IRS scrubs old TAM and allows cleanup-cost deduction

Article Abstract:

The IRS has revised its policy on the taxation of environmental clean-up costs. Technical Advice Memorandum (TAM) 9627002 allows deductions for expenses that the service formerly mandated to be capitalized, as required in TAM 9541005, which has now been pulled out by the IRS. The case involved a taxpayer who contributed land he had used as an industrial waste disposal site to the county and claimed a charitable contribution for the property. However, upon discovering that the land had been contaminated, the county stopped its development and sold it back to the taxpayer for $1. The taxpayer did not recapture its charitable deduction but shouldered the remediation of the land, as required by CERCLA. In the new TAM, the IRS held that the lapse in ownership per se should not disallow a deduction for what is otherwise a Sec. 162 expense because the same taxpayer contaminated and remediated the property.

Laws, regulations and rules, Liability for environmental damages

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Casualty loss

Article Abstract:

An IRS examination question on how to compute deductible business casualty loss describes a situation where a taxpayer's building was gutted by fire. The facility, half of which was used for personal purposes and the other half for business, was on the land that he owned. To measure the business casualty loss on the fire-damaged building, the taxpayer has to subtract the insurance reimbursement from either the sustained loss or the basis of the building, depending on which one is lesser. Since only half of the property was used for business, only half of the building fair market value (FMV) and of the insurance reimbursement are employed for the computations. Sustained loss is measured by subtracting the FMVs before and after the fire while the adjusted basis is computed by subtracting the depreciation on building before the fire from the cost of the business portion.

Measurement, Property and casualty insurance, Loss deductions, Business losses

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Deduction choice for uninsured bank deposit loss

Article Abstract:

Depositors in a financial institution that becomes insolvent may suffer losses if the bank is not insured or the deposit goes beyond the insurance coverage ceiling. Individuals who are faced with this situation can treat their losses as non-business bad debts if they are not related to the trade or business of the taxpayer. When treated as non-business bad debts, the losses are a short-term capital loss subject to the capital asset netting rules. However, a taxpayer can also treat the losses as casualty losses under Sec. 165(1)(1). They should be considered casualty losses if the tax savings from the current value of the stream of future capital loss carryforwards is smaller than the difference in taxes determined by making the Sec. 165(1)(1) election in the year when the deposit loss can be computed.

Management, Accounting and auditing, Tax deductions, Bank deposits

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