The brownfields tax incentive in section 198 of the Internal Revenue Code expires on December 31, 2007. It was first enacted in the Taxpayer Relief Act of 1997 ( P.L. 105-34 ), and has been extended four times, most recently in 2006. The provision is intended as a stimulus to the development of brownfields by allowing developers to recoup some of their cleanup costs. There is now more information available to the Congress as it considers the future of section 198 than was available when previous extensions were enacted. The 110 th Congress may consider another short-term (or long-term) extension, making the tax extension permanent, or allowing it to expire. Another possibility is to repeal the recapture provision. A brownfield is a commercial or industrial site that is abandoned or underutilized, and where redevelopment has not occurred because of the presence, or perception of the presence, of hazardous substances, and the fear of the accompanying liability for the costs of environmental cleanup. These are not traditional Superfund sites, which are the nation's worst hazardous waste locations. Generally (though not always), they are not highly contaminated and therefore present lower risks to health, and cost comparatively less to clean up than Superfund sites. In a 2004 report, the Environmental Protection Agency (EPA) estimated that there are between 500,000 and 1 million brownfield sites, though how many would require cleanup to make them safe for reuse is unknown. Based on information from EPA's brownfield assistance programs, 70% of them (350,000—700,000) might require some degree of cleanup expenditure. Using rough estimates, EPA also calculated that total expenditures at state sites, excluding those on the Superfund National Priorities List, by both public and private entities have been about $1 billion annually in recent years. During this same period cleanup has been accomplished at about 5,000 state and private party sites per year. At this rate, 150,000 sites would be cleaned up, at a cost of $30 billion over the next 30 years, which was the time horizon of the EPA report. To help address this problem, Congress enacted EPA's brownfields program of grants and technical assistance, and also relaxed certain Superfund liability provisions, established a "brightfields" demonstration program (for brownfield sites redeveloped using solar energy technologies), authorized tax-exempt facility bonds for qualified green building and sustainable design projects, and provided two brownfield tax incentives. (See Table 1 .) This report examines the extent to which one of these, the federal section 198 tax incentive, has been used. The section 198 brownfields tax incentive expires on December 31, 2007. First enacted as part of the Taxpayer Relief Act of 1997 ( P.L. 105-34 ), the incentive allows a taxpayer to fully deduct the costs of environmental cleanups in the year the costs were incurred (called "expensing"), rather than spreading the costs over a period of years ("capitalizing"). Its purpose is to encourage developers to rehabilitate sites where environmental contamination stands in the way of bringing unproductive properties back into use. (The provision has no direct application for public sector entities, such as municipalities, that develop brownfields and do not pay income taxes.) To take advantage of the brownfields tax incentive, the developer of a property has to obtain a statement from the state environmental agency that the parcel is a "qualified contaminated site" as defined in the law. A significant factor concerning the tax incentive is that it is subject to "recapture." This means that the gain realized from the value of the property when it is later sold must be taxed as ordinary income (rather than at the generally lower capital gains rate) to the extent of the expensing allowance previously claimed. This dilutes the benefit of the tax break and has the effect of simply postponing a certain amount of the developer's tax liability until the property is resold. As a stimulus to development, the overall value of the brownfields tax break is dependent on a number of factors, including the total cost of the project, the cost of cleanup, how long the developer intends to hold the property before selling it, and the developer's individual tax situation. Repeal of the recapture provision has been favored by the Real Estate Roundtable and its partner associations representing various aspects of the real estate industry (architects, building owners and managers, mortgage bankers general contractors, and others). Federal tax law generally requires that the cost of improvements to a property must be deducted over a period of years, whereas other expenses, such as repairs, may be deducted in the same year they are incurred. Being able to deduct the costs in the year when they are incurred is a financial benefit to the taxpayer. A 1994 ruling by the Internal Revenue Service (IRS) held that the costs of cleaning up contaminated land and groundwater are deductible in the current year, but only for the person who contaminated the land . In addition, the cleanup would have to be done without any anticipation of putting the land to a new use. Further, any monitoring equipment with a useful life beyond the year it was acquired would have to be capitalized. On the other hand, a person who acquired previously contaminated land, such as a brownfield site, would have to capitalize the costs of cleanup, spreading them out over a number of years. Some have noted that this is a somewhat perverse situation that works against one who would want to buy and clean up a contaminated property, and put it to use. Cleanup costs are a major barrier to redevelopment of contaminated land. The Taxpayer Relief Act of 1997, which included the brownfields tax incentive, thus had the effect of expanding benefits and allowing developers who had not caused the contamination to deduct cleanup costs from their taxable income in the current year, rather than having to capitalize them. As initially enacted, the brownfields tax incentive was available only to a property that was located in a "targeted area." The law defined a targeted area as a census tract with greater than 20% poverty, an adjacent commercial or industrial census tract, an Empowerment Zone or Enterprise Community, or one of the 76 brownfields to which EPA had awarded a brownfield grant at that time. Congress repealed the targeted area geographic restrictions and extended the tax break to all brownfields ("qualified contaminated sites") in the Consolidated Appropriations Act, 2001 ( P.L. 106-170 ). Since FY2003, the Administration's budget proposals have proposed making the tax incentive permanent. It has been in effect continuously since its enactment in 1997 and has been extended four times, most recently in the Tax Relief and Health Care Act of 2006, P.L. 109-432 (Division A, title I, § 109). This extension through 2007, which was enacted on December 20, 2006, was made retroactive to December 31, 2005, when the previous extension expired. EPA supports the permanent extension, as does the Real Estate Roundtable and its partners noted above. This 2006 enactment also broadened the definition of hazardous substances to include petroleum products (including crude oil, crude oil condensates, and natural gasoline) for purposes of the tax incentive (but not for any other part of the Superfund Act). Until recently, there was no official information available at the federal level on the extent of use of the § 198 provision. It did not have its own separate line on either individual or corporate federal income tax forms (which is why CRS was first asked to perform the state survey in 2003). In 2004 the IRS introduced a new form, Schedule M-3, which provides information, for the first time, on the use of the section 198 brownfields tax incentive. Only large and midsize businesses (corporations and partnerships with total assets of $10 million or more) are required to file the new Schedule M-3 with their returns. Use of the schedule was phased in, and in the first year of use, tax year 2004 (for returns submitted in 2005), only some corporations and no partnerships were required to file it. Those corporations that did use it were not required to complete the whole form, and part of the information on the brownfields tax incentive was in the optional part of Schedule M-3. A number of corporations completed it anyway. The results for 2004 only recently became available, and show section 198 remediation costs of $294,970,000, reported by 110 corporations out of a population of 5,557,965 corporate returns. This information is obviously limited, since the response for 2004 excluded more than half the corporations and all the partnerships, response on the brownfields tax incentive was at the corporations' discretion, and it was limited to those companies with assets of $10 million or more. Also, the data show how much the 110 corporations spent on cleanup costs, but do not reveal at how many brownfields the money was spent. The compilation of data from tax year 2005 (when reporting was mandatory for all corporations) is ongoing, and will be available to the public in February 2008. Partnerships with assets over $10 million were required to use Schedule M-3 beginning with tax year 2006, and those results will be available in February 2009. Even when fully phased in, though, the form will not be applied to entities with assets under $10 million. For more information on Schedule M-3, see Appendix . CRS surveyed the appropriate environmental agency in each state in 2003, and again in 2007, to determine the number of brownfield certifications they had issued. In 2003, 27 states reported that since the enactment of the provision in August 1997 until the time of the survey in April-June 2003 they had received a total of 161 requests for certification, of which 147 were approved, and 14 were denied. Twenty-three states reported receiving no formal requests. In the 2007 survey, there was a modest increase. Twenty-nine states reported receiving 175 requests from 2003 until the second survey in February-April 2007, of which 170 were granted. Twenty-one states received no requests.