Part I. Rulings — Internal Revenue Bulletin 1998-19

The useful life of an asset for § 263 purposes is its useful life to the taxpayer, not its inherent useful life. See Silverton v. Commissioner, T.C.M. 1977–198; Massey Motors, Inc. v. United States, 364 U.S. 92 (1960). Unlike most storage tanks, which are used to hold a substance temporarily and are emptied and refilled repeatedly throughout their useful lives, X ’s new USTs are filled with waste once, sealed indefinitely, and thereafter have no salvage value. Upon being filled with waste and sealed, the new USTs have no remaining useful life to X . X ’s new USTs are used merely to facilitate the disposal of waste and therefore are similar to a material or supply that is consumed and used in operation during the taxable year. Accordingly, because X acquired, filled, and sealed the new USTs all in 1998, the costs of acquiring and installing the new USTs are not capital expenditures, but are ordinary and necessary business expenses deductible under § 162. The new USTs, which are used once and then sealed indefinitely, are distinguishable from the groundwater treatment facilities in Rev. Rul. 94–38, 1994–1 C.B. 35, which are used by the taxpayer substantially beyond the taxable year.

Further, X ’s costs of removing, cleaning, and disposing of the old USTs, and filling and on-going monitoring of the new USTs are deductible as business expenses under § 162.

The results would be the same if X had instead ceased to operate the manufacturing facility in 1998 or in a previous taxable year. The results would also be the same if X had instead used storage tanks that were designed to store waste above ground.

HOLDING:

Under the circumstances described above, the costs incurred to replace USTs containing waste by-products (including the cost of removing, cleaning, and disposing of the old USTs, and acquiring, installing, and filling the new USTs) are deductible by the taxpayer as ordinary and necessary business expenses under § 162.

EFFECT ON OTHER DOCUMENTS