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loan origination costs herein must be assimilated into the cost
of the asset created.
Capitalizing expenditures which are connected with the
creation of an asset having an extended life is an important
factor in determining net income. As the Court of Appeals for
the Eleventh Circuit observed:
The function of these rules is to achieve an accurate
measure of net income for the year by matching outlays
with the revenues attributable to them and recognizing
both during the same taxable year. When an outlay is
connected to the acquisition of an asset with an
extended life, it would understate current net income
to deduct the outlay immediately. To the purchaser,
such outlays are part of the cost of acquisition of the
asset, and the asset will contribute to revenues over
an extended period. Consequently, the outlays are
properly matched with revenues that are recognized
later and, to obtain an accurate measure of net income,
the taxpayer should deduct the outlays over the period
when the revenues are produced. [Ellis Banking Corp.
v. Commissioner, supra at 1379.]
The same is true here. The costs at issue are directly connected
to the creation of loans, which constitute separate and distinct
assets that are the banks' primary source of income. Revenues,
in the form of interest payments, are received over the life of
the individual loans. In order to accurately measure the banks'
net income, the direct costs of originating the loans must be
capitalized and amortized over the life of the loans.
Change in Method of Accounting
Petitioner contends that because the banks have consistently
deducted the costs at issue and, in so doing, have been acting in
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