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the contrary view. For the reasons set forth below, we continue
to adhere to our view on the rules of capitalization as expressed
in PNC Bancorp, Inc., respectfully disagreeing with the contrary
view expressed by the Court of Appeals for the Third Circuit.
PNC was the successor in interest to two banks
(collectively, PNC) which had deducted expenditures paid to
market, research, and originate loans to PNC’s customers. These
expenditures included: (1) Amounts paid to record security
interests, (2) amounts paid to third parties for property
reports, credit reports, and appraisals, and (3) an allocable
portion of salaries and benefits paid to employees for evaluating
a borrower’s financial condition, evaluating guaranties,
collateral, and other security arrangements, negotiating loan
terms, preparing and processing loan documents, and closing loan
transactions. PNC capitalized and amortized these costs for
financial accounting purposes but deducted them for Federal
income tax purposes. PNC argued that the costs were deductible
for tax purposes because they (1) were recurring expenses in the
banking business, (2) were integral to PNC’s daily operation, and
(3) provided PNC with only short-term benefits.
We found that PNC incurred the costs to create separate and
distinct assets, i.e., the loans, and that the costs produced for
PNC long-term benefits in the form of the interest to be received
in later years. The Court of Appeals for the Third Circuit
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