rp-98-47.pdf

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# Part III

Administrative, Procedural, and Miscellaneous
Section 198: Expensing of environmental remediation costs.

Rev. Proc. 98-47

# SECTION 1. PURPOSE

This revenue procedure provides procedures for taxpayers to
make the election under $ 198 of the Internal Revenue Code ("S
198 election") to deduct any qualified environmental remediation
expenditure ("QER expenditure") .

SECTION 2. BACKGROUND

. 01 Section 198 (a), as added by § 941 (a) of the Taxpayer
Relief Act of 1997, Pub. L. No. 105-34, 111 Stat. 788 (Aug. 5,
1997) , provides that a taxpayer may elect to treat any QER
expenditure as an expense that is not chargeable to the capital
account, but is deductible for the taxable year in which it is
paid or incurred.

. 02 Section 198 (b) (1) generally defines a "qualified
environmental remediation expenditure" as any expenditure that is
otherwise chargeable to the capital account, and that is paid or
incurred in connection with the abatement or control of hazardous
substances as a qualified contaminated site. However, under §

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198 (b) (2) a QER expenditure does not include any expenditure for
property subject to an allowance for depreciation, except that
the portion of the allowance for depreciation of such property
that is otherwise allocated to a qualified contaminated site is
treated as a QER expenditure.

. 03 Section 198 (c) (1) (A) defines a "qualified contaminated
site" as any area:

(i) that is held by the taxpayer for use in a trade or
business or for the production of income, or that is
property described in § 1221(1) in the hands of the
taxpayer;

(ii) that is within a targeted area (as defined in §
198 (c) (2)); and

(iii) at or on which there has been a release (or
threat of release) or disposal of any hazardous substance.
Section 198 (c) (1) (B) provides that an area is treated as a
qualified contaminated site with respect to expenditures paid or
incurred during any taxable year only if the taxpayer receives a
statement from an appropriate agency of the state (as defined by
§ 198 (c) (1) (C) ) in which the area is located, verifying that the
area meets the requirements of § 198 (c) (1) (A) (ii) and (iii)
(described above) .

. 04 Section 198 (d) (1) generally defines "hazardous
substance" as any substance that is a hazardous substance as
defined in § 101(14) of the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980 (CERCLA), and any

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substance that is designated as a hazardous substance under § 102
of CERCLA.

. 05 Section 198 is effective for expenditures paid or
incurred after August 5, 1997, and on or before December 31,
2000. See § 198 (h) .

SECTION 3. PROCEDURE

## . 01 Time for Making the Election.

Except as provided in section 3.02(3) of this revenue
procedure, a § 198 election must be made on or before the due
date (including extensions) for filing the income tax return for
the taxable year in which the QER expenditures are paid or
incurred.

. 02 Manner of Making the Election.

(1) Individuals. Individuals must include the total
amount of § 198 expenses on the line for "Other Expenses" on
Schedule C, E, or F (as appropriate) for Form 1040, U.S.
Individual Income Tax Return. Wherever the schedule requires
that the taxpayer separately identify each expense included in
"Other Expenses, " the taxpayer must write "Section 198 Election"
on the line on which the $ 198 expense amounts separately appear.
(2) All other entities. Persons other than individuals
(including S corporations, partnerships, and trusts) must include
the total amount of $ 198 expenses on the line for "Other
Deductions" (or the equivalent thereof) on their appropriate
federal income tax return. On a schedule attached to the return
that separately identifies each expense included in "Other

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Deductions" (or the equivalent thereof), the taxpayer must write
"Section 198 Election" on the line on which the § 198 expense
amounts separately appear.

(3) Transition rule. Taxpayers that claim a deduction
for QER expenditures, paid or incurred after August 5, 1997, on a
return filed on or before October 14, 1998, will be deemed to
have made a § 198 election with respect to those expenditures,
even if no reference to $ 198 is contained on the return. If a
taxpayer did not claim a deduction for such QER expenditures on
such return, the taxpayer may make the $ 198 election for those
expenditures for the taxable year covered by the return only by
filing an amended return (within the applicable period of
limitations) that complies with section 3.02 (1) and (2) of this
revenue procedure.

# . 03 Scope of Election.

If, for any taxable year, the taxpayer pays or incurs
more than one QER expenditure, the taxpayer may make a § 198
election for any one or more of such expenditures for that year.
Thus, the taxpayer may make a § 198 election with respect to a
QER expenditure even though the taxpayer chooses to capitalize
other such expenditures (whether or not they are of the same type
or paid or incurred with respect to the same qualified
contaminated site) . A § 198 election for one year has no effect
for other years. Thus, a taxpayer must make a § 198 election for
each year in which the taxpayer intends to deduct QER
expenditures.

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## . 04 Revocation.

A § 198 election is revocable only with the prior
written consent of the Commissioner. To obtain the
Commissioner's consent, a taxpayer must submit a request for a
private letter ruling in accordance with the provisions of Rev.
Proc. 98-1, 1998-1 I.R.B. 7 (or its successor). The taxpayer may
submit a request for revocation for any taxable year for which
the period of limitations for filing a claim for credit or refund
of overpayment of tax has not expired.

SECTION 4. EFFECTIVE DATE

This revenue procedure is effective for QER expenditures
paid or incurred after August 5, 1997.

DRAFTING INFORMATION

The principal author of this revenue procedure is
J. Peter Baumgarten of the office of Assistant Chief Counsel
(Income Tax and Accounting) . For further information regarding
this revenue procedure, contact Mr. Baumgarten on (202) 622-4950
(not a toll-free call) .