ENVIRONMENTAL CLEANUP COSTS could not be deducted, a US appeals court told Dominion Resources in late July.

Dominion Resources owns land in Richmond, Virginia where a former power plant sits. The power plant was built in 1901 and decommissioned in 1973. The utility transferred the land between two of its subsidiaries in the late 1980’s for a “sales price” of $870,167 and then tried unsuccessfully to sell the land. In 1991, it ended up spending $2.2 million to remove asbestos-containing materials, sludge and assorted contaminants and tried to deduct the cost of the cleanup.

The 4th circuit court of appeals said the costs had to be added to the tax basis in the land. The issue was whether the spending was closer to a “repair” or a “capital improvement.” The court said it found it hard to believe that spending $2.2 million to clean up land worth only $870,167 was merely a repair, and that the spending had substantially altered the character of the land by lifting it out of “what was essentially a condition of uselessness.”

The IRS said in a separate “field service advice” released in early September that utilities may not deduct the cost of removing asbestos insulation at power plants.

Keith Martin