In both cases, the IRS concluded that the commitment fees were deductible under Sec. 162 as business expenses rather than under Sec. 163 as interest. Another type of commitment fee, also referred to as a standby charge, is an upfront amount paid by a borrower for the right to borrow loans over a set term.

What is a commitment fee?

A commitment fee is a fee that a lender may charge a borrower to whom it has agreed to extend credit. Generally charged for lines of credit not yet used, the commitment fee is a way of guaranteeing the bank will keep the funds available.

Are commitment fees capitalized?

The changes prescribed under ASU 2015-03 for debt issuance costs associated with term loans and bonds do not apply to commitment fees paid to revolving credit lenders and are still treated as a capital asset. … That means that commitment fees continue to be capitalized and amortized as they have been in the past.