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the banks to create new loans.14 The costs, which the banks
identified as loan origination costs in their books and records,
were deferred by the banks for financial accounting purposes in
accordance with SFAS 91 and were currently deducted by them for
Federal income tax purposes.15 The costs at issue include
amounts paid to record security interests and amounts paid to
third parties for property reports, credit reports, and
appraisals. In the case of FNBP, the costs at issue also include
an allocable portion of the salaries and fringe benefits paid to
employees for evaluating the borrower's financial condition,
evaluating guaranties, collateral and other security
arrangements, negotiating loan terms, preparing and processing
loan documents, and closing the loan transaction.
Respondent contends that the loans constitute separate and
distinct assets of the banks. In Commissioner v. Lincoln Sav. &
Loan Association, supra at 354, the Supreme Court held that the
payments in that case served:
to create or enhance for Lincoln what is essentially a
separate and distinct additional asset and that, as an
inevitable consequence, the payment is capital in
nature and not an expense, let alone an ordinary
14While the evidence does not specifically identify the
lives of the loans in question, petitioner makes no argument that
the lives of such loans did not extend substantially beyond the
taxable years in which the loans were originated.
15The provisions of SFAS 91 do not control the proper
characterization of the costs at issue. Thor Power Tool Co. v.
Commissioner, 439 U.S. 522, 542-543 (1979); Old Colony R.R. Co.
v. Commissioner, 284 U.S. 552, 562 (1932) (holding that
compulsory accounting rules do not control tax consequences).
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