Moreover, SEDA commitment fees can be readily distinguished from premiums paid in a typical put option. The premium paid for a put option generally compensates the writer for the risk that it will be called upon to purchase the subject property at a price that proves to be more than the property is worth when the option is exercised. As we explained in Federal Home Loan Mortgage Corp. v. Commissioner (Freddie Mac), 125 T.C. 248, 263-64 (2005):

Thus, until exercise, expiration, or termination of the option, uncertainty exists regarding the taxpayer's treatment of the option premium. Virginia Iron Coal & Coke Co. v. Commissioner (Virginia Coal), 37 B.T.A. 195 (1938), aff'd, 99 F.2d 919 (4th Cir. 1938), and Fed. Home Loan Mortg. Corp. v. Commissioner (Freddie Mac), 125 T.C. 248 (2005), are both instructive regarding options and open transaction treatment. In Virginia Coal, 37 B.T.A. at 196, the taxpayer wrote an option in exchange for an upfront cash premium.

(1) the advances are not deductible by Longino because they are in the nature of loans, see Hearn v. Commissioner, 36 T.C. 672, 674 (1961), aff'd, 309 F.2d 431 (9th Cir. 1962); Humphrey, Farrington & McClain, P.C. v. Commissioner, T.C. Memo. 2013-23, at *26; and(2) the reimbursements are not includable in Longino's income because they are repayments of loans, see Fed. Home Loan Mortg. Corp. v. Commissioner, 125 T.C. 248, 269 n.18 (2005) (quoting Commissioner v. Tufts, 461 U.S. 300, 307 (1983)). However, Longino seems to claim that he erroneously included the $19,835 of reimbursements in gross income, and at the same time, that he reported that same $19,835 amount as a deduction, characterizing it as "client costs advanced".

"Options have been characterized as unilateral contracts because one party to the contract is obligated to perform, while the other party may decide whether or not to exercise his rights under the contract." Fed. Home Loan Mortg. Corp. v. Commissioner, 125 T.C. 248, 259 (2005). Although the agreement placed no time restriction on Mr. Williams's right to purchase the art, it also imposed no binding commitment on him to follow through with the purchase.