Faculty Journal Articles and Book Chapters


The issue of the deductibility of environmental cleanup costs involves the complex and painful intersection of tax and environmental law. The basic issue is whether environmental remediation costs may be immediately deducted as ordinary and necessary expenses or whether they must they be capitalized as improvements to land. A recent revenue ruling by the IRS, Rev. Rul. 94-38, addresses a relatively simple situation but basically leaves the most difficult issues unresolved.

This article discusses whether cleanup expenses may be immediately deducted when the payments were made by the current landowner and 1) the contamination was caused and cleaned up by the current landowner, 2) the contamination was caused by a predecessor but cleaned up by the current landowner, 3) cleanup costs were reflected in an adjustment of sale price, 4) cleanup costs were reimbursed or the cleanup undertaken as part of an agreement associated with the sale of the land, and 5) payments made as a result of liability under CERCLA. Similar issues are addressed when the costs are incurred by a former landowner or offsite generator.

The article argues that, given the uncertainty of tax law and the policies promoting environmental remediation, the IRS, by regulation, or Congress, by legislation, should generally authorize the immediate deduction of cleanup costs incurred under federal or state law as “ordinary and necessary expenses.”

Publication Title

Harvard Environmental Law Review

Document Type




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