II 

109TH CONGRESS 

1ST SESSION S. 1890 

To amend the Internal Revenue Code of 1986 to deny a deduction for 

certain fines, penalties, and other amounts. 

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. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Government Settle5 ment Transparency Act of 2005’’. 

6 SEC. 2. DENIAL OF DEDUCTION FOR CERTAIN FINES, PEN7 ALTIES, AND OTHER AMOUNTS. 

8 (a) IN GENERAL.—Subsection (f) of section 162 of 

9 the Internal Revenue Code of 1986 (relating to trade or 

10 business expenses) is amended to read as follows: 
2 

•S 1890 IS

1 ‘‘(f) FINES, PENALTIES, AND OTHER AMOUNTS.— 

2 ‘‘(1) IN GENERAL.—Except as provided in para3 graph (2), no deduction otherwise allowable shall be 

4 allowed under this chapter for any amount paid or 

5 incurred (whether by suit, agreement, or otherwise) 

6 to, or at the direction of, a government or entity de7 scribed in paragraph (4) in relation to the violation 

8 of any law or the investigation or inquiry by such 

9 government or entity into the potential violation of 

10 any law. 

11 ‘‘(2) EXCEPTION FOR AMOUNTS CONSTITUTING

12 RESTITUTION OR PAID TO COME INTO COMPLIANCE

13 WITH LAW.—Paragraph (1) shall not apply to any 

14 amount which— 

15 ‘‘(A) the taxpayer establishes— 

16 ‘‘(i) constitutes restitution (including 

17 remediation of property) for damage or 

18 harm caused by or which may be caused by 

19 the violation of any law or the potential 

20 violation of any law, or 

21 ‘‘(ii) is paid to come into compliance 

22 with any law which was violated or in23 volved in the investigation or inquiry, and 

24 ‘‘(B) is identified as restitution or as an 

25 amount paid to come into compliance with the 
3 

•S 1890 IS

1 law, as the case may be, in the court order or 

2 settlement agreement. 

3 Identification pursuant to subparagraph (B) alone 

4 shall not satisfy the requirement under subpara5 graph (A). This paragraph shall not apply to any 

6 amount paid or incurred as reimbursement to the 

7 government or entity for the costs of any investiga8 tion or litigation. 

9 ‘‘(3) EXCEPTION FOR AMOUNTS PAID OR IN10 CURRED AS THE RESULT OF CERTAIN COURT OR11 DERS.—Paragraph (1) shall not apply to any 

12 amount paid or incurred by order of a court in a 

13 suit in which no government or entity described in 

14 paragraph (4) is a party. 

15 ‘‘(4) CERTAIN NONGOVERNMENTAL REGU16 LATORY ENTITIES.—An entity is described in this 

17 paragraph if it is— 

18 ‘‘(A) a nongovernmental entity which exer19 cises self-regulatory powers (including imposing 

20 sanctions) in connection with a qualified board 

21 or exchange (as defined in section 1256(g)(7)), 

22 or 

23 ‘‘(B) to the extent provided in regulations, 

24 a nongovernmental entity which exercises self25 regulatory powers (including imposing sanc-
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1 tions) as part of performing an essential gov2 ernmental function. 

3 ‘‘(5) EXCEPTION FOR TAXES DUE.—Paragraph 

4 (1) shall not apply to any amount paid or incurred 

5 as taxes due.’’. 

6 (b) REPORTING OF DEDUCTIBLE AMOUNTS.— 

7 (1) IN GENERAL.—Subpart B of part III of 

8 subchapter A of chapter 61 of the Internal Revenue 

9 Code of 1986 is amended by inserting after section 

10 6050T the following new section: 

11 ‘‘SEC. 6050U. INFORMATION WITH RESPECT TO CERTAIN 

12 FINES, PENALTIES, AND OTHER AMOUNTS. 

13 ‘‘(a) REQUIREMENT OF REPORTING.— 

14 ‘‘(1) IN GENERAL.—The appropriate official of 

15 any government or entity which is described in sec16 tion 162(f)(4) which is involved in a suit or agree17 ment described in paragraph (2) shall make a return 

18 in such form as determined by the Secretary setting 

19 forth— 

20 ‘‘(A) the amount required to be paid as a 

21 result of the suit or agreement to which para22 graph (1) of section 162(f) applies, 

23 ‘‘(B) any amount required to be paid as a 

24 result of the suit or agreement which con-
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1 stitutes restitution or remediation of property, 

2 and 

3 ‘‘(C) any amount required to be paid as a 

4 result of the suit or agreement for the purpose 

5 of coming into compliance with any law which 

6 was violated or involved in the investigation or 

7 inquiry. 

8 ‘‘(2) SUIT OR AGREEMENT DESCRIBED.— 

9 ‘‘(A) IN GENERAL.—A suit or agreement is 

10 described in this paragraph if— 

11 ‘‘(i) it is— 

12 ‘‘(I) a suit with respect to a vio13 lation of any law over which the gov14 ernment or entity has authority and 

15 with respect to which there has been 

16 a court order, or 

17 ‘‘(II) an agreement which is en18 tered into with respect to a violation 

19 of any law over which the government 

20 or entity has authority, or with re21 spect to an investigation or inquiry by 

22 the government or entity into the po23 tential violation of any law over which 

24 such government or entity has author25 ity, and 
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1 ‘‘(ii) the aggregate amount involved in 

2 all court orders and agreements with re3 spect to the violation, investigation, or in4 quiry is $600 or more. 

5 ‘‘(B) ADJUSTMENT OF REPORTING

6 THRESHOLD.—The Secretary may adjust the 

7 $600 amount in subparagraph (A)(ii) as nec8 essary in order to ensure the efficient adminis9 tration of the internal revenue laws. 

10 ‘‘(3) TIME OF FILING.—The return required 

11 under this subsection shall be filed not later than— 

12 ‘‘(A) 30 days after the date on which a 

13 court order is issued with respect to the suit or 

14 the date the agreement is entered into, as the 

15 case may be, or 

16 ‘‘(B) the date specified Secretary. 

17 ‘‘(b) STATEMENTS TO BE FURNISHED TO INDIVID18 UALS INVOLVED IN THE SETTLEMENT.—Every person re19 quired to make a return under subsection (a) shall furnish 

20 to each person who is a party to the suit or agreement 

21 a written statement showing— 

22 ‘‘(1) the name of the government or entity, and 

23 ‘‘(2) the information supplied to the Secretary 

24 under subsection (a)(1). 
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1 The written statement required under the preceding sen2 tence shall be furnished to the person at the same time 

3 the government or entity provides the Secretary with the 

4 information required under subsection (a). 

5 ‘‘(c) APPROPRIATE OFFICIAL DEFINED.—For pur6 poses of this section, the term ‘appropriate official’ means 

7 the officer or employee having control of the suit, inves8 tigation, or inquiry or the person appropriately designated 

9 for purposes of this section.’’. 

10 (2) CONFORMING AMENDMENT.—The table of 

11 sections for subpart B of part III of subchapter A 

12 of chapter 61 of the Internal Revenue Code of 1986 

13 is amended by inserting after the item relating to 

14 section 6050T the following new item: 

‘‘Sec. 6050U. Information with respect to certain fines, penalties, and 

other amounts.’’. 

15 (c) EFFECTIVE DATE.—The amendments made by 

16 this section shall apply to amounts paid or incurred on 

17 or after the date of the enactment of this Act, except that 

18 such amendments shall not apply to amounts paid or in19 curred under any binding order or agreement entered into 

20 before such date. Such exception shall not apply to an 

21 order or agreement requiring court approval unless the ap22 proval was obtained before such date. 

Æ