Federal Home Loan Mortgage Corporation - Page 2

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               generally based on cost.  However, DEFRA sec.                          
               177(d)(2)(A)(ii) modifies the application of sec. 1011,                
               I.R.C., by providing specific rules for determining the                
               adjusted basis of property held by P on Jan. 1, 1985.                  
               Under DEFRA sec. 177(d)(2)(A)(ii), the adjusted basis                  
               of any asset held by P on Jan. 1, 1985 (with the                       
               exception of tangible depreciable property) shall, for                 
               purposes of determining any gain, be equal to the                      
               higher of the regular adjusted cost basis as provided                  
               in sec. 1011, I.R.C., or the fair market value of such                 
               asset as of Jan. 1, 1985.  P’s adjusted basis as of                    
               Jan. 1, 1985, for purposes of amortization, is the                     
               higher of the regular adjusted cost basis or fair                      
               market value on Jan. 1, 1985.                                          


               Robert A. Rudnick, Stephen J. Marzen, James F. Warren, and             
          Neil H. Koslowe, for petitioner.                                            
               Gary D. Kallevang, for respondent.                                     


                                       OPINION                                        

               RUWE, Judge:  Respondent determined deficiencies in                    
          petitioner’s Federal income taxes in docket No. 3941-99 for 1985            
          and 1986, as follows:                                                       
                    Year                          Deficiency                          
                    1985                     $36,623,695                              
                    1986                          40,111,127                          
          Petitioner claims overpayments of $9,604,085 for 1985 and                   
          $12,418,469 for 1986.                                                       
               Respondent determined deficiencies in petitioner’s Federal             
          income taxes in docket No. 15626-99 for 1987, 1988, 1989, and               
          1990, as follows:                                                           






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