Revenue Ruling 74-607
Internal Revenue Service
1974–2 C.B. 149 (1974)
- Written by Jamie Milne, JD
Facts
A corporation involved in construction financing (the taxpayer) made mortgage construction and development loans to borrowers for 18-to-36-month terms. Each loan was repaid in a single payment when a construction project was completed and the borrower obtained permanent financing. The taxpayer made money from interest charged on the loan amounts. Because construction loans were high risk, the taxpayer also charged borrowers points, with each point representing 1 percent of a loan’s face value. A borrower would pay the points to prevent the taxpayer from charging a higher interest rate on the loan. In most instances, the taxpayer withheld the total points amount from the loan funds disbursed to the borrower when the loan was made. Occasionally, the taxpayer disbursed the full loan amount and then later received payment of the points amount from the borrower. The Internal Revenue Service issued a revenue ruling to clarify at what time the taxpayer, which used an accrual method of accounting, should include points amounts in its gross income.
Rule of Law
Issue
Holding and Reasoning ()
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