Expenses
IRS Cracking Down on Government Settlements - footnotes
1 LMSB-04-0507-042 (5/30/07).
2 The Government Accountability Office (GAO) suggests that most taxpayers deduct the entire civil settlement amount, although DoJ records reveal that almost every settled case includes substantial penalties. Settlement may be all about issues of perception. Plainly, the payor and the payee settling a dispute may not agree on everything, including the payor’s degree of exposure for potential fines and penalties.
3 The IDD elevates deductions that are claimed for FCA and EPA cases (discussed below) to Tier I issue status. Tier I issues are of high strategic importance to the LMSB and are supposed to have a significant impact on one or more industries. The fact that the IDD now treats these settlement deductions as Tier I issues is significant and makes the IDD of greater importance.
4 See Pasztor, “Boeing to Settle Federal Probes for $615 Million,” Wall Street Journal, May 15, 2006, p. A1.
5 See Wayne, “3 Senators Protest Possible Tax Deduction for Boeing in Settling US Case,” New York Times, July 7, 2006, p. C3.
6 Id.
7 Government Accountability Office, “Tax Administration: Systematic Information Sharing Would Help IRS Determine the Deductibility of Civil Settlement Payments,” GAO-05-747, A Report to the Committee on Finance, U.S. Senate, September 2005 (www.gao.gov/new.items/d05747.pdf).
8 Doc 2006-13587, 2006 TNT 138-17.
9 Letter from Assistant Attorney General William Moshella to Sen. Charles Grassley, July 14, 2006, quoting GAO, “Tax Administration: Systematic Information Sharing Would Help IRS Determine the Deductibility of Civil Settlement Payments,” GAO-05-747, September 2005, p. 26.
10 See LMSB-04-0507-042 (5/30/07), Attachment I.
11 Regs. Sec 1.162-21(b)(1).
12 Regs. Sec. 1.162-21(b)(2).
13 IRS TAM 200502041 (1/14/05).
14 IRS TAM 200629030 (3/31/06).
15 Talley Indus., Inc., TC Memo 1994-608, rev’d and remanded, 116 F3d 382 (9th Cir. 1997).
16 Talley Indus., Inc., 116 F3d 382, 387 (9th Cir. 1997).
17 Talley Indus., Inc., TC Memo 1999-200.
18 Talley Indus, Inc., 18 F App’x 661 (9th Cir. 2001).
19 Allied-Signal, TC Memo 1992-204, aff’d, 54 F3d 767 (3d Cir. 1995).
20 Id. at p. 45.
21 LMSB-04-0507-042 (5/30/07), Attachment I.
22 Id.
