Federal Home Loan Mortgage Corporation - Page 1

                                   121 T.C. No. 15                                    

                               UNITED STATES TAX COURT                                

                FEDERAL HOME LOAN MORTGAGE CORPORATION, Petitioner v.                 
                    COMMISSIONER OF INTERNAL REVENUE, Respondent                      

               Docket Nos. 3941-99, 15626-99.     Filed October 30, 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                    
               adopted the accrual method of accounting for its first                 
               taxable year commencing Jan. 1, 1985.   Before that                    
               date, P acquired certain mortgages that were in                        
               default.  Interest accrued on each of those mortgages                  
               from the date of acquisition up to Jan. 1, 1985.  At                   
               various points after Jan. 1, 1985, P foreclosed the                    
               mortgages on the underlying real estate.  In computing                 
               its gain or loss from the foreclosures, P increased its                
               regular adjusted cost basis in the mortgages for unpaid                
               interest that had accrued before Jan. 1, 1985.  R                      
               argues that P is not entitled to increase its regular                  
               adjusted cost basis on account of interest which                       
               accrued before Jan. 1, 1985.                                           
                    Held:  Sec. 166(a), I.R.C., provides a deduction                  
               for bad debts.  Sec. 1.166-6(a)(2), Income Tax Regs.,                  
               provides:  “Accrued interest may be included as part of                

Page:   1  2  3  4  5  6  7  8  9  10  11  12  13  14  15  16  17  18  19  Next

Last modified: May 25, 2011