THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Monday, April 3, 1995 TAG: 9504010154
SECTION: BUSINESS WEEKLY PAGE: 05 EDITION: FINAL
SOURCE: BY STEPHEN D. HALLIDAY
LENGTH: Short : 48 lines
Regulatory agencies and many states are reducing the cost and the risk of cleaning up or redeveloping contaminated property.
Now a favorable new IRS ruling means the decision for growing and midsize companies is less whether to clean up and more when to clean up.
The new ruling confirms that certain expenses are deductible. Here are important incentives to note:
Current rules say that most cleanup costs are 100 percent deductible if the original contaminator cleans up the property. There areimportant exceptions:
Asbestos cleanup. Property that was acquired contaminated. Removal of underground storage tanks. Expenses incurred on property you don't own, such as Superfund sites for which clean-up liability is shared by any party having a connection with the property.
IRS guidance on these issues is pending.
However, if part of the clean-up cost involves hard assets, such as monitoring stations, you cannot deduct those related costs.
That would be considered a permanent improvement or betterment that must be capitalized.
The ruling indicates the amount is not an issue in determining deductibility. There had been concerns that if you're spending $500 million, for example, it isn't a repair, but a capital transaction.
Now that companies know they can obtain tax benefits for cleaning up sites they have contaminated, they should consider timing deductions for their best tax advantage.
In many states, cleanup standards are now related to future property uses. For example, if you're planning an industrial use for property that has been contaminated, you have to clean up only to an industrial level instead of so-called background levels or entirely clean. Properties slated for commercial use must be cleaned up to a commercial level.
Only in the case of residential use would you actually have to clean up to background standards.
Don't overlook potential deductibility of part of the cost associated with tank removal, if that cost relates to cleaning up the surrounding soil or water. MEMO: Stephen D. Halliday is an accountant in Norfolk. by CNB