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immediate delivery purchase contract and avoided any commitment
fee. The prior approval purchase contracts provided an
originator with protection in the event it could not deliver a
mortgage to petitioner. Thus, despite the fact that originators
delivered mortgages to petitioner in approximately 99 percent of
the prior approval purchase contracts, originators were
apparently willing to pay a premium for the option because they
were uncertain about when or whether they would in fact have a
mortgage to sell to petitioner.
3. Rationale for Option Treatment
The policy rationale for the tax treatment of an option as
an open transaction is that the outcome of the transaction is
uncertain at the time the payments are made. That uncertainty
prevents the proper characterization of the premium at the time
it is paid. See Dill Co. v. Commissioner, 33 T.C. 196, 200
(1959), affd. 294 F.2d 291 (3d Cir. 1961). “Since the optionor
assumes such obligation, which may be burdensome and is
continuing until the option is terminated, without exercise, or
otherwise, there is no closed transaction nor ascertainable
income or gain realized by an optionor upon mere receipt of a
premium for granting such an option.” Rev. Rul. 58-234, 1958-1
C.B. at 283.
Respondent argues that open transaction treatment is
inappropriate because petitioner had a fixed right to the
nonrefundable portion of the commitment fee at the time the prior
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