Rules Could Limit Settlement Write-Offs, Intensify Negotiations

Proposed IRS rules could draw pushback from companies seeking tax deductions from certain parts of settlement payments to governments.

The 2017 tax law carved out three components of legal settlements—payments toward restitution, remediation, and compliance—that companies or individuals settling with a government body can deduct from their taxes under tax code Section 162(f).

The proposed rules (REG-104591-18), released Tuesday, exclude the reimbursement of ill-gotten gains, or disgorgement, from the definition of deductible expenses. That provision could make settlements with governments trickier to reach, and add to the burden on companies to meet the standard for ...