PNC Financial Services Group could get a billion-dollar tax benefit from a recent change in how a federal tax code provision is applied, a change that applies only when a strong bank buys a weaker rival.

PNC said it cannot put a dollar value on the benefit yet, only estimating it will account for about 20 percent of the return it expects to earn on its $5.6 billion, federally assisted acquisition of National City Corp. of Cleveland.

The U.S. Treasury will invest $7.7 billion in PNC preferred stock and related warrants as part of the transaction, announced a week ago.

One tax expert quoted by The Wall Street Journal valued the tax benefit at more than $5 billion. PNC spokesman Brian Goerke said it is worth "substantially less."

Just how large the benefit will be depends on a number of factors, including what National City does with its $113.4 billion loan portfolio between now and when PNC takes over. PNC expects to complete the acquisition by the end of the year and intends to mark down the value of the Cleveland bank's loans by $19.9 billion, or 17.5 percent of the portfolio's value.

When all is said and done "you're still going to see a multi-billion type of tax benefit," said Gerard Cassidy of RBC Capital Markets. He estimates it could be as large as $3 billion.

The tax change, announced Sept. 30, lifts limits on the size of deductions a bank can take when it acquires loans and bad debt from a weaker bank. It changes a 22-year-old provision of the tax code designed to prevent companies from buying failing companies just for their accumulated losses, which the acquiring company could use to reduce its tax bill.

The revision gives strong banks a generous incentive to acquire banks with problem loans whose value is difficult to determine given the uncertainty plaguing credit markets, said Greg Fairbanks of Grant Thornton.

Word of the tax change surfaced as a point of contention in the fight between Citigroup and Wells Fargo over Wachovia Corp. Wells Fargo won that fight and is expected to garner even larger tax benefits than PNC.

It caught some members of Congress by surprise and raised criticism that U.S. Treasury Secretary Henry M. Paulson Jr. and other regulators are bailing out Wall Street at Main Street's expense. Mr. Fairbanks said he has not seen any estimates on how much the change will reduce federal tax revenue.

"It's hard to know what the tax impact would be on Treasury until somebody actually takes a deduction," he said.

The new provision is unusual in that it provides a broad benefit to a specific industry and is open-ended, Mr. Fairbanks said. The Internal Revenue Service gave no indication of how far back or forward in time the new rule will apply, he said.

"They wanted to encourage healthy banks to acquire unhealthy banks," Mr. Fairbanks said. "You've got very taxpayer-friendly provisions right now and that kind of [banking] environment right now."

How much PNC and other acquiring banks will be able to deduct depends on the shape National City's loan portfolio is in, how quickly PNC sells the problem loans and PNC's future profitability, said Mark LaMonte, an accounting specialist with Moody's.