When Penalties Are Punitive They Are Not Tax Deductible
BI is a US corporation with a foreign subsidiary that is treated as a disregarded entity (DE). DE’s executives and employees falsified books and records to cover up things of value given to government officials. There were not adequate internal accounting and financial controls to detect and prevent corruption-related violations under the Foreign Corrupt Practices Act. There are about two paragraphs worth of details redacted. I’m sure they would make this post much more entertaining.
BI entered into a consent decree with the SEC to pay a disgorgement of profits from its FCPA violations. Part of the deal was that they could not consent to the penalty while denying the allegations. Then there was an agreement by DE with DOJ consenting to the filing of a Criminal Information and the paying of a monetary penalty for which no tax deduction could be taken. The fine on DE that was paid by BI caused a dollar for dollar reduction in the disgorgement penalty on BI.
Third Circuit Rules Grocery Store Chain Can Deduct Perks Sooner Rather Than Later
By disallowing deductions claimed on the basis of established recurring expenses, the Tax Court effectively obliterated the distinction between two accounting methods expressly authorized by the Tax Code.The extent to which cash and accrual methods of accounting sometimes yield different deductions is a byproduct of the Tax Code’s design. So long as a taxpayer consistently adheres to one accounting method, the Code is agnostic as to the benefit or hardship wrought by his selection
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Over and over again courts have said that there is nothing sinister in so arranging one’s affairs as to keep taxes as low as possible. Everybody does so, rich or poor; and all do right, for nobody owes any public duty to pay more than the law demands: taxes are enforced exactions, not voluntary contributions. To demand more in the name of morals is mere cant.