Base Offering Circular - Multifamily 482090 43 Code only to the extent that the amount of such fee, when combined with its other miscellaneous itemized deductions for the taxable year, exceeds two percent of its adjusted gross income.  That same limitation will apply to individuals, trusts, or estates that hold Residual Securities indirectly through a grantor trust, a partnership, an S corporation, a common trust fund, or a nonpublicly offered RIC.  A nonpublicly offered RIC is a RIC other than one whose shares are (i) continuously offered pursuant to a public offering, (ii) regularly traded on an established securities market, or (iii) held by no fewer than 500 persons at all times during the taxable year. In addition, that limitation will apply to individuals, trusts, or estates that hold Residual Securities through any other person (i) that is not generally subject to federal income tax and (ii) the character of whose income may affect the character of the income generated by that person for its owners or beneficiaries.  In addition, Code section 68 provides that the amount of itemized deductions otherwise allowable for the taxable year for an individual whose adjusted gross income exceeds the applicable amount ($132,950 or $66,475 in the case of a separate return by a married individual within the meaning of Code section 7703 for taxable year 2001 and adjusted for inflation each year thereafter) will be reduced by the lesser of (i) 3% of the excess of adjusted gross income over the applicable amount or (ii) 80% of the amount of itemized deductions otherwise allowable for such taxable year.  In some cases, the amount of additional income that would be recognized as a result of the foregoing limitations by a Residual Holder who is an individual, trust, or estate could be substantial.  Non-corporate Holders of Residual Securities also should be aware that miscellaneous itemized deductions, including allocable investment expenses attributable to the related Trust REMIC, are not deductible for purposes of the AMT.  A Residual Holder’s share of the expenses will generally be determined by (i) allocating the amount of such expenses for each calendar quarter on a pro rata basis to each day in the calendar quarter, and (ii) allocating the daily amount among the Holders in proportion to their respective holding on such day.  Finally, persons holding an interest in a Residual Security indirectly through an interest in a RIC, common trust fund or one of certain corporations doing business as a cooperative generally will recognize a share of any excess inclusion allocable to that Residual Security. Employee benefit plans.  See “—Limitations on Offset or Exemption of REMIC Income”; “—Special Considerations for Certain Types of Investors—Tax-exempt entities” and “ERISA Considerations.” REITs and RICs.  If the Residual Holder is a REIT and the Trust REMIC generates excess inclusion income, a portion of REIT dividends will be treated as excess inclusion income for the REIT’s shareholders, in a manner to be provided by regulations.  Thus, shareholders in a REIT that invests in Residual Securities could face unfavorable treatment of a portion of their REIT dividend income for purposes of (i) using current deductions or NOL carryovers or carrybacks, (ii) UBTI in the case of tax-exempt shareholders, and (iii) withholding tax in the case of foreign shareholders (see “—Limitations on Offset or Exemption of REMIC Income—Foreign Residual Holders” below).  Moreover, because Residual Holders may recognize phantom income (see “— Tax Treatment of Residual Securities—Taxation of Residual Holders”), a REIT contemplating an investment in Residual Securities should consider carefully the effect of any phantom income upon its ability to meet its income distribution requirements under the Code.  The same rules