OMB’s Office of Information and Regulatory Affairs (OIRA) completed its review of proposed regulations from the U.S. Treasury Department concerning the deductibility of certain fines, penalties, and other amounts under section 162(f).
OIRA reported its review of the proposed regulations was completed on March 19, 2020. OIRA has identified and briefly described the regulations, as follows:
Further, OIRA describes these proposed regulations as:
Revising 1.162-21 regarding deductibility of certain fines, penalties, and other amounts under 162(f), as revised by the Tax Cuts and Jobs Act of 2017. Adding 1.6050X regarding information reporting with respect to certain fines, penalties, and other amounts under 6050X, as added by the Tax Cuts and Jobs Act of 2017.
Treasury regulations that are identified as “major” regulations are subject to review by OMB’s OIRA before being issued, pursuant to Executive Order 13771. Now that OIRA review has been completed, Treasury and the IRS can be expected to release these proposed regulations for publication in the Federal Register—the exact date of publication not being known.
Section 162(f) was revised by the 2017 tax law (Pub. L. No. 115-97, the law that is often referred to as the “Tax Cuts and Jobs Act” (TCJA)). In general, fines and penalties paid to a government are nondeductible for federal income tax purposes under section 162(f). The 2017 tax law further denied any otherwise deductible amounts paid or incurred or at the direction of a governmental or specific nongovernmental regulatory entity for the violation (or potential violation) of any law. As had been the case under the tax law prior to enactment of the TCJA, certain exceptions apply to payments established as restitution, remediation of property, or required for correction of noncompliance, as well as amounts paid or incurred as taxes due, but only if so identified in the court order or settlement agreement. Such exceptions do not apply to reimbursement of government investigative or litigation costs.
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