For some time, tax practitioners and corporate tax compliance officers have been awaiting the announcement by the Large and Midsize Business Division of the Internal Revenue Service of its "Tier III" issues. Recently, the IRS released such a list. The IRS revealed, among other things, that it is looking into the issue of real estate mortgage investment conduit (REMIC) sponsors' understatement of reportable gain on the retention and sale of regular interests. Undervaluing REMIC regular interests retained by the sponsor for any given REMIC results in a higher relative allocation of the sponsor's tax basis to all the other REMIC regular interests it is selling, thereby deferring its taxable gain from the sale. IRS auditors will be reviewing the sponsor's economic models and assumptions (such as the loss rate, the prepayment rate, and the discount rate) used to value the REMIC interests in order to determine if the basis allocations are appropriate.,,id=180721,00.html