Roddy Inc. Industrial & Commercial Realtors

Since 1997, taxpayers could elect to deduct certain environmental clean-up costs on business-related property in economically depressed areas. However, under Section 198 of the Internal Revenue Code, this election was limited to sites that were defined as so-called “targeted areas,” defined as:

· located in an empowerment zone or enterprise community

· part of an EPA Brownfields pilot program, or

· within a census tract with a poverty rate of 20 percent or more and certain adjacent areas.

The targeted area requirement significantly restricted the availability of this deduction.

As of December 31, 2000, Section 198 was amended to eliminate the targeted area requirement. This change will significantly expand the ability of taxpayers to currently deduct environmental remediation costs (rather than capitalizing those costs). A taxpayer can now elect to deduct these expenses, provided the site meets three requirements:

· the property must be held for use in trade or business, for the production of income, or as inventory;

· it must be certified by an appropriate state environmental agency to contain or potentially contain a hazardous substance (because of a release, threat of release, or disposal of a hazardous substance); and

· it must not be on the Federal Superfund list.

Most sites that are eligible under state Brownfields or other voluntary state remediation programs will meet these criteria.

Unfortunately, the amendment is not retroactive. However, costs paid or incurred after December 31, 2000, and before January 1, 2004, are eligible for the deduction even if the clean-up commenced prior to December 31, 2000.

These new rules should make voluntary clean-ups more attractive because of the more favorable tax treatment. Further, the new administration's focus on federalism should mean greater USEPA deference to state voluntary and Brownfields clean-up programs and less risk that the federal government will interpose its requirements on a site that has met state clean-up criteria. The time may well be right to focus on responding to environmental conditions on your property or that of your organization.

None of the members of Roddy Inc. are certified public accountants or attorneys therefore, you are urged to contact your independent consultants for an interpretation of Section 198 of the Internal Revenue Code as amended. Should you desire a copy of the Code, contact Roddy Inc. and we will be pleased to forward same to you.

Headquartered in Bensalem Township, Bucks County, PA, Roddy Inc. is a marketer, manager and developer of industrial and commercial real estate throughout eastern Pennsylvania and southern New Jersey. Their clients include regional, national and international companies and financial institutions. For more information about the company, visit the corporate website www.roddyinc.com.

For further details, contact Frank Roddy at (215) 245-2600 or FAX (215) 245-2670.