Fines & Penalties
Internal Revenue Code (IRC) Section 162(a) generally allows a deduction for all the ordinary and necessary expenses incurred in carrying on a trade or business. Section 162(f) provides one of many exceptions to this general rule. That section prohibits a deduction for any fine or penalty paid to a government for the violation of any law. Current law does, however, permit a tax deduction under Section 162(a) for most settlements and judgments. And fines imposed to compensate a governmental entity for a loss it has suffered, as distinguished from punitive fines, also are deductible as ordinary and necessary business expenses.
The Chamber opposes expanding IRC Section 162(f) to disallow businesses from deducting certain fines, penalties and/or the non-penalty portion of settlement payments, all of which currently are deductible as ordinary expenses. Such an expansion of IRC Section 162(f) would deny deductions for the routine efforts of many businesses to comply with laws applicable to their industries, regardless of whether there was a violation of law resulting in an admission of guilt or liability.