Editors' Summary: The primary focus of environmental litigation is on liability issues, and few tax issues have been specifically addressed or dispositively resolved in the environmental law context. This Article explores many tax issues lurking in environmental cases. First, it analyzes the deductibility of environmental litigation costs, including criminal penalties and civil fines, consent decree penalties, natural resources damages, enforcement and oversight costs, and legal fees. Next, it examines tax issues involving remediation costs resulting from a settlement agreement, expenditures by facility owners for capital improvements and repairs, and interest on remediation fund deposits. The author concludes that payments to federal or state governments must be analyzed to determine their resemblance to fines, penalties, compensatory damages, or traditional business expenses. Noting that current tax law and regulations are built on the flawed assumption that a payment is either punitive or compensatory, the author warns practitioners to be aware of inconsistencies in the case law and invites policy makers to take a fresh look at the entire area.