The concept and implementation of carbon offsets has seen a large degree of growth and acceptance over the past 20 years. However, an argument may be made that the nature of VCOs may make these payments ordinary and necessary expenses that are deductible under Sec. Payments made to entities related to such projects can generally be treated as a charitable contribution to the not-for-profit. Some companies obtain VCOs by funding projects undertaken by a not-for-profit entity.
263 and the regulations, the cost may be capitalizable. However, if the VCO provides a long-term benefit, under Sec. 162 if it can be shown that the cost of VCOs is a current ordinary and necessary expense of the taxpayer. VCOs may be currently deductible under Sec. The tax treatment of VCOs is not well defined and varies based on the taxpayer's facts and circumstances.and international financial reporting boards and agencies including the SEC are developing frameworks for more consistent and reliable disclosure of ESG efforts by companies. They are becoming more important as companies assess and report their environmental, social, and governance (ESG) goals and activities.
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