Capitalization of environmental cleanup costs.Rev. Rul. 2004-18 addressed the treatment of environmental cleanup The process of removing solid, liquid, and hazardous wastes, except for unexploded ordnance, resulting from the joint operation of US forces to a condition that approaches the one existing prior to operation as determined by the environmental baseline survey, if one was conducted. costs related to Sec. 263A and capitalization of those costs into inventory. Specifically, it analyzed the remediation costs incurred by a manufacturer that continues to use contaminated contaminated,
v 1. made radioactive by the addition of small quantities of radioactive material.
2. made contaminated by adding infective or radiographic materials.
3. an infective surface or object. property in its operations.
Under Sec. 263A, a taxpayer has to capitalize all direct and certain indirect costs Indirect costs are costs that are not directly accountable to a particular function or product; these are fixed costs. Indirect costs include taxes, administration, personnel and security costs. See also
Any solid, liquid, or gaseous waste materials that, if improperly managed or disposed of, may pose substantial hazards to human health and the environment. Every industrial country in the world has had problems with managing hazardous wastes. disposal in prior years. The IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws. concluded that the costs incurred for environmental cleanup were indirectly related to the taxpayer's production activities and had to be capitalized into inventory under Sec. 263A.
Rev. Rul. 94-38 used to be considered the general authority on how to treat environmental remediation Generally, remediation means providing a remedy, so environmental remediation deals with the removal of pollution or contaminants from environmental media such as soil, groundwater, sediment, or surface water for the general protection of human health and the environment or from a costs. In that ruling, the IRS determined that costs incurred to clean up contaminated land and to treat groundwater were not capitalizable, because they did not extend the property's useful life. The taxpayer had buried hazardous waste generated by its manufacturing operations Manufacturing operations concern the operation of a facility, as opposed to maintenance, supply and distribution, health, and safety, emergency response, human resources, security, information technology and other infrastructural support organizations. on property it owned. In a subsequent year, to comply with stricter environmental requirements, the taxpayer began remediation of the contaminated soil and groundwater. The costs incurred for the environmental cleanup were considered current deductions, not capitalizable under Sec. 263.
Rev. Rul. 2004-18 also cited Rev. Rul. 98-25 to support the conclusion that environmental cleanup costs may be deductible as ordinary and necessary business expenses. The general issue in Rev. Rul. 98-25 was the deductibility of costs to replace underground storage tanks (USTs) used to store waste generated by the taxpayer's production activities. The IRS concluded that the "costs of removing, cleaning, and disposing of the old USTs, and filling and on going monitoring of the new USTs are deductible as business expenses under section 162."
Rev. Rul. 2004-18
The IRS's premise in Rev. Rul. 2004-18 for capitalizing the environmental cleanup costs is that both prior rulings dealt only with the capitalization of items under Sec. 263(a) and did not address the Sec. 263A inventory capitalization rules. Its basic argument was that the costs must first be determined to be deductible as ordinary and necessary business expenses. Second, it must be determined whether the costs are properly allocable to a taxpayer's production activities. This is illustrated in the ruling by analogizing to repair costs incurred in the production process. The ruling states, "once repair costs are determined to be deductible under 162, a taxpayer with inventories must still apply the rules of 263A to determine whether the repair costs must be included in inventory."
One question left unanswered is whether the Service would have reached a different result had the taxpayer no longer used the property in its operations, but continued to incur environmental cleanup costs. A strong argument for deducting these costs under Sec. 162 would appear to exist, because there was no longer an indirect association with the taxpayer's production activities. As stated in Rev. Rul. 94-38, on the treatment of such environmental costs, "[t]hese results are applicable whether the taxpayer plans to continue in its manufacturing operations that discharge the hazardous waste or to discontinue those manufacturing operations and hold the land in an idle state." Rev. Rul. 98-25 reached the same conclusion on the taxpayer's continued activities.
Change in Accounting Method
Under a transition rule, Rev. Rul. 2004-18 allows taxpayers to treat environmental cleanup costs as deductible expenses trader Sec. 162, not subject to capitalization under Sec. 263A, for tax years ending before Feb. 7, 2004. A taxpayer using a method that does not comply with Rev. Rul. 2004-18 must file for a change in accounting method, using the Rev. Proc. 2002-9 automatic change procedures for the first tax year ending after Feb. 5, 2004. The taxpayer may implement this change using Sec. 481(a) general principles or under a cut-off cut-off Anesthesiology The point at which elongation of the carbon chain of the 1-alkanol family of anesthetics results in a precipitous drop in the anesthetic potential of these agents–eg, at > 12 carbons in length, there is little anesthetic activity, method.
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David, d. c.970 B.C., king of ancient Israel (c.1010–970 B.C.), successor of Saul. The Book of First Samuel introduces him as the youngest of eight sons who is anointed king by Samuel to replace Saul, who had been deemed a failure. L. STRONG
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GRAND RAPIDS Grand Rapids, city (1990 pop. 189,126), seat of Kent co., SW central Mich., on the Grand River; inc. 1850. The second largest city in the state, it is a distribution, wholesale, and industrial center for an area that yields fruit, dairy products, farm produce, , MI