- 35 -
held that the commitment fees were taxable in the year of
receipt.17
The commitment fees in Chesapeake Fin. Corp. are
distinguishable from the nonrefundable portion of the commitment
fees received by petitioner for granting options. Whereas the
taxpayer in Chesapeake Fin. Corp. acted as a loan originator for
the borrower, petitioner agrees to purchase a mortgage from an
originator.18 Chesapeake Fin. Corp. involved a factually
different type of transaction, and does not govern the tax
treatment of petitioner’s commitment fees. Indeed, in Chesapeake
Fin. Corp., there was apparently no argument and certainly no
consideration or discussion by the Court about whether the fees
might constitute option premiums. Instead, the taxpayer in
Chesapeake Fin. Corp. argued that the “all events” test was
satisfied when the loans were actually funded, not when it
received the fees.
17 In addition to the fees in issue, petitioner also
received a nonrefundable application/review fee of the greater of
$1,500 or 0.10 percent of the original principal amount of the
mortgage (but not in excess of $2,500). This fee, which is not
at issue, appears to compensate petitioner for the type of
services for which the taxpayer received commitment fees in
Chesapeake Fin. Corp. v. Commissioner, 78 T.C. 869 (1982).
18 Loans are not sales transactions. “When a taxpayer
receives a loan, he incurs an obligation to repay that loan at
some future date. Because of this obligation, the loan proceeds
do not qualify as income to the taxpayer.” Commissioner v.
Tufts, 461 U.S. 300, 307 (1983). Petitioner did not make loans
to the originators; instead, petitioner agreed to purchase a
mortgage from the originators.
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