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In 2001, the BLM amended 43 C.F.R. Section 3809 to give the BLM the power to require that mining companies establish a trust fund to provide for long-term maintenance and water treatment. The amended regulations do not mention taxes, and there is no evidence in the legislative history that the BLM ever contemplated the income tax effect of utilizing a trust mechanism to provide for environmental clean-up. While a partner at a law firm, the author of this article had the privilege of being the primary drafter of the first two trust agreements ever required by the BLM under these relatively new regulations. This article focuses on the federal income tax issues related to drafting and funding these trusts. The author concludes that the law is currently unclear regarding the way they are taxed, and, as a result, the taxation of these trusts will depend on the way the trust agreement is drafted The author offers a proposal to change the tax law to establish a general rule regarding how these trusts will be taxed More specifically, this article proposes that mining companies should be allowed a present federal income tax deduction for any funds put into a trust at the request of the BLM Furthermore, such trusts should be tax-exempt entities if the mining company agrees to forego any reversionary interest or, if it does not agree to forego its reversionary interest, entities that are taxable separate from the mining company.

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Denver University Law Review



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