Daily Tax Update - July 31, 2014: Senate Committee Approves Bill Regarding Deductibility of Government Settlements

Senate Committee Approves Bill Regarding Deductibility of Government Settlements:  The Homeland Security and Governmental Affairs Committee approved the Truth in Settlements Act of 2014 (S. 1898) by unanimous consent.  Under Section 162(f), a fine or similar penalty paid to a government for the violation of any law may not be deducted as an ordinary and necessary business expense.  Regulations provide that Section 162(f) also covers payments made in settlement of a taxpayer’s actual or potential liability for a fine or penalty.  The bill would require settlement agreements over $1 million to designate how much of the settlement is attributable to actual or potential liability for a fine or penalty, and is thus not deductible.  The bill would also require such settlement agreements to be made publicly available, and would require public companies to disclose any claim of a tax deduction relating to a payment under a covered settlement agreement in securities filings.

Treasury and IRS Issue Regulations Preventing Sales of Securities by Treasury From Triggering Loss Limitations:  The Treasury Department and IRS issued final and temporary regulations under Section 382, affecting loss corporations whose stock is or was acquired by the Department of the Treasury (Treasury) pursuant to certain programs under the Emergency Economic Stabilization Act of 2008 (EESA).  Section 382 limits the ability of a corporation to use net operating losses to offset income after a change in ownership.  Treasury and the IRS were concerned that October 2013 changes to the Section 382 regulations rendered inoperative the provisions of Notice 2010-2, which was intended to prevent companies whose stock was acquired by Treasury from having a change in ownership when Treasury sold its holdings to public shareholders.  These regulations ensure that this protection will be effective under the current rules.

The regulations can be accessed here.

Miscellaneous Guidance Released: 
The IRS issued a series of notices requesting comments on information collection requirements relating to reconsolidation, the Affordable Care Act, purchase price allocations in asset acquisitions, the generation skipping transfer tax, and exempt organization determination letter requests.