ENVIRONMENTAL CLEANUP costs had to be capitalized, a federal appeals court said in October.

United Dairy Farmers, Inc. purchased two stores in Ohio. Both properties had contaminated soil caused by leaking underground storage tanks. UDF spent money to clean up the soil and replace the leaking tanks. The court said the spending had to be capitalized rather than deducted. UDF could have paid more for the property and had the seller clean it up, in which case its costs would clearly have gone into its tax basis in the property.

The court said a company can only deduct cleanup costs if it did the polluting itself and the cleanup is merely to restore the property to its former condition rather than prepare it for a different use.

The case is United Dairy Farmers, Inc. v. United States. The decision is by the 6th circuit court of appeals. The court cited a similar holding in a case last year in the 4th circuit involving Dominion Resources.

Keith Martin