Press Release – CHLA Member IMBs Write IRS 10/01/2018


IMBs Should Be Fully Eligible for 

Small Business Passthrough Tax Deduction

Disallowing Deduction for IMBs based on Technicality is “Absurd”  and

“inconsistent with statutory language and Congressional intent”


Contact: Scott Olson                                                For Immediate Release            571-527-2601                                                               October 1, 2018
A group of 11 independent mortgage bankers (IMBs) – most of whom are members of the Community Home Lenders Association (CHLA) – today wrote a joint comment letter (enclosed) to the IRS and Treasury, asking for language clearly stating that IMBs are eligible for the 20% small business passthrough tax deduction included in last year’s tax bill.  The letter also addresses head-on the concern that IMBs could lose this deduction based on a technicality that buying and selling loans might be inappropriately classified as a securities activity, and provides a recommendation on how to fix this concern.
The letter states:
“We write to make two principal recommendations:
(1)  Include language in the final rule stating that mortgage banking firms are not a Specialized Service Trade or Business (SSTB) and are eligible for the passthrough deduction, and
(2)  Include language in the final rule stating that the sale of mortgage loans that are originated by a firm, including a sale executed through a securitization, is not a securities activity for the purposes of passthrough eligibility and therefore is not a financial service.”
The letter explains that the proposed rule states that “making a loan” is not considered a “Financial Service,” and since originating mortgage loans is a core function of IMBs, the final rule should state clearly that IMBs are eligible, in the same way the proposed rule did for banks.
The letter also raises the concern that an IMB’s sale of loans that it originates might inappropriately be considered a securities activity, because of IRS definitions used in a different context.  It lists a number of reasons why this would be “absurd” and inconsistent with the statutory language and Congressional intent. . .” – and concluded that:
“For all the reasons identified in the previous section, and consistent with Congressional intent, the appropriate treatment is to clarify that the sale of a loan that is made by the firm is neither a Financial Service nor is it a securities activity.”
Such an action would ensure that IMBs are not inappropriately excluded from use of the small business passthrough exemption.
The IMB letter was sent by:  Platinum Home Mortgage, Rolling Meadows, IL;   LLG Loans, Troy, MI;    Mountain West Financial, Redlands CA;   MLB Residential, Springfield, NJ;   Amerifirst Home Mortgage, Kalamazoo, MI;   Hallmark Home Mortgage, Fort Wayne, IN;   Golden Empire Mortgage, Bakersfield, CA;   Stockton Mortgage Company, Frankfort, KY;   Absolute Home Mortgage Corp. Fairfield, NJ;  Cherry Creek Mortgage Corporation, Boulder Creek, CO;   and SimpliFi Mortgage, LLC, Las Vegas, NV.
The Community Home Lenders Association submitted their own comment letter on this issue in early September.