Environmental remediation.

• Author: Cohen, Lawrence H.
• Position: Tax law

A major area of concern to many taxpayers is the tax treatment of environmental cleanup costs, particularly after INDOPCO, Inc., 503 US 79 (1992). The demarcation between those currently deductible and those that must be capitalized is often very murky. The IRS provided some guidance on the treatment of environmental cleanup costs in Rev. Rul. 94-38, which concluded that costs to clean up land that had been contaminated by the taxpayer were currently deductible, but costs to construct treatment facilities were capital expenditures under Sec. 263. While helpful, that ruling left many questions unanswered.

These uncertainties are further compounded; due to the nature of many environmental cleanup projects, many taxpayers cannot satisfy Rev. Proc. 98-1's requirements for obtaining a letter ruling. Because of the particular problems faced by taxpayers in this area, the Service issued special procedures in Rev. Proc. 98-17 for taxpayers seeking written guidance on environmental cleanup costs. These special procedures are available for ruling requests submitted between Feb. 2, 1998 and Feb. 2,2000.

Rev. Proc. 98-17 has several important features for taxpayers. Recognizing that cleanup projects may span many years, the IRS will issue guidance on a project's costs that cover several years, including prior and future years (Section 3.01). This guidance will relate only to a particular project and will not apply to any other project not specifically addressed in the letter ruling (Section 6.01). If any year is under examination or before an Appeals Office, the Service will treat the request as a taxpayer-initiated request for technical advice that must meet the general requirements of Rev. Proc. 98-2 (Section 4.02 of Rev. Proc. 98-17).

For Rev. Proc. 98-17 purposes, "environmental...