LANDFILLS that are listed as “Superfund” cleanup sites got bad news from a federal court in August.

Landfill owners are required by law to prevent gas and leachate from decomposing trash from leaking into the atmosphere or the surrounding soil. They set aside money in a reserve account while the landfill is still earning tipping fees from garbage collection to cover their ongoing obligations after the landfill has closed. Ordinarily, no tax deduction is allowed for merely setting money aside in a reserve account. The amounts cannot be deducted until they are actually spent on cleanup. However, section 468 of the US tax code makes an exception in this case.

A federal district court in Michigan in August denied tax deductions for contributions that were made to a reserve to cover future closing costs in years when the landfill was listed on the “national priorities list” of Superfund sites. The court said section 468 bars deductions for reserve contributions in such years, presumably on grounds that no tax “carrot” is needed at that point for a landfill owner to set aside money once cleanup has been ordered by the environmental authorities.

The court rejected an IRS claim that the landfill owner had to reverse all the deductions he had taken for reserve contributions in years before the landfill was listed by reporting the full amount in the reserve as income. The case is South Side Landfill v. United States.

Keith Martin