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At various points in the taxable years 1985 and 1986, petitioner
foreclosed on these mortgages and obtained freehold title to the
underlying real estate. Petitioner was required to demonstrate
its gain or loss on the foreclosures.
For the taxable years 1985 through 1990, petitioner
consistently accrued into income stated interest on all single-
family mortgages that it owned, whether or not that interest was
received. If such a mortgage was or became delinquent,
petitioner nonetheless continued to accrue the interest through
the date of foreclosure. Petitioner accrued into income interest
from the date of acquisition through the date of foreclosure in
respect of all mortgages acquired before January 1, 1985, that
were subject to foreclosure after that date.4
As part of the legislation in which petitioner became
subject to Federal income taxation, Congress enacted transition
rules for determining petitioner’s adjusted basis in assets that
it held on January 1, 1985. Those rules are contained in DEFRA
section 177(d), 98 Stat. 711, which provides:
(2) Adjusted basis of assets.--
(A) In general.--Except as otherwise provided in
subparagraph (B), the adjusted basis of any asset of
the Federal Home Loan Mortgage Corporation held on
January 1, 1985, shall--
4Petitioner’s treatment of interest accrued after Jan. 1,
1985, is not in dispute.
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