Federal Home Loan Mortgage Corporation - Page 1

                                   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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