TAXES Fightin' Fannie Vs. Uncle Sam

Did Fannie Mae make a big mistake on her tax returns? Yes, says the Internal Revenue Service. A tax court heard arguments last week in a dispute between the IRS and the Federal National Mortgage Association, the former Government agency that is now privately owned and known as Fannie Mae. In April 1986 the IRS declared that Fannie Mae had taken improper deductions and owed some $200 million in back taxes and interest. Fannie Mae paid up, but is suing to get a refund.

The case centers on the activities of Fannie Mae, which buys mortgages from lending institutions and sells them to investors, during the early 1980s. At that time the organization decided to swap large numbers of mortgages whose value had been depressed by high interest rates for similar mortgages held by savings and loan associations. Reason: both parties in the deal incurred losses that they thought could be written off their taxes. But the IRS later ruled that these were paper losses that could not be deducted.

While Fannie Mae is fighting for a refund, the implications go far beyond that one organization. If it loses the case, dozens of savings and loan associations -- some of them financially troubled -- will also owe millions of dollars in back taxes.