Cottage Savings Association v. Commissioner

During a savings-and-loan interest-rate crisis, Cottage Savings (plaintiff) exchanged its own low-interest mortgage-participation interests (with a face value of $6.9 million but a fair market value matching a similar portfolio it received in return) with other lenders, taking advantage of a regulatory memorandum letting S&Ls avoid reporting the loss to their regulator so long as the exchanged mortgages were substantially identical; Cottage Savings claimed a tax deduction for the loss, but the Commissioner (defendant) disallowed it, and the Tax Court and court of appeals reached differing conclusions on whether a taxable disposition occurred.