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Fed. Home Loan Mortg. Corp. v. Comm'r Case Brief
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Case Brief Summary & Legal Analysis
tl;dr: A nonrefundable fee paid to Freddie Mac for the right, but not the obligation, to sell it a mortgage was at issue. The Tax Court held the fee was a put option premium, allowing Freddie Mac to defer recognizing it as income until the option was exercised or lapsed.
Legal Significance: This case clarifies that a fee for an optional, rather than mandatory, commitment to purchase an asset constitutes an option premium. Its tax recognition is deferred under the “open transaction” doctrine, even if the fee is nonrefundable and exercise is highly probable.
Fed. Home Loan Mortg. Corp. v. Comm'r Law School Study Guide
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Case Facts & Court Holding
Key Facts & Case Background
The Federal Home Loan Mortgage Corp. (petitioner) offered two programs for purchasing multifamily mortgages. The “immediate delivery” program involved a mandatory contract to sell a mortgage, with no upfront fee, but failure to deliver could result in sanctions. The “prior approval” program allowed a mortgage originator to pay a 2% commitment fee to secure petitioner’s promise to buy a specific mortgage in the future. This fee consisted of a 0.5% nonrefundable portion and a 1.5% portion that was refundable upon delivery of the mortgage. Under the prior approval program, the contract explicitly stated that delivery was “optional.” The originator had the right, but not the obligation, to sell the mortgage to petitioner at a price determined by a pre-set formula (the maximum required net yield) within a specified period. This protected the originator from interest rate increases and from sanctions if the underlying mortgage loan failed to close. Petitioner treated the 0.5% nonrefundable fee as a premium for writing a put option, deferring income recognition. The Commissioner determined that the fee was income taxable in the year of receipt under I.R.C. § 451.
Court Holding & Legal Precedent
Issue: Should a nonrefundable commitment fee received by an accrual-basis taxpayer under an agreement that grants a mortgage originator the right, but not the obligation, to sell a mortgage be treated as a put option premium, thereby deferring income recognition until the option is exercised or lapses?
Yes. The 0.5% nonrefundable commitment fees are premiums for put options, and Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam, quis nostrud exercitation ullamco laboris nisi ut aliquip ex ea commodo consequat. Duis aute irure dolor in reprehenderit in voluptate velit esse cillum dolore eu fugiat nulla pariatur. Excepteur s
IRAC Legal Analysis
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IRAC (Issue, Rule, Analysis, Conclusion) is the exact format professors want to see in your exam answers. Our exclusive Flash-to-Full briefs combine holding, analysis, and rule statements formatted to match what A+ students produce in exams. These structured briefs help reinforce the essential legal reasoning patterns expected in law school.
Legal Issue
Should a nonrefundable commitment fee received by an accrual-basis taxpayer under an agreement that grants a mortgage originator the right, but not the obligation, to sell a mortgage be treated as a put option premium, thereby deferring income recognition until the option is exercised or lapses?
Conclusion
The case solidifies the application of the open transaction doctrine to commitment Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam, quis nostrud exercitation ullamco laboris nisi ut aliquip ex ea commodo consequat. Duis aute irure dolor in reprehenderit in vo
Legal Rule
Payments received for granting an option are not includable in the optionor's Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam, quis nostrud exercitation ullamco laboris nisi ut aliquip ex ea commodo consequat. Duis aute irure dolor in reprehenderit in voluptate velit esse cillum dolore eu fugiat nulla pariatur. E
Legal Analysis
The court's analysis proceeded in three parts. First, it determined that the Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam, quis nostrud exercitation ullamco laboris nisi ut aliquip ex ea commodo consequat. Duis aute irure dolor in reprehenderit in voluptate velit esse cillum dolore eu fugiat nulla pariatur. Excepteur sint occaecat cupidatat non proident, sunt in culpa qui officia deserunt mollit anim id est laborum. Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam, quis nostrud exercitation ullamco laboris nisi ut aliquip ex ea commodo consequat. Duis aute irure dolor in reprehenderit in voluptate velit esse cillum dolore eu fugiat nulla pariatur. Excepteur sint occaecat cupidatat non proident, sunt in culpa qui officia deserunt mollit anim id est laborum. Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam, quis nostrud exercitation ullamco laboris nisi ut aliquip ex ea commodo consequat. Duis aute irure dolor in reprehenderit in voluptate velit esse cillum dolore eu fugiat nulla pariatur. Excepteur sint occaecat cupidatat non proident, sunt in culpa qui officia deserunt mollit anim id est laborum. Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam, quis nostrud exercitation ullamco laboris nisi ut aliquip ex ea commodo consequat. Duis aute irure dolor in reprehenderit in voluptate velit esse cillum dolore eu fugiat nulla pariatur. Ex
Flash-to-Full Case Opinions
Flash Summary
- Nonrefundable commitment fees paid to Freddie Mac for its “optional delivery”