,  the  treatment  of  a  Regular  Security  subject  to redemption at the option of the Tax Administrator that is acquired at a market discount is unclear.  It appears likely, however, that the market discount rules applicable in such a case would be similar to the rules pertaining to OID.   Due to the substantial lack of regulatory guidance with respect to the market discount rules, it is unclear how those rules will affect any secondary market that develops for a given Class of Regular Securities.  Prospective investors in Regular Securities should consult their own tax advisors as to the application of the market discount rules to those Securities. Amortizable Premium A purchaser of a Regular Security who purchases the Security at a premium over the total of its Deemed Principal Payments may elect to amortize such premium under a constant yield method that reflects compounding based on the interval between payments on the Security.  The relevant legislative history indicates that premium is to be  accrued  in  the  same  manner  as  market  discount.    Accordingly,  it  appears  that  the  accrual  of  premium  on  a Regular  Security  will  be  calculated  using  the  Pricing  Prepayment  Assumptions.    Under  the  Code,  except  as otherwise provided in Treasury regulations to be issued, amortized premium would be treated as an offset to interest income  on  a  Regular  Security  and  not  as  a  separate  deduction  item.    If  a  Holder  makes  an  election  to  amortize premium  on  a  Regular  Security,  such  election  will  apply  to  all  taxable  debt  instruments  (including  all  REMIC regular interests) held by the Holder at the beginning of the taxable year in which the election is made, and to all taxable  debt  instruments  acquired  thereafter  by  such  Holder,  and  will  be  irrevocable  without  the  consent  of  the Service.  Purchasers who pay a premium for the Regular Securities should consult their tax advisors regarding the election to amortize premium and the method to be employed. Under the Contingent Payment Regulations, a secondary market purchaser of a Non-VRDI Security or an Interest Weighted Security at a premium generally would continue to accrue interest and determine adjustments on such Security based on the original projected payment schedule devised by the issuer of such Security.  See “Certain Federal  Income  Tax  Consequences  —  Original  Issue  Discount  —  Interest  Weighted  Securities  and  Non-VRDI Securities” herein.  The Holder of such a Security would allocate the difference between its basis in the Security and the adjusted issue price of the Security as negative adjustments to the accruals or projected payments on the Security over the remaining term of the Security in a reasonable manner (e.g., based on a constant yield to maturity). Gain or Loss on Disposition If  a  Regular  Security  is  sold,  the  Holder  will  recognize  gain  or  loss  equal  to  the  difference  between  the amount realized on the sale and his adjusted basis in the Security.  Similarly, a Holder who receives a scheduled or prepaid principal payment with respect to a Regular Security will recognize income or loss equal to the difference between the amount of the payment and the allocable portion of his adjusted basis in the Security.  Any such income will be treated as ordinary income, rather than capital gain, to the extent such income  reflects OID that is  not  de minimis.    The  adjusted  basis  of  a  Regular  Security  generally  will  equal  the  cost  of  the  Security  to  the  Holder, increased  by  any  OID  or  market  discount  previously  includible  in  the  Holder’s  gross  income  with  respect  to  the Security, and reduced by the portion of the basis of the Security allocable to payments on the Security previously received by the Holder and by any amortized premium.  Except to the extent that the market discount rules apply and except as provided below, any gain or loss on the sale or other disposition of a Regular Security generally will be capital gain or loss.  Such gain or loss will be long-term gain or loss if the Security is held as a capital asset for more than one year.