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January 12, 2021

BREAKING TAX NEWS | IRS issues much-anticipated final regulations on IRC Sections 162(f) and 6050X on fines, penalties and other amounts

The Service has released final regulations on the limitations on deducting fines, penalties, and other amounts paid to governmental entities (and other identified entities) under IRC Section 162(f) and the related reporting requirements under IRC Section 6050X. The final regulations revise Treas. Reg. Section 1.162-21 and add Treas. Reg. Section 1.6050X, in light of the changes made by the Tax Cuts and Jobs Act to the rules governing the deductibility of fines and penalties (which expanded the types of payments that are denied a deduction under IRC Section 162(f), carved out certain exceptions, and established certain reporting requirements on the part of government and nongovernmental entities).

The final regulations clarify the scope of the IRC Section 162(f) expansion, define certain statutory language (e.g., what constitutes restitution or a payment to come into compliance with a law), and provide guidelines for the new reporting requirements under IRC Section 6050X. The final IRC Section 162(f) regulations apply to tax years beginning on or after the date of publication in the Federal Register, except that such rules do not apply to amounts paid or incurred under any order or agreement pursuant to a suit, agreement, or otherwise, which became binding under applicable law before such date, determined without regard to whether all appeals have been exhausted or the time for filing appeals has expired. The final regulations under IRC Section 6050X apply only to orders and agreements that become binding under applicable law on or after January 1, 2022.

A Tax Alert with a detailed analysis of the final regulations is forthcoming.