Federal Home Loan Mortgage Corporation - Page 15

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               In Rev. Rul. 55-437, supra, a building and loan association            
          became subject to Federal income taxation on January 1, 1952,               
          having been previously tax exempt.  For its first taxable year,             
          beginning after December 31, 1951, the association adopted the              
          accrual method of accounting.  As of January 1, 1952, the                   
          association had outstanding balances of installment accounts                
          receivable of 500x dollars of which 200x dollars represented                
          unrealized profit with respect to such contracts.  Rev. Rul. 55-            
          437, 1955-2 C.B. at 549-551, states:                                        
               the only election of accounting method binding upon the                
               association is that made in the return filed by it for                 
               its first taxable year beginning after December 31,                    
               1951.  * * *                                                           
                    Accordingly, if the association selects the                       
               accrual method of accounting in the return for its                     
               first taxable year beginning after December 31, 1951,                  
               the 200x dollars of unrealized profit received in such                 
               and subsequent taxable years under the installment                     
               contracts which were entered into in taxable years                     
               beginning prior to January 1, 1952, would not                          
               constitute taxable income insofar as the right to                      
               receive such installment payments accrued during a                     
               taxable year in which the association was exempt from                  
               Federal income taxation.  However, if the taxpayer                     
               selects the cash or installment method of accounting in                
               such return, the payments received, to the extent of                   
               the previously unrealized profits included therein,                    
               would constitute taxable income in the year received.                  
               Rev. Rul. 55-437, supra, does not support petitioner’s                 
          position with respect to its pre-1985 interest accruals.  Rev.              
          Rul. 55-437, supra, deals with the timing of income recognition.            
          The revenue ruling has nothing to do with the determination of              
          basis for purposes of a foreclosure-related bad debt deduction              





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