S. Clark Jenkins and Mary P. Jenkins - Page 10

          development of WSC's business.  Commissioner v. Tellier, 383 U.S.           
          687, 689 (1966).                                                            
               The real dispute in this case centers on section 162(f),               
          which provides that no deduction shall be allowed under section             
          162(a) for any "fine or similar penalty paid to a government for            
          the violation of any law."  The regulations provide that, for               
          purposes of section 162(f), a "fine or similar penalty" includes            
          an amount paid as a civil penalty imposed by a Federal, State, or           
          local law.  Sec. 1.162-21(b)(1)(ii), Income Tax Regs.                       
               Section 162(f) disallows deduction of civil penalties                  
          "'imposed for purposes of enforcing the law and as punishment for           
          the violation thereof'", and yet some payments, although labeled            
          "penalties", remain deductible if "'imposed to encourage prompt             
          compliance with a requirement of the law, or as a remedial                  
          measure to compensate another party'".  Huff v. Commissioner, 80            
          T.C. 804, 824 (1983) (quoting Southern Pac. Transp. Co. v.                  
          Commissioner, 75 T.C. 497, 652 (1980)).  Where the law serves               
          both a remedial and a punitive purpose, then we must determine              
          which purpose the payments in question were designed to serve.              
          S & B Restaurant, Inc. v. Commissioner, 73 T.C. 1226, 1232                  
               The proper inquiry is the purpose which the statutory                  
          penalty is to serve, as opposed to the type of conduct which                
          gives rise to the violation resulting in the penalty.  Southern             
          Pac. Transp. Co. v. Commissioner, supra at 653.                             

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