26 U.S.C. § 198 — Expensing of environmental remediation

Page 927 TITLE 26—INTERNAL REVENUE CODE § 198 of this section, including such regulations as may be appropriate to prevent avoidance of the purposes of this section through related persons or otherwise. (Added Pub. L. 103–66, title XIII, § 13261(a), Aug. 10, 1993, 107 Stat. 532; amended Pub. L. 108–357, title VIII, §§ 847(b)(3), 886(a), Oct. 22, 2004, 118 Stat. 1602, 1641.) Editorial Notes REFERENCES IN TEXT The date of the enactment of this section, referred to in subsecs. (c)(1)(A) and (f)(9)(A), (F), is the date of en- actment of Pub. L. 103–66, which was approved Aug. 10, 1993. AMENDMENTS 2004—Subsec. (e)(6) to (8). Pub. L. 108–357, § 886(a), re- designated pars. (7) and (8) as (6) and (7), respectively, and struck out heading and text of former par. (6). Text read as follows: ‘‘A franchise to engage in professional football, basketball, baseball, or other professional sport, and any item acquired in connection with such a franchise.’’ Subsec. (f)(10). Pub. L. 108–357, § 847(b)(3), added par. (10). Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2004 AMENDMENT Amendment by section 847(b)(3) of Pub. L. 108–357 ap- plicable to leases entered into after Oct. 3, 2004, see sec- tion 849(b)(4) of Pub. L. 108–357, set out as an Effective Date note under section 470 of this title. Pub. L. 108–357, title VIII, § 886(c), Oct. 22, 2004, 118 Stat. 1641, provided that: ‘‘(1) IN GENERAL.—Except as provided in paragraph (2), the amendments made by this section [amending this section and sections 1245 and 1253 of this title and re- pealing section 1056 of this title] shall apply to prop- erty acquired after the date of the enactment of this Act [Oct. 22, 2004]. ‘‘(2) SECTION 1245.—The amendment made by sub- section (b)(2) [amending section 1245 of this title] shall apply to franchises acquired after the date of the enact- ment of this Act [Oct. 22, 2004].’’ EFFECTIVE DATE Pub. L. 103–66, title XIII, § 13261(g), Aug. 10, 1993, 107 Stat. 540, as amended by Pub. L. 104–188, title I, § 1703(l), Aug. 20, 1996, 110 Stat. 1877, provided that: ‘‘(1) IN GENERAL.—Except as otherwise provided in this subsection, the amendments made by this section [enacting this section and amending sections 167, 642, 848, 1016, 1060, 1245, and 1253 of this title] shall apply with respect to property acquired after the date of the enactment of this Act [Aug. 10, 1993]. ‘‘(2) ELECTION TO HAVE AMENDMENTS APPLY TO PROP- ERTY ACQUIRED AFTER JULY 25, 1991.— ‘‘(A) IN GENERAL.—If an election under this para- graph applies to the taxpayer— ‘‘(i) the amendments made by this section shall apply to property acquired by the taxpayer after July 25, 1991, ‘‘(ii) subsection (c)(1)(A) of section 197 of the In- ternal Revenue Code of 1986 (as added by this sec- tion) (and so much of subsection (f)(9)(A) of such section 197 as precedes clause (i) thereof) shall be applied with respect to the taxpayer by treating July 25, 1991, as the date of the enactment of such section, and ‘‘(iii) in applying subsection (f)(9) of such section, with respect to any property acquired by the tax- payer or a related person on or before the date of the enactment of this Act, only holding or use on July 25, 1991, shall be taken into account. ‘‘(B) ELECTION.—An election under this paragraph shall be made at such time and in such manner as the Secretary of the Treasury or his delegate may pre- scribe. Such an election by any taxpayer, once made— ‘‘(i) may be revoked only with the consent of the Secretary, and ‘‘(ii) shall apply to the taxpayer making such election and any other taxpayer under common control with the taxpayer (within the meaning of subparagraphs (A) and (B) of section 41(f)(1) of such Code) at any time after August 2, 1993, and on or be- fore the date on which such election is made. ‘‘(3) ELECTIVE BINDING CONTRACT EXCEPTION.— ‘‘(A) IN GENERAL.—The amendments made by this section shall not apply to any acquisition of property by the taxpayer if— ‘‘(i) such acquisition is pursuant to a written binding contract in effect on the date of the enact- ment of this Act and at all times thereafter before such acquisition, ‘‘(ii) an election under paragraph (2) does not apply to the taxpayer, and ‘‘(iii) the taxpayer makes an election under this paragraph with respect to such contract. ‘‘(B) ELECTION.—An election under this paragraph shall be made at such time and in such manner as the Secretary of the Treasury or his delegate shall pre- scribe. Such an election, once made— ‘‘(i) may be revoked only with the consent of the Secretary, and ‘‘(ii) shall apply to all property acquired pursuant to the contract with respect to which such election was made.’’ § 198. Expensing of environmental remediation costs (a) In general A taxpayer may elect to treat any qualified environmental remediation expenditure which is paid or incurred by the taxpayer as an expense which is not chargeable to capital account. Any expenditure which is so treated shall be allowed as a deduction for the taxable year in which it is paid or incurred. (b) Qualified environmental remediation expend- iture For purposes of this section— (1) In general The term ‘‘qualified environmental remedi- ation expenditure’’ means any expenditure— (A) which is otherwise chargeable to cap- ital account, and (B) which is paid or incurred in connection with the abatement or control of hazardous substances at a qualified contaminated site. (2) Special rule for expenditures for depre- ciable property Such term shall not include any expenditure for the acquisition of property of a character subject to the allowance for depreciation which is used in connection with the abate- ment or control of hazardous substances at a qualified contaminated site; except that the portion of the allowance under section 167 for such property which is otherwise allocated to such site shall be treated as a qualified envi- ronmental remediation expenditure. (c) Qualified contaminated site For purposes of this section— (1) In general The term ‘‘qualified contaminated site’’ means any area— Page 928 TITLE 26—INTERNAL REVENUE CODE § 198 (A) which is held by the taxpayer for use in a trade or business or for the production of income, or which is property described in section 1221(a)(1) in the hands of the tax- payer, and (B) at or on which there has been a release (or threat of release) or disposal of any haz- ardous substance. (2) National priorities listed sites not included Such term shall not include any site which is on, or proposed for, the national priorities list under section 105(a)(8)(B) of the Com- prehensive Environmental Response, Com- pensation, and Liability Act of 1980 (as in ef- fect on the date of the enactment of this sec- tion). (3) Taxpayer must receive statement from State environmental agency An area shall be treated as a qualified con- taminated site with respect to expenditures paid or incurred during any taxable year only if the taxpayer receives a statement from the appropriate agency of the State in which such area is located that such area meets the re- quirement of paragraph (1)(B). (4) Appropriate State agency For purposes of paragraph (3), the chief exec- utive officer of each State may, in consulta- tion with the Administrator of the Environ- mental Protection Agency, designate the ap- propriate State environmental agency within 60 days of the date of the enactment of this section. If the chief executive officer of a State has not designated an appropriate envi- ronmental agency within such 60-day period, the appropriate environmental agency for such State shall be designated by the Adminis- trator of the Environmental Protection Agen- cy. (d) Hazardous substance For purposes of this section— (1) In general The term ‘‘hazardous substance’’ means— (A) any substance which is a hazardous substance as defined in section 101(14) of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, (B) any substance which is designated as a hazardous substance under section 102 of such Act, and (C) any petroleum product (as defined in section 4612(a)(3)). (2) Exception Such term shall not include any substance with respect to which a removal or remedial action is not permitted under section 104 of such Act by reason of subsection (a)(3) thereof. (e) Deduction recaptured as ordinary income on sale, etc. Solely for purposes of section 1245, in the case of property to which a qualified environmental remediation expenditure would have been cap- italized but for this section— (1) the deduction allowed by this section for such expenditure shall be treated as a deduc- tion for depreciation, and (2) such property (if not otherwise section 1245 property) shall be treated as section 1245 property solely for purposes of applying sec- tion 1245 to such deduction. (f) Coordination with other provisions Sections 280B and 468 shall not apply to amounts which are treated as expenses under this section. (g) Regulations The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section. (h) Termination This section shall not apply to expenditures paid or incurred after December 31, 2011. (Added Pub. L. 105–34, title IX, § 941(a), Aug. 5, 1997, 111 Stat. 882; amended Pub. L. 106–170, title V, §§ 511, 532(c)(2)(A), Dec. 17, 1999, 113 Stat. 1924, 1930; Pub. L. 106–554, § 1(a)(7) [title I, § 162(a), (b)], Dec. 21, 2000, 114 Stat. 2763, 2763A–625; Pub. L. 108–311, title III, § 308(a), Oct. 4, 2004, 118 Stat. 1179; Pub. L. 109–432, div. A, title I, § 109(a), (b), Dec. 20, 2006, 120 Stat. 2939; Pub. L. 110–343, div. C, title III, § 318(a), Oct. 3, 2008, 122 Stat. 3873; Pub. L. 111–312, title VII, § 745(a), Dec. 17, 2010, 124 Stat. 3319.) Editorial Notes REFERENCES IN TEXT The date of the enactment of this section, referred to in subsec. (c)(2), (4), is the date of enactment of Pub. L. 105–34, which was approved Aug. 5, 1997. Sections 101(14), 102, 104, and 105(a)(8)(B) of the Com- prehensive Environmental Response, Compensation, and Liability Act of 1980, referred to in subsecs. (c)(2) and (d), are classified to sections 9601(14), 9602, 9604, and 9605(a)(8)(B), respectively, of Title 42, The Public Health and Welfare. AMENDMENTS 2010—Subsec. (h). Pub. L. 111–312 substituted ‘‘Decem- ber 31, 2011’’ for ‘‘December 31, 2009’’. 2008—Subsec. (h). Pub. L. 110–343 substituted ‘‘Decem- ber 31, 2009’’ for ‘‘December 31, 2007’’. 2006—Subsec. (d)(1)(C). Pub. L. 109–432, § 109(b), added subpar. (C). Subsec. (h). Pub. L. 109–432, § 109(a), substituted ‘‘2007’’ for ‘‘2005’’. 2004—Subsec. (h). Pub. L. 108–311 substituted ‘‘2005’’ for ‘‘2003’’. 2000—Subsec. (c). Pub. L. 106–554, § 1(a)(7) [title I, § 162(a)], amended subsec. (c) generally. Prior to amend- ment, subsec. (c) defined the term ‘‘qualified contami- nated site’’ to include certain property described in section 1221(a)(1) of this title, within a targeted area, and at which there had been a release or disposal of any hazardous substance, provided that an area could be treated as a qualified contaminated site only if the tax- payer received a certain statement from an appropriate State agency, provided for designation of appropriate State agencies, and defined targeted area. Subsec. (h). Pub. L. 106–554, § 1(a)(7) [title I, § 162(b)], substituted ‘‘2003’’ for ‘‘2001’’. 1999—Subsec. (c)(1)(A)(i). Pub. L. 106–170, § 532(c)(2)(A), substituted ‘‘section 1221(a)(1)’’ for ‘‘section 1221(1)’’. Subsec. (h). Pub. L. 106–170, § 511, substituted ‘‘2001’’ for ‘‘2000’’. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2010 AMENDMENT Pub. L. 111–312, title VII, § 745(b), Dec. 17, 2010, 124 Stat. 3319, provided that: ‘‘The amendment made by Page 929 TITLE 26—INTERNAL REVENUE CODE [§ 199 this section [amending this section] shall apply to ex- penditures paid or incurred after December 31, 2009.’’ EFFECTIVE DATE OF 2008 AMENDMENT Pub. L. 110–343, div. C, title III, § 318(b), Oct. 3, 2008, 122 Stat. 3873, provided that: ‘‘The amendment made by this section [amending this section] shall apply to ex- penditures paid or incurred after December 31, 2007.’’ EFFECTIVE DATE OF 2006 AMENDMENT Pub. L. 109–432, div. A, title I, § 109(c), Dec. 20, 2006, 120 Stat. 2939, provided that: ‘‘The amendments made by this section [amending this section] shall apply to ex- penditures paid or incurred after December 31, 2005.’’ EFFECTIVE DATE OF 2004 AMENDMENT Pub. L. 108–311, title III, § 308(b), Oct. 4, 2004, 118 Stat. 1179, provided that: ‘‘The amendment made by sub- section (a) [amending this section] shall apply to ex- penditures paid or incurred after December 31, 2003.’’ EFFECTIVE DATE OF 2000 AMENDMENT Pub. L. 106–554, § 1(a)(7) [title I, § 162(c)], Dec. 21, 2000, 114 Stat. 2763, 2763A–625, provided that: ‘‘The amend- ments made by this section [amending this section] shall apply to expenditures paid or incurred after the date of the enactment of this Act [Dec. 21, 2000].’’ EFFECTIVE DATE OF 1999 AMENDMENT Amendment by section 532(c)(2)(A) of Pub. L. 106–170 applicable to any instrument held, acquired, or entered into, any transaction entered into, and supplies held or acquired on or after Dec. 17, 1999, see section 532(d) of Pub. L. 106–170, set out as a note under section 170 of this title. EFFECTIVE DATE Pub. L. 105–34, title IX, § 941(c), Aug. 5, 1997, 111 Stat. 885, provided that: ‘‘The amendments made by this sec- tion [enacting this section] shall apply to expenditures paid or incurred after the date of the enactment of this Act [Aug. 5, 1997], in taxable years ending after such date.’’ [§ 198A. Repealed. Pub. L. 113–295, div. A, title II, § 221(a)(35), Dec. 19, 2014, 128 Stat. 4042] Section, added Pub. L. 110–343, div. C, title VII, § 707(a), Oct. 3, 2008, 122 Stat. 3923, related to expensing of qualified disaster expenses. Repeal was executed to this section, which is in part VI of subchapter B of chapter 1, to reflect the probable intent of Congress, notwithstanding directory language of Pub. L. 113–295, which repealed section 198A in part VI of subchapter A of chapter 1. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF REPEAL Repeal effective Dec. 19, 2014, subject to a savings provision, see section 221(b) of Pub. L. 113–295, set out as an Effective Date of 2014 Amendment note under sec- tion 1 of this title. [§ 199. Repealed. Pub. L. 115–97, title I, § 13305(a), Dec. 22, 2017, 131 Stat. 2126] Section, added Pub. L. 108–357, title I, § 102(a), Oct. 22, 2004, 118 Stat. 1424; amended Pub. L. 109–135, title IV, § 403(a)(1)–(13), Dec. 21, 2005, 119 Stat. 2615–2619; Pub. L. 109–222, title V, § 514(a), (b), May 17, 2006, 120 Stat. 366; Pub. L. 109–432, div. A, title IV, § 401(a), Dec. 20, 2006, 120 Stat. 2953; Pub. L. 110–343, div. B, title IV, § 401(a), (b), div. C, title III, § 312(a), title V, § 502(c), Oct. 3, 2008, 122 Stat. 3851, 3869, 3876; Pub. L. 111–312, title VII, § 746(a), Dec. 17, 2010, 124 Stat. 3319; Pub. L. 112–240, title III, § 318(a), Jan. 2, 2013, 126 Stat. 2331; Pub. L. 113–295, div. A, title I, § 130(a), title II, §§ 219(b), 221(a)(37), Dec. 19, 2014, 128 Stat. 4018, 4035, 4043; Pub. L. 114–113, div. P, title III, § 305(a), div. Q, title I, § 170(a), Dec. 18, 2015, 129 Stat. 3040, 3069, related to deduction of income attrib- utable to domestic production activities. SUBSECTION (c)(3)(C) OF THIS SECTION PRIOR TO REPEAL Prior to repeal by section 13305(a) of Pub. L. 115–97, subsection (c)(3)(C) of this section read as follows: (c) Qualified production activities income (3) Special rules for determining costs (C) Transportation costs of independent refiners (i) In general In the case of any taxpayer who is in the trade or business of refining crude oil and who is not a major integrated oil company (as defined in section 167(h)(5)(B), determined without regard to clause (iii) thereof) for the taxable year, in computing oil related quali- fied production activities income under sub- section (d)(9)(B), the amount allocated to do- mestic production gross receipts under para- graph (1)(B) for costs related to the transpor- tation of oil shall be 25 percent of the amount properly allocable under such paragraph (de- termined without regard to this subpara- graph). (ii) Termination Clause (i) shall not apply to any taxable year beginning after December 31, 2021. See Amendment Relating to Consolidated Ap- propriations Act, 2016 note below. SUBSECTION (d)(8) OF THIS SECTION PRIOR TO REPEAL Prior to repeal by section 13305(a) of Pub. L. 115–97, subsection (d)(8) of this section read as follows: (d) Definitions and special rules (8) Treatment of activities in Puerto Rico (A) In general In the case of any taxpayer with gross re- ceipts for any taxable year from sources within the Commonwealth of Puerto Rico, if all of such receipts are taxable under section 1 or 11 for such taxable year, then for purposes of deter- mining the domestic production gross receipts of such taxpayer for such taxable year under sub- section (c)(4), the term ‘‘United States’’ shall in- clude the Commonwealth of Puerto Rico. (B) Special rule for applying wage limitation In the case of any taxpayer described in sub- paragraph (A), for purposes of applying the limitation under subsection (b) for any taxable year, the determination of W–2 wages of such taxpayer shall be made without regard to any exclusion under section 3401(a)(8) for remunera- tion paid for services performed in Puerto Rico. (C) Termination This paragraph shall apply only with respect to the first 11 taxable years of the taxpayer be- ginning after December 31, 2005, and before Jan- uary 1, 2017. See Extension of Deduction Allowable With Respect to Income Attributable to Domestic Pro- duction Activities in Puerto Rico note below.