II
109th CONGRESS
1st Session
S. 1890
IN THE SENATE OF THE UNITED STATES
October 19, 2005
Mr. Baucus (for himself, Mr. Grassley, and Mr. McCain) introduced the following bill; which was read twice and referred to the Committee on Finance
A BILL
To amend the Internal Revenue Code of 1986 to deny a deduction for certain fines, penalties, and other amounts.
Short title
This Act may be cited as the
Government Settlement Transparency Act
of 2005
.
Denial of deduction for certain fines, penalties, and other amounts
In General
Subsection (f) of section 162 of the Internal Revenue Code of 1986 (relating to trade or business expenses) is amended to read as follows:
Fines, Penalties, and Other Amounts
In general
Except as provided in paragraph (2), no deduction otherwise allowable shall be allowed under this chapter for any amount paid or incurred (whether by suit, agreement, or otherwise) to, or at the direction of, a government or entity described in paragraph (4) in relation to the violation of any law or the investigation or inquiry by such government or entity into the potential violation of any law.
Exception for amounts constituting restitution or paid to come into compliance with law
Paragraph (1) shall not apply to any amount which—
the taxpayer establishes—
constitutes restitution (including remediation of property) for damage or harm caused by or which may be caused by the violation of any law or the potential violation of any law, or
is paid to come into compliance with any law which was violated or involved in the investigation or inquiry, and
is identified as restitution or as an amount paid to come into compliance with the law, as the case may be, in the court order or settlement agreement.
Exception for amounts paid or incurred as the result of certain court orders
Paragraph (1) shall not apply to any amount paid or incurred by order of a court in a suit in which no government or entity described in paragraph (4) is a party.
Certain nongovernmental regulatory entities
An entity is described in this paragraph if it is—
a nongovernmental entity which exercises self-regulatory powers (including imposing sanctions) in connection with a qualified board or exchange (as defined in section 1256(g)(7)), or
to the extent provided in regulations, a nongovernmental entity which exercises self-regulatory powers (including imposing sanctions) as part of performing an essential governmental function.
Exception for taxes due
Paragraph (1) shall not apply to any amount paid or incurred as taxes due.
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Reporting of deductible amounts
In general
Subpart B of part III of subchapter A of chapter 61 of the Internal Revenue Code of 1986 is amended by inserting after section 6050T the following new section:
Information with respect to certain fines, penalties, and other amounts
Requirement of reporting
In general
The appropriate official of any government or entity which is described in section 162(f)(4) which is involved in a suit or agreement described in paragraph (2) shall make a return in such form as determined by the Secretary setting forth—
the amount required to be paid as a result of the suit or agreement to which paragraph (1) of section 162(f) applies,
any amount required to be paid as a result of the suit or agreement which constitutes restitution or remediation of property, and
any amount required to be paid as a result of the suit or agreement for the purpose of coming into compliance with any law which was violated or involved in the investigation or inquiry.
Suit or agreement described
In general
A suit or agreement is described in this paragraph if—
it is—
a suit with respect to a violation of any law over which the government or entity has authority and with respect to which there has been a court order, or
an agreement which is entered into with respect to a violation of any law over which the government or entity has authority, or with respect to an investigation or inquiry by the government or entity into the potential violation of any law over which such government or entity has authority, and
the aggregate amount involved in all court orders and agreements with respect to the violation, investigation, or inquiry is $600 or more.
Adjustment of reporting threshold
The Secretary may adjust the $600 amount in subparagraph (A)(ii) as necessary in order to ensure the efficient administration of the internal revenue laws.
Time of filing
The return required under this subsection shall be filed not later than—
30 days after the date on which a court order is issued with respect to the suit or the date the agreement is entered into, as the case may be, or
the date specified Secretary.
Statements to be furnished to individuals involved in the settlement
Every person required to make a return under subsection (a) shall furnish to each person who is a party to the suit or agreement a written statement showing—
the name of the government or entity, and
the information supplied to the Secretary under subsection (a)(1).
Appropriate official defined
For purposes of this section, the term appropriate official means the officer or employee having control of the suit, investigation, or inquiry or the person appropriately designated for purposes of this section.
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Conforming amendment
The table of sections for subpart B of part III of subchapter A of chapter 61 of the Internal Revenue Code of 1986 is amended by inserting after the item relating to section 6050T the following new item:
Sec. 6050U. Information with respect to certain fines, penalties, and other amounts.
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Effective Date
The amendments made by this section shall apply to amounts paid or incurred on or after the date of the enactment of this Act, except that such amendments shall not apply to amounts paid or incurred under any binding order or agreement entered into before such date. Such exception shall not apply to an order or agreement requiring court approval unless the approval was obtained before such date.