14
connection with commercial loans was an event which occurred
regularly at FNBP.
FNBP charged fees with respect to some commercial real
estate loans but did not charge fees with respect to other
commercial loans because of competitive pressures.
Computation of Respondent's Adjustments
Respondent disallowed deductions for certain costs that the
banks had identified as costs incurred in connection with the
origination of loans. For financial accounting purposes, the
banks had deferred these costs over the expected life of the
subject loans in a manner consistent with the Statement of
Financial Accounting Standards No. 91, "Accounting for
Nonrefundable Fees and Costs Associated with Originating or
Acquiring Loans and Initial Direct Costs of Leases" (SFAS 91).11
SFAS 91 was adopted by the Financial Accounting Standards
Board in 1986, effective for fiscal years beginning after
December 15, 1987.12 Paragraph 5 of SFAS 91 provides that "loan
origination fees", as defined in SFAS 91, must be "deferred and
recognized over the life of the loan as an adjustment of yield
(interest income)", and that "direct loan origination costs", as
defined in paragraph 6 of SFAS 91, must be "deferred and
11The banks determined the costs at issue to be deferred for
financial reporting purposes in a manner consistent with SFAS 91.
Respondent used these amounts to compute the adjustments, but
does not rely on SFAS 91 in determining whether these costs can
be deducted under sec. 162(a).
12The relevant text of SFAS 91 is examined infra.
Page: Previous 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 NextLast modified: May 25, 2011