A recent decision by a tax court that could officially eliminate banks’ ability to write off what have been common merger and acquisition costs was already taken into account by bankers in the merger between Fleet Financial Group and BankBoston Corp., a source at one of the banks said.

The tax court’s ruling said that Davenport Bank & Trust Co. could not deduct due diligence fees to outside agencies for work on the bank’s merger with Norwest, following a 1992 Supreme Court decision striking down a chemical company’s tax write-off of advisory fees. But even more controversial, the court ruled the bank could not write off salaries paid to in-house executives during the time they worked on the merger.

Although many in the banking industry do not like the ruling–calling it "bad law"o a source at one of the banks in last week’s big merger said it was the logical outgrowth of the Supreme Court case. "I would not characterize it as a new law; it is not inconsistent with the current trend. It maybe took it one layer of expense further than (the 1992 Supreme Court case)."

The source said that although the Davenport case is not yet precedent, the trend it represents was taken into consideration when plotting the merger. "Appropriate consideration was given to that issue in calculating the effective tax rate of the combined entity," the source said.