- 20 -
Amortization Period
The third issue for decision is the proper amortization
period for loan commitment fees and attorney's fees incurred by
ME during 1992 to obtain a construction loan.
As part of the closing costs of its $1,500,000 construction
loan from SouthTrust Bank, ME was required to pay a loan
commitment fee in the amount of $15,000. ME also incurred
attorney's fees in the amount $6,450 to obtain the construction
loan.
On its 1992 return, ME claimed the fees as prepaid mortgage
expenses and amortized them over a 1-year period,7 which resulted
in a claimed amortization deduction in the amount of $10,475. In
the statutory notice of deficiency, respondent determined that
the fees were properly amortized over an 11-year period, which
includes the 1-year period of the construction loan and the 10-
year period of the permanent loan, and disallowed $9,500 of the
claimed amortization deduction.
Amounts paid for services rendered in connection with a loan
constitute capital expenditures which must be amortized over the
term of the loan. Lay v. Commissioner, 69 T.C. 421, 437-440
7 The difference, in the amount of $500, between the
amortizable amount of fees stipulated to by the parties, $21,450,
and the amortizable amount claimed on ME's return, $20,950, is
apparently attributable to an increase in the amount of allowable
attorney's fees.
Page: Previous 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 NextLast modified: May 25, 2011