Final IRC 162(f) and 6050X Regulations: Tax Treatment of Settlements and Judgments, Requirements, Fines, Penalties

This CLE/CPE course will provide tax professionals guidance on key provisions of recently issued final IRC 162(f) and 6050X regulations. The panel will discuss applying the final regulations to fines, penalties, and other amounts, along with the requirements and exceptions. The panel will also discuss the impact of the new regulations and guidance on settlement agreements and payments.

On Jan. 12, 2021, the IRS issued final regulations on Section 162(f) and 6050X, as modified by the 2017 tax legislation, concerning the deduction of certain fines, penalties, and other amounts. Tax professionals must be aware of the implications, reporting requirements, exceptions, and other nuances of the new regulations.

The final regulations include several changes from the proposed regulations and finalizing provisions for governmental authorities, and provide taxpayers with guidance in negotiating and drafting settlement agreements. The regulations also address Section 6050X, which imposes reporting obligations on certain governmental authorities.

Before the 2017 tax reform, fines and penalties paid in connection with a violation of law were not deductible, except for payments made as compensatory damages, including single damages or remediation costs. Taxpayers are now prohibited from deducting any amounts paid or incurred to, or at the direction of, a government, governmental entity, or certain nongovernmental entities in response to a violation of law or potential violation of law, with few exceptions.

Listen as our panel discusses the tax treatment of settlements and judgments, implications of final IRC 162(f) and 6050X regulations, and offers strategies for negotiating and drafting settlement agreements in light of the new regulations.