Whether costs associated with an environmental cleanup can be allowed as a current deduction, or capitalized, is significant for taxpayers. If costs are capitalized, the taxpayer generally would be allowed a depreciation deduction over a period of years provided, however, that if the costs are capitalized as a part of land, the taxpayer would be forced to defer any benefit until disposition of the land. Until recently, taxpayers had no way of obtaining a fairly expeditious indication of how their particular cleanup costs would be treated for tax purposes.
The Internal Revenue Service ("IRS") recently has announced that a taxpayer who intends to file a private letter ruling request on the issue of whether the costs of the taxpayer's particular cleanup may be deducted currently or must be capitalized can now submit a request to the national office for a pre-submission conference. Permissible topics for discussion at the conference include the substantive issues involved in the particular transaction. The announcement warns, however, that discussion of substantive issues at the conference is only advisory in nature, is not binding on the IRS and cannot provide the basis for retroactive relief.
To qualify for a pre-submission conference, the taxpayer's cleanup transaction must "span past and future taxable years" and the taxpayer must "actually intend" to file a request for a private letter ruling. The first requirement is not met if (a) the entire cleanup transaction is completed, and the time for filing returns, with extensions, for all years covering the transaction has passed; or (b) the entire cleanup transaction is a proposed transaction and the taxpayer may request a letter ruling under existing revenue procedures.
The availability of a pre-submission conference to facilitate requests for letter rulings in this area should be welcomed by taxpayers, who now can obtain at least some indication of the likely tax treatment of a particular cleanup transaction, as well as assistance in preparing a letter ruling request. Although this new accommodation falls short of definitively resolving the tax treatment of environmental cleanup costs in general, it does illustrate that the issue has caught the attention of the IRS and that a move toward more certainty in this area could be developing.
