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$288,911 of the $339,211 in installment contracts expenditures on
its 1994 Federal income tax return. ACC now claims that it was
entitled to deduct for 1994 the remaining $50,300 of installment
contracts expenditures ($339,211 - $288,911). As to the
respective years, ACC deducted officers’ compensation of $158,099
and $217,036 and salaries/wages of $126,464 and $194,306. The
portion of the officers’ compensation, salaries/wages, and
overhead which was deducted but not in issue is attributable to
ACC’s servicing of the installment contracts.
For financial accounting purposes, ACC separately listed the
installment contracts as assets on its 1993 and 1994 balance
sheets. In addition, ACC initially deducted the installment
contracts expenditures of $267,832 for 1993 but amended that
year’s financial statements to amortize the expenditures over the
expected life of the related installment contracts. ACC’s
independent auditors required the amendment and related
amortization in order to comply with Statement of Financial
Accounting Standards No. 91 (SFAS 91), Accounting for
Nonrefundable Fees and Costs Associated with Originating or
Acquiring Loans and Initial Direct Costs of Leases.7 ACC
7 The record does not indicate why ACC’s auditors believed
that the amendment was required under SFAS 91. Whereas SFAS 91
provides explicitly for the deferral of “direct loan origination
costs”, it does not provide similarly as to the direct costs of
acquiring loans. SFAS 91 provides as to the acquisition of loans
that “15. The initial investment in a purchased loan or group of
loans shall include the amount paid to the seller plus any fees
(continued...)
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