Proposed regs address deductibility of fines and penalties

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The Internal Revenue Service has proposed regulations that provide guidance with respect to deducting certain fines, penalties and other amounts.

Under the Tax Cuts and Jobs Act, taxpayers can’t deduct amounts paid to or at the direction of governments in relation to violating laws (or to the investigation of such violations). This disallowance may not apply to amounts paid as restitution or remediation, or to come into compliance with a law, as long as the amounts otherwise qualify as deductible under the Internal Revenue Code.

The proposed regs describe how taxpayers can meet these requirements and define key terms and phrases such as “restitution,” “remediation” and “paid to come into compliance with a law.”

The TCJA also requires governments to report these amounts to the IRS and taxpayers. The proposed regulations provide guidance to governments related to these reporting requirements.

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IRS Tax regulations Tax deductions