125 T.C. No. 12
UNITED STATES TAX COURT
FEDERAL HOME LOAN MORTGAGE CORPORATION, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket Nos. 3941-99, 15626-99. Filed November 21, 2005.
P received commitment fees for entering into prior
approval purchase contracts with mortgage originators.
The contracts obligated P to purchase mortgages from
originators during a specified period of time pursuant
to a pricing formula but did not require the
originators to sell mortgages to P. The commitment
fees equaled 2.0 percent of the principal amount of the
mortgages. The commitment fees consisted of a 0.5-
percent nonrefundable portion and a 1.5-percent
refundable portion. In the taxable years 1985 through
1990, P treated the 0.5-percent nonrefundable portion
of the commitment fees as premiums received for writing
put options. As a result, when an originator sold a
mortgage to P, P treated the 0.5-percent portion of the
fee as a reduction of its purchase price and reported
this amount as income over the estimated life of the
mortgage. If an originator failed to sell the mortgage
to P, P reported the 0.5 percent of the fee in the year
Page: 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