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the house is worth $300,000. Right? How would the
buyer decide how much more to pay for the house with
the 1 percent mortgage? It would determine the value
of the below-market mortgage and add that to the price.
Isn’t that fair?
A: That’s true, yeah.
Like the purchaser and seller of the houses in the
hypothetical situation, we think that petitioner can ascertain
the value of the favorable financing. As we have mentioned,
financial markets determined the current price of petitioner’s
debt obligations on the valuation date; a comparison of the
contract price and the prevailing market price provides a
reasonable measure of the value of the favorable financing
associated with the debt instrument. Therefore, we disagree with
respondent that a separate value cannot be assigned to
petitioner’s favorable financing.
c. Double Counting the Value
Respondent also argues that petitioner’s method of valuing
its favorable financing overvalues and double counts petitioner’s
assets because petitioner’s “real assets”--the mortgages--have
lost value when compared to prevailing market rates.
We think that respondent’s concerns of double counting are
misguided. When petitioner was chartered, it was exempt from
Federal, State, and local taxation, except for real estate tax
imposed by any State or local taxing authority. Congress enacted
special legislation that subjected petitioner to Federal income
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