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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
(1980).
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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