[Congressional Record (Bound Edition), Volume 149 (2003), Part 3]
[Extensions of Remarks]
[Page 4118]
[From the U.S. Government Publishing Office, www.gpo.gov]




  A BILL TO CLARIFY THE TAX TREATMENT OF CERTAIN ENVIRONMENTAL ESCROW 
                                ACCOUNTS

                                 ______
                                 

                           HON. AMO HOUGHTON

                              of new york

                    in the house of representatives

                      Thursday, February 13, 2003

  Mr. HOUGHTON. Mr. Speaker, I am pleased to join my colleague from 
California, Mr. Becerra, together with my colleague, Mr. Boehlert from 
New York in reintroducing a bill intended to clarify the tax treatment 
of certain environmental escrow accounts. This bill was first 
introduced in the 107th Congress.
  The provisions in the bill would encourage prompt and efficient 
settlements with the Environmental Protection Agency (``EPA'') for the 
clean-up of hazardous waste sites. Currently, there is some uncertainty 
in the tax treatment of certain ``settlement funds'' that are, in 
effect, controlled by the EPA, in their role of resolving claims under 
Comprehensive Environmental Response, Compensation and Liability Act of 
1980 (``CERCLA''). This uncertainty may prevent taxpayers from entering 
into prompt settlements with the EPA for the cleanup of Superfund 
hazardous waste sites and reduce the ultimate amount to funds available 
for cleanup of such sites.
  The EPA has recognized this problem and has recently written to the 
Department of the Treasury expressing support for clarification that 
these ``funds will, for Federal income tax purposes, be treated as 
beneficially owned by the United States government and therefore not 
subject to Federal income tax if certain conditions are met.'' I 
include in the record, a copy of the EPA letter dated February 7, 2003.
  Our bill follows the recommendations of the EPA on this important 
issue. Under our bill, if certain conditions are met, the EPA (U.S. 
government) will be considered the beneficial owner of funds set aside 
in an environmental settlement fund account. These conditions include 
the fund being: (1) established pursuant to a consent decree; (2) 
created for the receipt of settlement payments for the sole purpose of 
resolving claims under CERCLA; (3) controlled (in terms of expenditures 
of contributions and earnings thereon) by the government or an agency 
or instrumentality thereof; and (4) upon termination, disbursed to the 
government or an agency or instrumentality thereof (e.g., the EPA). If 
such conditions are met, the EPA will be considered the beneficial 
owner of the escrow account for tax purposes and the account will not 
be considered a grantor trust for purposes of Sections 468B, and 671-
677 of the Internal Revenue Code. These escrow accounts, which are 
established under court consent decrees, are a necessary tool to enable 
the EPA to carry out its responsibilities and resolve or satisfy claims 
under CERCLA. Under these types of consent decrees, the EPA should be 
considered the owner of such funds for Federal tax purposes.
  Due to the current uncertainty as to the proper Federal income tax 
treatment of such government-controlled funds, taxpayers may be 
hesitant to promptly resolve their claims under CERCLA by contributing 
to the settlement funds. One of the underlying purposes of CERCLA is to 
ensure prompt and efficient cleanup of Superfund hazardous waste sites. 
This goal is being frustrated by the existing uncertainty in the tax 
laws. The bill resolves these uncertainties and expedites the cleanup 
of Superfund hazardous waste sites by treating these escrow accounts as 
being beneficially owned by the U.S. government and not subject to tax.
  We urge our colleagues to join us in cosponsoring this legislation.


                              Environmental Protection Agency,

                                 Washington, DC, February 7, 2003.
     Ms. Pamela F. Olson,
     Assistant Secretary--Tax Policy, Department of the Treasury, 
         Washington, DC
       Dear Ms. Olson: I am writing to express support by the 
     Environmental Protection Agency (``EPA'') for clarification 
     of the tax treatment of certain environmental cleanup 
     ``settlement funds'' under IRC section 468B. The 
     clarification would provide that such funds will, for Federal 
     income tax purposes, be treated as beneficially owned by the 
     U.S. government and therefore not subject to Federal income 
     tax if certain conditions are met. As General Counsel to the 
     agency, I am not offering an opinion on the legal issue or 
     any other fiscal or tax policy aspects to this proposal. We 
     defer to the Treasury Department on these issues. However, 
     after consultation with our office of Enforcement and 
     Compliance Assurance, I offer this letter to provide our 
     views based on the environmental issues involved, that I hope 
     will assist you in your review of this issue.
       The cleanup of Superfund hazardous waste sites is sometimes 
     funded by environmental ``settlement funds'' or escrow 
     accounts. These escrow accounts are established in consent 
     decrees between the EPA and the settling parties under the 
     jurisdiction of a federal district court. They are a tool to 
     enable the EPA to carry out its responsibilities and resolve 
     its claims against private parties under the Comprehensive 
     Environmental Response, Compensation and Liability Act of 
     1980 (``CERCLA'').
       While the escrow accounts are funded by the settling 
     parties (defendants), some of these consent decrees require 
     that the EPA approve expenditures of such funds (including 
     the payment of costs and reimbursements), and provide that 
     any remaining funds after termination will be paid to the 
     EPA.
       We have been briefed by some taxpayers' representatives 
     that, under current law, there is uncertainty as to the 
     proper Federal income tax treatment of such government-
     controlled funds. One of the underlying purposes of CERCLA is 
     to ensure prompt and efficient cleanup of Superfund hazardous 
     waste sites. Uncertainty in the tax treatment of certain 
     ``settlement funds'' may prevent taxpayers from entering into 
     prompt settlements with the EPA for the cleanup of Superfund 
     hazardous waste sites.
       We would support appropriation conditions to ensure that 
     escrow accounts are properly structured and safeguarded, such 
     as conditions requiring that the funds are: (1) established 
     pursuant to a consent decree; (2) created for the receipt of 
     settlement payments for the sole purpose of resolving claims 
     under CERCLA; (3) controlled (in terms of expenditures of 
     contributions and earnings thereon) by the federal 
     government; (4) upon termination, disbursed to the government 
     (e.g., the EPA); and (5) structured so that the government 
     may be treated as beneficial owner for these purpose only, 
     and not for other purposes such that the government has 
     responsibility or liability for activities of the accounts or 
     at their managers.
       Thank you for considering our views of the environmental 
     consequences of this issue.
           Sincerely,
                                               Robert E. Fabrican,
     General Counsel.

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