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PNC’s costs from the payments in Lincoln Sav. & Loan Association
by noting that the payments in Lincoln Sav. & Loan Association
had formed the corpus of the asset, whereas PNC’s costs were not
included in the principal of the loans. The Court of Appeals
analogized PNC’s costs to the expenditures at issue in the credit
card cases, concluding that the costs were deductible under that
line of cases. PNC Bancorp, Inc., v. Commissioner, 212 F.3d at
830-831.
We do not believe that the “normal and routine” nature of
the expenses in question dictates their deductibility. As
discussed above, payments made with a sufficiently direct
connection to the acquisition, creation, or enhancement of a
capital asset must be capitalized even when those payments are
made in the course of the payee’s regular business operations.
See, e.g., Woodward v. Commissioner, 397 U.S. at 575, 577-578;
Helvering v. Winmill, supra. Nor do we believe that any of the
long line of cases addressing this acquisition-related
capitalization requirement supports a conclusion that a payment
is a capital expenditure only if it creates, enhances, or becomes
part of an asset that is unrelated to the taxpayer’s daily
business. An expense that recurs in a taxpayer’s business is a
capital expenditure when it is incurred in direct connection with
the acquisition, creation, or enhancement of a separate and
distinct asset, or provides the taxpayer with a significant
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