121 T.C. No. 13
UNITED STATES TAX COURT
FEDERAL HOME LOAN MORTGAGE CORPORATION, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket Nos. 3941-99, 15626-99. Filed September 29, 2003.
P was originally exempt from Federal income
taxation. However, on Jan. 1, 1985, P became subject
to taxation under the Deficit Reduction Act of 1984
(DEFRA), Pub. L. 98-369, sec. 177, 98 Stat. 709. P had
entered into certain financing arrangements before Jan.
1, 1985, the proceeds of which were used in P’s
mortgage business. As of Jan. 1, 1985, the contract
rates of interest on these financing arrangements were
less than the market rates of interest as of that date,
because of an increase in interest rates since the date
on which P entered into the respective arrangements. P
claims that the economic benefit of the below-market
financing as of Jan. 1, 1985, is an intangible asset
subject to amortization. P claimed amortization
deductions on the basis of the fair market value of
that alleged intangible asset as of Jan. 1, 1985,
pursuant to the special basis provisions that are
applicable to P under DEFRA sec. 177(d)(2)(A)(ii). The
issue presented by the parties’ cross-motions for
partial summary judgment is whether, as a matter of
law, the benefit of below-market borrowing costs from
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