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Latest Tax Word on Environmental Cleanups

During the last few years, the IRS has issued a number of rulings relating to the cleanup of hazardous waste materials. Now it has released yet another lengthy new ruling in an attempt to clarify some of the key tax rules.

Details: The new ruling covers five situations in which land and groundwater were contaminated with hazardous waste from manufacturing activities. Because the cleanup costs do not materially add to the value of land, appreciably prolong its life or adapt it to a new or different use, they are more in the nature of repairs than capital improvements. Therefore, they must be treated as indirect costs that are included in inventory costs to the extent they are allocable to inventory.

Although the new ruling does not allow a current tax deduction for expenses, the news is not all bad. Silver tax lining: The costs can be recouped when the inventory is sold. In contrast, no recovery would be allowed if the costs were required to be capitalized.

Tax impact: It is advisable to consult with a professional tax adviser concerning the effect of this new ruling on your business production activities.

During the last few years, the IRS has issued a number of rulings relating to the cleanup of hazardous waste materials. Now it has released yet another lengthy new ruling in an attempt to clarify some of the key tax rules.

 

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