The U.S. Tax Court today issued a “reviewed opinion” holding that, for purposes of landfill reclamation and closing costs, references to “taxpayer” in section 468 mean both cash-method taxpayers and accrual-method taxpayers.
The case is: Gregory v. Commissioner, 149 T.C. No. 2 (July 11, 2017). Read the Tax Court opinion [PDF 142 KB] that includes a concurring opinion.
The taxpayers incorporated their landfill business as a cash-method taxpayer, and elected S corporation status. For the years at issue (2008 and 2009), the taxpayers claimed deductions under section 468—the Code provision that allows a “taxpayer” to deduct current clean-up costs for landfills.
The IRS disallowed the claimed deductions and asserted that the term “taxpayer” in section 468 refers to a taxpayer that uses the accrual method of accounting. The issue before the Tax Court was whether the language of section 468 limits its application to accrual-method taxpayers.
The Tax Court today explained that section 468 does not define “taxpayer” and specifically does not limit the election to deduct qualified reclamation or closing costs to accrual-method taxpayers.
After examining the legislative history behind section 468, the majority noted that taxpayers involved in landfill operations must comply with numerous environmental-protection laws at the federal, state, and local level and that these costs can be large. Thus, section 468 is intended to lessen the burden by helping to match income and expenses.
The Tax Court closed its opinion by noting that the term “taxpayer” as used in section 468 is not defined; given that section 468 does not itself define “taxpayer,” the general definition under section 7701(a)(14) applies; and therefore, for these purposes, “taxpayer” includes cash-method taxpayers and is not limited to accrual-method taxpayers.
© 2018 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
KPMG International Cooperative (“KPMG International”) is a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.
The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.