The Treasury Department and the Internal Revenue Service have issued guidance on indirect ownership of preferred stock in mortgage lenders Fannie Mae and Freddie Mac.

Revenue Procedure 2008-64 provides that certain gains and losses from indirect ownership of Fannie and Freddie preferred stock can be treated as ordinary income and loss. Many financial institutions have invested in Fannie and Freddie preferred stock indirectly through certain adjustable rate preferred programs and other vehicles. The revenue procedure includes guidance describing when these financial institutions receive ordinary treatment on:

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