Thursday, July 17, 2008

Yet another reason to go green and be proactive

Fines and penalties paid to the government for legal violations are not deductible for taxes. This applies to fines for environmental damage as well. The public policy doctrine and IRC Section 162(f) provide the basis to disallow tax benefits inconsistent with articulated public policy.

Over the years, many companies have had fines reduced by agreeing to perform a Supplemental Environmental Project (SEP) or similar project to settle a matter with the state or federal government. As a general rule, violators pay a smaller fine when they agree to a SEP or other remedial project.

In a recently released IRS Coordinated Issue Directive (, the IRS says it will deny deductions for these projects because in their view, the cost is a nondeductible fine if the work is done to settle government charges of pollution. This includes wildlife habitat restoration and wetlands purchases.

Hopefully, this position won’t discourage the government and polluters from agreeing to mutually beneficial SEPs. Ideally, this provides yet another incentive to be proactive, go green and avoid the expensive and now non-deductible cost of remediation.

No comments: