- 10 -
favorable financing arose from fortuitous interest rate
fluctuations, is not an asset, and is not amortizable as a matter
of law.
The parties in these cases stipulated that petitioner’s
favorable financing “consisted of a number of financing
arrangements, the interest rates payable on which were below
those currently prevailing in the financial markets on January 1,
1985, owing to an increase in interest rates since the date on
which Petitioner entered into the respective arrangements.”4
Simply put, favorable financing represents a right to use
borrowed money at below-market interest rates.5
It is beyond doubt that the right to use money represents a
valuable property interest. Indeed, in Dickman v. Commissioner,
465 U.S. 330, 337 (1984), the U.S. Supreme Court stated that “The
4Respondent disputes that petitioner’s favorable financing
has been substantiated as to original cost, or as to value
(whether fair market value, book value, or salvage value) as of
any date, including Jan. 1, 1985, or as to useful life.
Respondent does not dispute that the CMOs and the GMCs are debt
for Federal income tax purposes but disputes that the CMOs and
the GMCs are debt of petitioner for purposes of the favorable
financing, and he contends that any claimed favorableness
resulting from higher comparable market rates on the CMOs and the
GMCs would not accrue to, nor be to the benefit of, petitioner.
We express no view as to these matters in this Opinion.
5In computing the fair market value of its favorable
financing, petitioner does not include any offset for unfavorable
debt; i.e., those debt obligations of petitioner that carried
above-market interest rates as of Jan. 1, 1985. Respondent
alludes to this fact in his memoranda but provides no argument as
to its bearing on the legal issue before us.
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
Last modified: May 25, 2011