The “Tax Relief and Health Care Act of 2006” (the “Act”) was passed by the House and Senate on December 8 and 9, respectively, and signed into law by President Bush on December 20. The Act contains energy tax credit provisions, provisions to expand health savings accounts, and a host of other targeted tax incentives. Additionally, the Act extends certain provisions which would otherwise expire, including provisions related to the deduction for brownfields remediation costs, the research tax credit, the deduction for state and local sales taxes, and the college tuition deduction. This advisory focuses on the provisions in the Act affecting brownfields remediation costs.
Section 198 of the Internal Revenue Code (the “Code”) allows taxpayers to treat certain qualified environmental remediation expenditures that would otherwise be capitalized as deductible in the year paid or incurred. Qualified environmental remediation expenditures include costs “paid or incurred in connection with abatement or control of hazardous substances at a qualified contaminated site.”1 States must certify that the costs were incurred at a qualified contaminated site.2 Notably, prior to enactment of the Act, section 198 did not cover petroleum substances, one of the most common contaminants requiring remediation.
Section 198 would have expired at the end of 2005. The Act extends the deduction for two years, through December 31, 2007. It also expands the definition of hazardous substance to include petroleum products,3 an amendment that will substantially expand the number of sites and remediation projects eligible for the deduction.
The extension of the section 198 deduction may also be very useful for sites participating in New York’s Brownfield Cleanup Program, which provides very substantial liability releases and significant state tax credits, and also covers remediation of petroleum contamination. Those redeveloping brownfields may be able to take advantage of the benefits of section 198 in conjunction with the Brownfield Cleanup Program.
Our firm has substantial expertise in all aspects of environmental remediation. For a prior client advisory discussing New York’s Brownfield Cleanup Program (“New York’s Brownfield Law Opens Up New Development Opportunities”) visit http://www.clm.com/publication.cfm/ID/82.
1 Code section 198(b)(1).
2 Code section 198(c)(3).
3 The Act references Code section 4612(a)(3), which addresses petroleum products.