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ARTICLE · 04 MARCH 2015

Nonrecourse Debt Affects Mark-To-Market Calculation

Grant Thornton LLP
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The IRS concluded in an internal legal memorandum released Feb. 13 that a taxpayer’s nonrecourse liability affected its mark-to-market computation under Section 475(a).

United StatesTax
Mel Schwarz
Mel Schwarz
Shamik Trivedi
Shamik Trivedi
Dustin Stamper
Dustin Stamper
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The IRS concluded in an internal legal memorandum (ILM 201507019) released Feb. 13 that a taxpayer's nonrecourse liability affected its mark-to-market computation under Section 475(a).

Under the facts of the ILM, two commonly controlled partnerships were engaged in originating and purchasing mortgage loans and issuing notes to third-party investors as mortgage-backed securities (Notes) in exchange for cash. The partnerships treated the proceeds from the Notes as nontaxable loan proceeds, and the Notes were nonrecourse liabilities of the respective partnerships.

The partnerships treated themselves as dealers in securities, subject to mark-to-market accounting under Section 475. In addition, the partnerships treated the mortgages as securities subject to Section 475(a), though they did not include the Notes in determining the fair market value of the mortgages.

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