rp-98-17.pdf

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Part III
Administrative, Procedural, and Miscellaneous
26 CFR 601.201: Rulings and determination letters.
(Also Part I, §§ 162, 165, 198, 263)
Rev. Proc. 98-17
SECTION 1. PURPOSE
This revenue procedure provides special procedures for
requesting written guidance from the Internal Revenue Service on
the tax treatment under §§ 162, 165, 198, and 263 of the Internal
Revenue Code of environmental cleanup costs incurred in projects
that span several years, including future years and prior years
(whether or not under examination). These special procedures are
available for letter ruling requests submitted during the two-
year period beginning on February 2, 1998. The purpose of this
revenue procedure is to facilitate the resolution of issues
involving the capitalization or deduction of environmental
cleanup costs for both prior and future years of an environmental
cleanup project.
SECTION 2. BACKGROUND
.01 Section 162(a) allows a deduction for all the ordinary and
necessary expenses paid or incurred during the taxable year in
carrying on any trade or business.

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.02 Section 165(a) allows a deduction for any loss sustained
during the taxable year and not compensated by insurance or
otherwise.
.03 Section 198 permits a taxpayer to elect to treat any
qualified environmental remediation expenditure that is paid or
incurred by the taxpayer as an expense that is not chargeable to
capital account. Section 198(b) provides that the term
"qualified environmental remediation expenditure" means any
expenditure that is otherwise chargeable to capital account and
that is paid or incurred in connection with the abatement or
control of hazardous substances at a qualified contaminated site.
.04 Section 263 generally prohibits deductions for capital
expenditures. Section 263(a)(1) provides that no deduction is
generally allowed for any amount paid out for permanent
improvements or betterments made to increase the value of any
property or estate. Under § 263(a)(2), no deduction is allowed
for any amount expended in restoring property or in making good
the exhaustion thereof for which an allowance is or has been
made.
.05 Rev. Proc. 98-1, 1998-1 I.R.B. 7 (Jan. 5, 1998), provides
procedures under which the Service issues letter rulings,
determination letters, and information letters on specific
issues. Section 2.01 of Rev. Proc. 98-1 defines a "letter
ruling" as a written statement issued to a taxpayer by the
national office that interprets and applies the tax laws to the
taxpayer's specific set of facts. Ordinarily, the national

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office issues letter rulings on income tax issues only on
prospective transactions or completed transactions if the letter
ruling request is submitted before the return is filed for the
year in which the transaction was completed. All references to
Rev. Proc. 98-1 in this revenue procedure shall include Rev.
Proc. 98-1’s successors.
.06 Rev. Proc. 98-2, 1998-1 I.R.B. 74 (Jan. 5, 1998), provides
procedures under which the national office issues technical
advice to a district director or a chief, appeals office.
Section 2 of Rev. Proc. 98-2 defines "technical advice" as advice
or guidance in the form of a memorandum furnished by the national
office upon the request of a district director or a chief,
appeals office, submitted in accordance with Rev. Proc. 98-2 in
response to any technical or procedural question that develops
during any proceeding on the interpretation and proper
application of tax law, tax treaties, regulations, revenue
rulings, notices, or other precedents published by the national
office to a specific set of facts. All references to Rev. Proc.
98-2 in this revenue procedure shall include Rev. Proc. 98-2’s
successors.
SECTION 3. SCOPE
.01 In general. Except as provided in section 3.06 below,
this revenue procedure applies to a request for guidance on the
deductibility (under §§ 162, 165, or 198) or capitalization
(under § 263) of environmental cleanup costs incurred in a
continuing project (e.g., one that occurs over prior and future

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taxable years). Generally, a taxpayer may request a letter
ruling under this revenue procedure that will cover all tax years
in which the costs of the environmental cleanup project that are
the subject of the request are taken into account for federal
income tax purposes ("project years"). Thus, the letter ruling
may cover project years for which a return has been filed, even
if such return is under examination or before an appeals office.
.02 Environmental cleanup costs. For purposes of this revenue
procedure, environmental cleanup costs include, in general, any
costs associated with the assessment, mitigation, removal or
remediation of environmental hazards, whether latent or imminent,
on the taxpayer’s property or on the property of another.
.03 Environmental cleanup project. An environmental cleanup
project may consist of one or more related environmental cleanup
activities. For example, a taxpayer may request a letter ruling
under this procedure on the tax treatment of costs paid or
incurred over several years:
(1) to study, remediate, and monitor soil and groundwater
at a former manufacturing site;
(2) to remove and replace asbestos in manufacturing
equipment located at several of the taxpayer’s operating plants;
or
(3) to remove underground storage tanks, treat contaminated
soil and groundwater, and remove asbestos from a retail facility
where the taxpayer intends to begin operations.

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A letter ruling issued under this revenue procedure will
cover only the costs of activities described in the taxpayer’s
request.
.04 Factual nature of question. Section 7.01 of Rev. Proc.
98-1 provides that the national office ordinarily will not issue
letter rulings in certain areas because of the factual nature of
the problem. Although the question of whether amounts are
deductible or must be capitalized is generally dependent upon the
taxpayer’s specific facts, only in rare or unusual circumstances
will the national office decline to issue a letter ruling under
this revenue procedure solely because of the factual nature of
the question.
.05 Alternative plans and hypothetical situations. Section
7.02 of Rev. Proc. 98-1 provides that the national office
ordinarily will not issue a letter ruling on alternative plans of
proposed transactions or on hypothetical situations. Thus, the
taxpayer must have a proposed environmental cleanup plan on which
to base the ruling request. However, the Service recognizes that
all aspects of any environmental cleanup project may not be
definite at the time of the request, particularly if the
assessment of the contamination is not yet complete. Ordinarily,
this will not preclude issuance of a letter ruling, provided that
the Service is given sufficient facts to reach a determination.
If the taxpayer’s environmental cleanup project changes after the
letter ruling is issued, the taxpayer may request that the
national office modify or supplement its letter ruling to address

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the changes to the project. See section 8 of this revenue
procedure.
.06 Identical issue in litigation. Taxpayers may not request
guidance under this revenue procedure if the identical
environmental cleanup issue is in the taxpayer’s return for an
earlier period and that issue is pending in litigation in a case
involving the taxpayer (or a related taxpayer within the meaning
of § 267, or a member of an affiliated group of which the
taxpayer is also a member within the meaning of § 1504).
.07 Requests more appropriately made under Rev. Proc. 98-1 or
98-2. The national office may determine that a request for
written guidance under this revenue procedure would be more
appropriately made under Rev. Proc. 98-1 or 98-2. In such a
case, the taxpayer will be notified and given an opportunity to
explain why the request is more appropriately made under this
revenue procedure.
SECTION 4. REQUESTING A LETTER RULING
.01 Taxpayers not under examination or before appeals office.
A taxpayer requesting a letter ruling on the tax treatment of
environmental cleanup costs may do so under this section 4.01 if
no return for any project year is under examination or before an
appeals office. Except as provided by this revenue procedure, a
request under this section 4.01 must meet the requirements of
Rev. Proc. 98-1 for a letter ruling request. In addition, if a
taxpayer submits a letter ruling request under this section 4.01
covering a project year for which a return has already been

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filed, a copy of the letter ruling request must also be submitted
to the district office having jurisdiction over the taxpayer’s
return.
.02 Taxpayers under examination or before appeals office.
A taxpayer requesting a letter ruling on the tax treatment of
environmental cleanup costs incurred under a continuing project
must do so under this section 4.02 if any project year is under
examination or before an appeals office. Except as provided in
this revenue procedure, a letter ruling request made under this
subsection must meet the general requirements of Rev. Proc. 98-2
for a taxpayer-initiated request for technical advice. Once an
environmental cleanup issue is identified, all requests for
letter rulings should be made at the earliest possible stage in
any proceeding. The taxpayer must submit its request (and the
applicable user fee) for each letter ruling under this section
4.02 to the district or appeals office having jurisdiction over
its return. The district or appeals office will, in all cases,
forward the original request, and any additional statements of
the taxpayer and the district or appeals office, to the national
office using Form 4463 (Request for Technical Advice), with the
following statement typed or printed at the top of the form:
"REQUESTED UNDER REV. PROC. 98-17."
SECTION 5. PROCESSING THE RULING REQUEST
.01 Taxpayers not under examination or before appeals office.
A letter ruling request submitted under section 4.01 of this
revenue procedure generally will be processed under the

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procedures set forth in Rev. Proc. 98-1. Thus, the procedures
for requesting additional information, conferences, withdrawal of
requests, etc. are the same as those provided in Rev. Proc. 98-1.
The original letter ruling will be issued to the taxpayer that
requested it, and a copy of the letter ruling, whether favorable
or adverse, will be sent to the district director that has
jurisdiction over the taxpayer’s return.
.02 Taxpayers under examination or before appeals office. A
letter ruling request submitted under section 4.02 of this
revenue procedure generally will be processed under the
procedures set forth in Rev. Proc. 98-2 for a taxpayer-initiated
request for technical advice, except as provided in this section.
(1) Contacting the taxpayer. Usually, within 21 calendar
days after the national office receives a taxpayer’s letter
ruling request, a Service representative will contact both the
taxpayer (or the taxpayer’s authorized representative) and the
examining or appeals officer to discuss the substantive or
procedural issues in the letter ruling request and to ask for any
additional information necessary in order to process the request.
(2) Coordination with district and appeals office. During
the processing of a taxpayer’s letter ruling request, the
national office will continuously coordinate the evaluation of
the request with the district or appeals office having
jurisdiction over the case. If the district or appeals office
either determines that the national office should not consider
the taxpayer’s request or disagrees with the taxpayer’s statement

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of facts and issues, then the district or appeals office will
notify the taxpayer in writing. For these purposes, the Service
will follow the procedures set forth in section 10.04 of Rev.
Proc. 98-2, except that the district or appeals office will, in
all cases, forward the taxpayer’s request, with any additional
statements, to the national office as provided in section 4.02 of
this revenue procedure.
(3) Withdrawing the ruling request. The district director
or chief, appeals office, may not withdraw a request for a letter
ruling submitted under section 4.02 of this revenue procedure.
However, a taxpayer may withdraw such a request at any time
before the letter ruling is signed by the national office,
provided that the district director or the chief, appeals office,
consents to the withdrawal. If the district director or the
chief, appeals office, consents to this withdrawal, the national
office will send its views to the district director or the chief,
appeals office. If the district director or the chief, appeals
office, does not consent to the withdrawal, then the letter
ruling request will be processed as a request for technical
advice under Rev. Proc. 98-2 and the scope of the technical
advice memorandum will be limited to years under examination.
Pursuant to the principles of Rev. Proc. 98-1, including but not
limited to section 15.10 thereof, the user fee generally will not
be refunded if the taxpayer withdraws its request for a letter
ruling under this section.

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(4) Reply by national office. Replies to letter ruling
requests issued under section 4.02 are made in two parts. Each
part identifies the taxpayer by name, address, taxpayer
identification number, and the years under examination by the
district director or under consideration by an appeals office.
The first part is a transmittal memorandum addressed to the
district or appeals office. The second part is a letter ruling
as defined in section 2.01 of Rev. Proc. 98-1 that covers the
project years addressed in the taxpayer’s request. The national
office will forward the transmittal memorandum and a copy of the
letter ruling to the district director or the chief, appeals
office, having jurisdiction over the taxpayer’s return. At the
same time, the national office will issue the original letter
ruling to the taxpayer that requested it.
.03 Coordination with industry specialization program. Prior
to issuance of a letter ruling to a taxpayer under this revenue
procedure, the national office will coordinate review of the
proposed letter ruling with a representative of the environmental
cleanup costs issue specialization team.
.04 Disclosure. The text of a letter ruling issued under this
revenue procedure is open to public inspection under § 6110. The
Service will make appropriate deletions from the text before it
is made available for inspection. To help the Service make the
deletions required by § 6110, a request made under this revenue
procedure must be accompanied by the statement described in
section 8.01(9) of Rev. Proc. 98-1.

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SECTION 6. EFFECT OF THE LETTER RULING
.01 General rule. A taxpayer ordinarily may rely on a letter
ruling issued by the Service pursuant to this revenue procedure
subject to the conditions and limitations described in section 12
of Rev. Proc. 98-1. A letter ruling issued on a specific
environmental cleanup project represents a holding by the Service
on that project only. It will not apply to any project not
specifically addressed in the letter ruling.
.02 Return previously filed. The conclusion in the letter
ruling, whether adverse or favorable to the taxpayer, will
generally be applied prospectively to all future project years.
In addition, if a letter ruling involves tax years for which a
return has already been filed, it will generally apply
retroactively to all open years unless the Service exercises
discretionary authority under § 7805(b) to limit the retroactive
effect of the conclusion.
.03 Use in examining the taxpayer's return. If a taxpayer is
under examination or is later selected for examination, the
letter ruling will be used by the district director in examining
the taxpayer's returns for prior and future project years in the
manner described in section 12.03 of Rev. Proc. 98-1.
.04 Prior settlement or closing agreement. A letter ruling
issued under this revenue procedure will not affect any taxable
year(s) that are the subject of a prior settlement or closing
agreement entered into with a district director or an appeals
office.

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SECTION 7. REVOCATION OR MODIFICATION
A letter ruling found to be in error or not in accord with
the current views of the Service may be revoked or modified. If
a letter ruling under this revenue procedure is revoked or
modified, the revocation or modification applies to all open
years under the statute of limitations unless the Service uses
its discretionary authority under § 7805(b) to limit the
retroactive effect of the revocation or modification. The
criteria and procedures for revoking or modifying a letter ruling
issued under this revenue procedure are the same as those
provided in section 12 of Rev. Proc. 98-1. In addition, the
procedures for requesting § 7805(b) relief, and the criteria for
granting it, are the same as those provided in section 12.11 of
Rev. Proc. 98-1.
SECTION 8. REQUESTING SUPPLEMENTAL LETTER RULINGS
If the material facts underlying a letter ruling issued
under this revenue procedure change after the letter ruling is
issued, the taxpayer may request that the Service modify or
supplement the letter ruling. The request must comply with the
requirements of sections 4.01 or 4.02 of this revenue procedure,
whichever applies.
SECTION 9. CHANGE IN ACCOUNTING METHOD
Under § 446(e), a taxpayer receiving a letter ruling under
this revenue procedure may be required to seek the Commissioner's
consent to change its method of accounting, and § 481 may be

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applicable. In these cases, the national office will inform the
taxpayer of the procedures for obtaining this consent.
SECTION 10. USER FEE REQUIREMENTS
Except as provided in sections 15.03 and 15.04 of Rev. Proc.
98-1, all requests submitted under this revenue procedure
(including supplemental letter ruling requests under section 8 of
this revenue procedure) must be accompanied by a user fee. The
appropriate user fee is determined from the fee schedule provided
in Appendix A of Rev. Proc. 98-1.
SECTION 11. ADDRESS FOR SUBMISSION
.01 Taxpayers not under examination or before an appeals
office. All requests for letter rulings submitted under section
4.01 of this revenue procedure (including the applicable user
fee) should be sent to the Associate Chief Counsel (Domestic) at
the addresses provided in section 8.03(1) of Rev. Proc. 98-1.
.02 Taxpayers under examination or before appeals office. All
requests for letter rulings submitted under section 4.02 of this
revenue procedure (including the applicable user fee) should be
sent to the examining or appeals officer, who must forward the
request to the national office using the same address provided in
section 9.03 of Rev. Proc. 98-2.
SECTION 12. EFFECT ON OTHER DOCUMENTS
Rev. Proc. 98-1 is amplified. Rev. Proc. 98-2 is amplified
and modified.
SECTION 13. EFFECTIVE DATE

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This revenue procedure is effective for requests for letter
rulings submitted during the two-year period from February 2,
1998 to February 2, 2000.
DRAFTING INFORMATION
The principal author of this revenue procedure is Merrill D.
Feldstein of the Office of Assistant Chief Counsel (Income Tax &
Accounting). For further information regarding this revenue
procedure, contact Ms. Feldstein on (202) 622-4950 (not a toll-
free call).