You are working for a local accountant during tax season and the accountant has asked you to help with the tax preparation needs of Palo Alto, Inc. Palo Alto is a newly formed hi-tech company that specializes in manufacturing security chips for credit cards. The controller of Palo Alto, Michael Smith, would like your help with the following:

(1) Palo Alto is considering purchasing property in California to build its corporate headquarters. The land had previously been used by a manufacturing company, leaving the soil and groundwater contaminated with hazardous waste. To use the property for its needs, Palo Alto will pay for environmental remediation costs to clean up the land. In addition to the purchase price of $800,000, Palo Alto estimates these environmental cleanup costs will be close to $300,000. Should they purchase the property, Palo Alto wants to deduct the full cost of the environmental remediation on this years taxes as a trade or business expense. Prepare a tax research memo for Michael Smith explaining whether Palo Alto can deduct the environmental remediation costs from the taxes due this year, or must these costs be capitalized?