Court hands lenders a lemon

                               Dec. 31 Dec. 31 Dec. 31 Dec. 31

                                  1993    1994    1995    1996

Betzold Berg Investment

   Portifolio Index             85.024  85.679  94.958     100

Period Total Return                      .077%  10.83%   5.31%

Annualized

				
					
					
				
				
				
				
				
		
				
		
				
			
				
					
				
			
 per. Tot Return               .077%  10.83%   5.31%

Annualized Yeer-to-Date Return

                               Dec. 31 1st. Quarter   April

                                  1997         1998   Index

Betzold Berg Investment

   Portifolio Index            106.740      108.355 108.859

Period Total Return              6.74%        1.51%  0.465%

Annualized per. Tot Return       6.74%        6.19%  5.725%

Annualized Yeer-to-Date Return   6.19%        6.19%  6.074%

                                    May

                                  Index

Betzold Berg Investment

   Portifolio Index            109.4672

Period Total Return              0.559%

Annualized per. Tot Return       6.918%

Annualized Yeer-to-Date Return   6.242%

YOUR BANK'S TAXES:

he greenest banker knows, when looking at a bank balance sheet, that a loan is an asset, and that making loans is an integral aspect of what banks do.

When you enter the "tax zone," however, the business a bank thinks it is in versus what it looks like to the Internal Revenue Service can be two very different things.

The distinction becomes important when considering the timing of the deductibility of expenses connected to the origination of a loan. In recent years banks have had their traditional means of accounting, for tax purposes, challenged for the expenses associated with making loans. Indeed, ABA believes the challenges have been rising in recent years. In court papers, ABA accused IRS of "abruptly and unjustifiably changing these appropriate and longstanding practices," subjecting banks to additional tax and administrative burdens without any significant change in federal revenues.

Same deal, different perspectives

Banks maintain that loans are part and parcel of everyday banking business. As such, the costs associated with originating them, the banks have argued, should be deductible immediately and in full, much as many other businesses can do.

In audits, the IRS has maintained, on the other hand, that loans are capital assets-meaning something of value, such as a piece of equipment or a building, that lasts for some designated time period. In the eyes of IRS, the costs of originating a loan should not be currently deductible, because they are capital expenditures, which cannot be currently deducted. Instead, IRS believes, the costs ought to be amortized over time, specifically, covering a period equal to the perceived useful life of the asset they contributed to. Given that the asset in question is a loan, it would be the loan term.