Environmental Law Newsletter
Sunday, May 26, 2013
- Uncontrolled Hazardous Waste Sites and the EPA Superfund Program In an effort to address the threat posed by the tens of thousands of abandoned and uncontrolled hazardous waste sites in the United States, Congress enacted the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA...
- Conservation Easements as a Means to Regulating Private Land The Fifth Amendment to the U.S. Constitution states, in part, that private property shall not be "taken for public use, without just compensation." In order to take property, the government must first condemn it through "eminent domain" p...
- Construction Operators May Need to Implement a Storm Water Pollution Prevention Plan The National Pollutant Discharge Elimination System (NPDES) Stormwater Program regulates construction activities that disturb one acre or more of land. Such activities include those that have a tendency to expose soil, including, for example, cl...
- Tax Treatment of Contaminated Property The Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA) imposes liability for the investigation and cleanup of contaminated real property without regard to whether the landowner created or allowed the original c...
- Reducing Estate Taxes Through a Qualified Conservation Easement Congress has been known to use tax "breaks" to encourage favored activities. America's vanishing wilderness and forests have long been of concern and, not surprisingly, tax breaks are given to landowners of some forestlands who dedicate land...
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Tax Treatment of Contaminated Property
- Amendments in December of 2006 expanded the types of properties eligible for the incentives to include properties contaminated by petroleum products. Oil would be included in the definition of a "hazardous substance", allowing taxpayers to deduct the cost of remediating property contaminated by oil spills.
- Upon the sale of the property, the deductions claims by taxpayers for remediation costs would not be recaptured as ordinary income. Under Section 198, the deduction may have to be recaptured under I.R.C. Section 1245 when the taxpayer sells or otherwise disposes of property that would have received an addition to basis if the taxpayer did not elect the Section 198 deduction.
- Amended tax returns may be filed to deduct expenditures from previous years. IRS guidelines state that such returns must be filed within three years after the date a corporation filed its original return, or within two years after the date a corporation paid the tax (if filing for a refund), whichever is later.
Environmental expenses not covered under Section 198 are subject to Internal Revenue Code Section 162, Revenue Rulings and Private Letter Rulings issued by the Internal Revenue Service. Section 162, related rulings and case law have determined that environmental expenditures are currently deductible business expenses if they meet all of the following requirements:
- The property was acquired in a clean state and polluted during the course of ordinary business operations;
- The site was restored to its original clean condition; and
- The cleanup did not allow for the property to be put to a new use.
Environmental expenditures not meeting the above requirements must be capitalized. Expenses related to the remediation of asbestos contamination do not fall within the definition of a "hazardous substance" under Section 198 and will continue to be treated as capital expenditures.
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