Developments Of Note
Third Circuit Holds that Banks May Deduct Loan Costs in the Year the Loan is Made
The U.S. Court of Appeals for the Third Circuit (the "Court of Appeals") held that a bank may deduct from Federal taxes the full amount of expenses the bank incurs for marketing, researching, and originating loans (the "Loan Origination Expenses") in the year the loan is made. PNC Bancorp., Inc. ("PNC") v. Commissioner of Internal Revenue, 3rd Cir. No. 99-6020, May 19, 2000. Two banks which were subsequently acquired by PNC treated Loan Origination Expenses as deductible for Federal tax purposes in the year incurred on the basis that such expenses are ordinary and necessary expenses pursuant to Section 162 of the Internal Revenue Code ("IRC"). The IRS disallowed the deductions and declared that Loan Origination Expenses must be capitalized and amortized over the life of the applicable loan pursuant to Section 263 of the IRC. In 1998, the U.S. Tax Court held that Loan Origination
