31
Furthermore, petitioner's fear of an "overly expansive"
application of section 263 is not warranted here. It is clear
that the expenses at issue are directly related to the creation
of the loans. Petitioner provides little, if any, explanation
regarding the method the banks employed in identifying the
expenses associated with the origination of the loans. However,
because the parties stipulated that the banks deferred the
expenses at issue for financial accounting purposes in a manner
consistent with SFAS 91, we turn to the definitions contained
therein for such explanation.18
Generally, paragraph 5 of SFAS 91 requires that direct loan
origination costs "shall be deferred and recognized as a
reduction in the yield of the loan".19 Paragraphs 6 and 7 of
SFAS 91 define what type of costs must be deferred and those
which are currently expensed:
6. Direct loan origination costs of a completed loan
shall include only (a) incremental direct costs of loan
origination incurred in transactions with independent
third parties for that loan and (b) certain costs
directly related to specified activities performed by
the lender for that loan. Those activities are:
evaluating the prospective borrower's financial
18We reiterate that SFAS 91 does not control the correct
characterization of the subject expenses. We merely examine the
statement to define the nature of the costs at issue and how they
relate to the asset created. Furthermore, we note that
petitioner does not argue that the direct costs of the loans, as
reflected in the banks' financial accounting records, were
inaccurately or improperly allocated.
19Paragraph 5 of SFAS 91 also requires that "Loan
origination fees and related direct loan origination costs for a
given loan shall be offset and only the net amount shall be
deferred and amortized."
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