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In computing its taxable income for the years 1985 through
1991, petitioner treated the 0.5-percent nonrefundable portion of
the commitment fees as premium received for writing put options
in favor of the various mortgage originators. Petitioner
generally did not include in taxable income amounts received for
the 0.5-percent nonrefundable portion of the commitment fee in
the year of receipt. Petitioner deducted such nonrefundable
amounts from the cost basis of mortgages purchased when
originators delivered mortgages to petitioner. Petitioner
amortized these amounts into income over multiyear periods of 7
or 8 years (i.e., the estimated life of the mortgages in
petitioner’s hands).14 If an originator failed to elect
mandatory delivery of the specified mortgages within the
prescribed period, petitioner recognized the nonrefundable
portion of the commitment fee in the current year if the last day
of the 60-day (or 15-day) period was within the current year.
During the years 1985 through 1991, petitioner received the
0.5-percent nonrefundable portion of the commitment fees pursuant
to the prior approval program in amounts totaling $9,506,398,
$16,489,524, $9,408,907, $4,525,606, $4,892,445, $2,805,392, and
$41,257, respectively. On its corporate returns for the years
14 When a mortgage was delivered in the same year that
petitioner received the commitment fee, petitioner recognized the
nonrefundable portion of the commitment fee in the year of
receipt, to the extent of amortization for that year.
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