Mr. Eric Solomon

Acting Deputy Assistant Secretary (Tax Policy)

Department of Treasury

1500 Pennsylvania Avenue, N.W.

Washington, DC 20220

Mr. Donald Korb

Chief Counsel

Internal Revenue Service

1111 Constitution Avenue, N.W.

Washington, DC 20044

Mr. Thomas Barthold

Acting Chief of Staff

Joint Committee on Taxation

1015 Longworth

Washington, DC 20515

Re: Rev. Rul. 2005-42 Capitalization of Environmental Remediation Expenditures

Dear Messrs. Solomon, Korb and Barthold:

The American Institute of Certified Public Accountants (AICPA) offers the attached comments to highlight our significant tax policy and administrative concerns regarding Rev. Rul. 2005-42, which generally requires capitalization of environmental remediation expenditures under section 263A. These comments were developed by the AICPA’s Tax Accounting Technical Resource Panel and approved by the Tax Executive Committee.

The AICPA believes that environmental remediation costs should not be capitalized under section 263A. If capitalization is used, Rev. Rul. 2005-42’s analogy of remediation costs to repair expenses is incorrect. Finally, even if this analogy is correct, some fact patterns in Rev. Rul. 2005-42 treat remediation costs inconsistently with repairs. We are also concerned that the procedural rules for filing accounting method change applications to conform to this ruling using a cut-off method do not provide adequate time for taxpayers to respond.

We appreciate your consideration of these comments. If you have any questions, please contact me at tpurcell@creighton.edu; Christine Turgeon, Chair, AICPA Tax Accounting Technical Resource Panel, at christine.turgeon@us.pwc.com; or George White, AICPA Technical Manager, at gwhite@aicpa.org.

Sincerely,

Thomas J. Purcell III

Chair, AICPA Tax Executive Committee

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