Church loses tax-exempt status over campaign ads.

* Prior to the 1992 presidential election, a 501(c)(3) religious organization purchased full-page advertisements in major newspapers. The ads urged voters not to vote for the Democratic presidential candidate, Bill Clinton. In addition, each ad identified the church and its pastor, detailed the church's opposition to Clinton's stand on various social issues and contained the words "tax-deductible donations for this advertisement gladly accepted."

The IRS informed the organization that it had violated the code's prohibition on political activity and its tax-exempt status had been revoked.

The church filed suit in district court and the court granted the IRS's motion for summary judgment. The appellate court affirmed. (Branch Ministries v. Commissioner, CA-DC, 5-12-2000.)

Loan Organization Costs Deductible As Business Expenses

* In the past, the Tax Court held that banks, whose primary business was accepting deposits and making loans, had to capitalize loan organization costs under IRC section 263(a). However, the Third Circuit recently found that costs such as marketing, research, credit reports, appraisals, recording fees, and related salaries and benefits can be currently deducted as ordinary and necessary business expenses under IRC section 162.

The Third Circuit noted that FASB Statement no. 91, Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases, requires these costs to be amortized over the life of the loan for financial accounting purposes. But the court found Statement no. 91 does not have controlling authority for tax purposes. (PNC Bancorp, Inc., CA 3, 5-19-00, 85 AFTR 2d [paragraph] 2000-679.)

--Michael Lynch, Esq., professor of tax accounting at Bryant College, Smithfield, Rhode Island.