(4th Cir. 1934), revg. and remanding 27 B.T.A. 965 (1933), and Franklin Title & Trust Co. v. Commissioner, 32 B.T.A. 266 (1935), that financing companies such as ACC may currently expense commissions connected to the issuance of long-term debt.

We agree with respondent that the PPM expenditures are capital expenditures.36 As to each of petitioners' arguments which we rejected above, we also reject them here as applied to the PPM expenditures for the reasons stated above. As to petitioners' additional argument, we reject that argument as well. The fact that ACC incurred the PPM expenditures in borrowing funds means that the expenditures are capital expenditures and must be amortized over the life of the debt. See, e.g., Austin Co. v. Commissioner, 71 T.C. 955, 964-965 (1979); Enoch v. Commissioner, 57 T.C. 781, 794 (1972); Longview Hilton Hotel Co. v. Commissioner, 9 T.C. 180, 182– 183 (1947); Lovejoy v. Commissioner, 18 B.T.A. 1179, 11811183 (1930); see also S. & L. Bldg. Corp. v. Commissioner, 19 B.T.A. 788, 795-796 (1930), revd. on other grounds 60 F.2d 719 (2d Cir. 1932), revd. sub nom. Burnet v. S. & L. Bldg. Corp., 288 U.S. 406 (1933). Compare Anover Realty Corp. v. Commissioner, 33 T.C. 671, 675 (1960), wherein we stated:

It is not the purpose for which the loan is made that is important. It is the purpose of the expenditure for loan discounts and expenses. That purpose is to obtain financing or the use of money over a fixed period extending beyond the year of borrowing. When we analyze the reason behind the rule of amortizing such debt expenses, the distinction between this case and S. & L. Building Corporation and Longview Hilton Hotel Co. vanishes. Here, as in the cited cases, the mortgage discounts and expenses represent the cost of money borrowed for a period extending beyond the year of borrowing. It matters not that the proceeds of the loans be used to build an income-producing warehouse as in Julia Stow Lovejoy, or "to purchase additional properties" as in S. & L. Building Corporation or to buy the mortgaged premises, as in the instant case. In all such cases the expenditure represents an expenditure for the cost of the use of money and not a capital expenditure for the cost of any asset obtained by the use of the proceeds of the money borrowed.

As to the two cases upon which petitioners rely to support their additional argument, those cases are factually distin

36 In contrast with respondent, however, we allow ACC to deduct for 1994, under sec. 165(a), the portion of those expenditures that was attributable to the offering that was abandoned in that year. See Ellis Banking Corp. v. Commissioner, 688 F.2d at 1382.

guishable from the cases at hand and require no further discussion.

We have considered each of the arguments made by the parties and by the amici. We have rejected all arguments not discussed herein as meritless.

Decisions will be entered under Rule 155.

Reviewed by the Court.

WELLS, CHABOT, COHEN, GERBER, COLVIN, VASQUEZ, and THORNTON, JJ., agree with this majority opinion.

CHIECHI, J., did not participate in the consideration of this opinion.

SWIFT, J., concurring: Although I would go further than the majority and allow all of the salaries and overhead included in the so-called installment contract expenditures to be currently deductible, I do not dissent because I largely agree with the result reached by the majority and with the movement reflected therein away from the approach that would capitalize otherwise routine business expenses.

In PNC Bancorp, Inc. v. Commissioner, 110 T.C. 349, 370 (1998), revd. 212 F.3d 822 (3d Cir. 2000), a case involving the treatment of salary expenses very similar to those involved herein (namely, salary expenses of credit institutions whose officers and employees, among other things, investigate the creditworthiness of potential borrowers), we concluded that a portion of the salary expenses should be "assimilated" into the capital costs of the loans that were approved.

The Court of Appeals for the Third Circuit disagreed and held that the salaries and other expenses reflected "recurring, routine day-to-day business" activities that did not produce significant future benefits and therefore that the expenses were currently deductible. PNC Bancorp, Inc. v. Commissioner, 212 F.3d at 834. The Court of Appeals resolved not to expand the type of expenses that must be capitalized "so as to drastically limit what might be considered as 'ordinary and necessary' expenses." Id. at 830.

I believe the facts noted below reflect the noncapital, ordinary and necessary nature of all of the salary and overhead

expenses that are in issue herein and should control resolution of this fact issue.

(1) The salaries ACC paid were routine, reasonable, and recurring, and the amounts thereof, including increases and bonuses thereto, were tied to overall net company profits, not to the acquisition of specific installment loans. As the Supreme Court explained:

Of course, reasonable wages [salaries] paid in the carrying on of a trade or business qualify as a deduction from gross income. *** [Commissioner v. Idaho Power Co., 418 U.S. 1, 13 (1974); emphasis added.]

(2) Generally, and for the most part, the specific benefits initially received by ACC from the services of its employees investigating proposed installment loans (namely, the receipt of information needed to review the creditworthiness of potential debtors on the installment loans) were exhausted or lost by ACC almost simultaneously with the receipt of the benefits (i.e., for various reasons the large majority of the proposed installment loans that were investigated and considered by ACC were abandoned within a day. (See majority op. p. 378)). In my opinion, this fact reflects strongly on the ordinary, noncapital nature of all of ACC's related salary and overhead expenses and rebuts the appropriateness of some complicated and rather arbitrary adjustment under which a portion of the expenses would be capitalized.

As stated by the Court of Appeals for the Sixth Circuit in Godfrey v. Commissioner, 335 F.2d 82, 85 (6th Cir. 1964), the appellate venue for these cases:

The test of an ordinary business expense is whether it is of a recurring nature and its benefit is generally exhausted within a year. * * * [Emphasis added.]

Generally, the benefits ACC received were exhausted within a few hours after a majority of the prospective installment loans were investigated and considered.

Under section 1.263(a)-2(a), Income Tax Regs., expenses are to be capitalized where they produce benefits to a taxpayer with a life substantially beyond a year. Computing the average life of all of the installment loans investigated and considered by ACC's employees (including the loan applications rejected or withdrawn as well as those approved) produces an average life for all of the installment loans inves

tigated and considered of 6.6 months for 1993 and 7.4 months for 1994.1 Because a majority of the installment loans investigated and considered by ACC were never purchased and because the average life of all of the installment loans (factoring in all installment loans investigated and considered) was not beyond 1 year, I believe it would be erroneous to conclude generally that the allegedly related salaries and overhead provided benefits to ACC with a life "substantially beyond" 1 year.

(3) The salaries and overhead were not paid by ACC in connection with any specific installment loans. Note the Supreme Court's words, also from Commissioner v. Idaho Power Co., 418 U.S. at 13, linking expenditures to be capitalized to specific capital assets:

But when wages [salaries] are paid in connection with the construction or acquisition of a capital asset, they must be capitalized and are then entitled to be amortized over the life of the capital asset so acquired. *** [Emphasis added.]

The point is not whether there is only one capital asset or many capital assets to which expenses may be attached and capitalized. Rather, the point is that to require capitalization of what are otherwise routine and recurring ordinary and necessary expenses, the expenses must be directly linked and associated with very specific and identifiable capital assets. (4) Services relating to ACC's credit investigations that were performed by ACC employees simply constituted investigatory activities, and as such the related salaries and overhead expenses should be currently deductible. See Wells Fargo & Co. & Subs. v. Commissioner, 224 F.3d 874, 887888 (8th Cir. 2000), affg. in part and revg. in part Norwest Corp. & Subs. v. Commissioner, 112 T.C. 89 (1999).

(5) Quite contrary to a possible reading of the majority opinion (see Ruwe, J., concurring op. p. 422), ACC's primary

1 My computation of the average life of ACC's installment loans investigated and considered (including in the "Total" loans those installment loans rejected or withdrawn) is shown below:

and underlying business activity is not the "purchase" of installment loans. Rather, it is the "holding" of those loans and the associated provision of funds to debtors and the credit intermediation relating thereto (and all that is encompassed within credit intermediation) that ACC provides that constitute ACC's primary, dominant, and underlying business activity.

Presumably, the amount of ACC's income and profit in any one year relates primarily to its annual cost of funds and to the losses associated with delinquent loan repayments, on the one hand, as compared to the interest income ACC receives each year on the installment loans, on the other hand. For Federal income tax matching purposes, those expenses and income would appear to be matched fully and completely on ACC's annual Federal income tax returns, as filed. To now require capitalization, as respondent would, of a portion of ACC's regular and routine salary and overhead expenses, on the ground that they somehow relate directly to the acquisition of specific installment loans would, in my opinion, reflect a misunderstanding of the true nature (1) of ACC's underlying business activity, (2) of ACC's costs and expenses, and (3) of ACC's income and profit.

As the majority opinion states (majority op. p. 376), ACC was formed "to provide alternate financing". ACC's credit investigations and its credit risk decisions relating thereto represent just one of the steps (and certainly not the dominant step) in ACC's business of credit intermediation (i.e., of providing "financing").2

Although the majority would allow most of ACC's salary expenses in issue to be currently deductible, I would go further and hold all of such salaries to be currently deductible.

I also am puzzled by the majority's different treatment of salaries and overhead expenses. I believe that on the particular facts of this case both salaries and overhead expenses should receive consistent treatment and, as indicated, be fully deductible.

The concluding comments made by the Court of Appeals for the Third Circuit in PNC Bancorp, Inc. v. Commissioner,

2I acknowledge that the majority opinion (majority op. p. 376) is less than clear in its statement of the business purpose of ACC. Nevertheless, the majority does acknowledge the important role of ACC in providing "financing", which in my opinion and experience involves much more than just investigating loan applicants and approving or rejecting the applications.