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in performing credit checks, appraisals, and other
tasks intended to assess the profitability of a loan,
the banks “stepped out of [their] normal method of
doing business” so as to render the expenditures at
issue capital in nature. Encyclopaedia Britannica,
Inc. v. Commissioner, 685 F.2d 212, 217 (7th Cir.
1982).
The Court of Appeals for the Third Circuit, in PNC Bancorp,
Inc. v. Commissioner, 212 F.3d at 830, continued as follows
(quoting from a portion of the taxpayer’s brief):
the Tax Court proceeded from the clearly accurate
premise that the expenses in question were associated
with the loans, incurred in connection with the
acquisition of the loans, or “directly related to the
creation of the loans,” * * * to the faulty conclusion
that these expenses themselves created the loans. We
conclude that the term “create” does not stretch this
far. In Lincoln Savings, it was the payments
themselves that formed the corpus of the Secondary
Reserve; therefore, it naturally follows that these
payments “created” the reserve fund. In * * * [the
taxpayer's] case, however, the expenses are merely
costs associated with the origination of the loans; the
expenses themselves do not become part of the balance
of the loan. * * * [Citation omitted.]
While purporting to apply the Lincoln Savings
language, both the Tax Court and the
government effectively have transformed that
language, by subtle but significant degrees,
from a test based on whether a cost “creates”
a separate and distinct asset, into a much
more sweeping test * * * . * * *
In PNC Bancorp, Inc. v. Commissioner, 110 T.C. at 370, we
concluded that the costs in issue were “assimilated” into the
asset that was acquired. In contrast, the Court of Appeals for
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