II 

113TH CONGRESS 

1ST SESSION S. 1654 

To amend the Internal Revenue Code of 1986 to deny tax deductions for 

corporate regulatory violations. 

IN THE SENATE OF THE UNITED STATES 

NOVEMBER 5, 2013 

Mr. REED (for himself and Mr. GRASSLEY) 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 tax 

deductions for corporate regulatory violations. 

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 and Reform Act’’. 

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 is amended to read 

10 as follows: 


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

2 ‘‘(1) IN GENERAL.—Except as provided in the 

3 following paragraphs of this subsection, no deduction 

4 otherwise allowable shall be allowed under this chap5 ter for any amount paid or incurred (whether by 

6 suit, agreement, or otherwise) to, or at the direction 

7 of, a government or governmental entity in relation 

8 to the violation of any law or the investigation or in9 quiry by such government or entity into the potential 

10 violation of any law. 

11 ‘‘(2) EXCEPTION FOR AMOUNTS CONSTITUTING

12 RESTITUTION OR PAID TO COME INTO COMPLIANCE

13 WITH LAW.— 

14 ‘‘(A) IN GENERAL.—Paragraph (1) shall 

15 not apply to any amount that— 

16 ‘‘(i) the taxpayer establishes— 

17 ‘‘(I) constitutes restitution (in18 cluding remediation of property) for 

19 damage or harm which was or may be 

20 caused by the violation of any law or 

21 the potential violation of any law, or 

22 ‘‘(II) is paid to come into compli23 ance with any law which was violated 

24 or otherwise involved in the investigaVerDate Mar 15 2010 01:48 Nov 06, 2013 Jkt 039200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\S1654.IS S1654

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1 tion or inquiry described in paragraph 

2 (1), and 

3 ‘‘(ii) is identified as restitution or as 

4 an amount paid to come into compliance 

5 with such law, as the case may be, in the 

6 court order or settlement agreement. 

7 The identification under clause (ii) alone shall 

8 not be sufficient to make the establishment re9 quired under clause (i). 

10 ‘‘(B) LIMITATION.—Subparagraph (A) 

11 shall not apply to any amount paid or incurred 

12 as reimbursement to the government or entity 

13 for the costs of any investigation or litigation. 

14 ‘‘(3) EXCEPTION FOR AMOUNTS PAID OR IN15 CURRED AS THE RESULT OF CERTAIN COURT OR16 DERS.—Paragraph (1) shall not apply to any 

17 amount paid or incurred by reason of any order of 

18 a court in a suit in which no government or govern19 mental entity is a party. 

20 ‘‘(4) EXCEPTION FOR TAXES DUE.—Paragraph 

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

22 as taxes due. 

23 ‘‘(5) TREATMENT OF CERTAIN NONGOVERN24 MENTAL REGULATORY ENTITIES.—For purposes of 


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1 this subsection, the following nongovernmental enti2 ties shall be treated as governmental entities: 

3 ‘‘(A) Any nongovernmental entity which 

4 exercises self-regulatory powers (including im5 posing sanctions) in connection with a qualified 

6 board or exchange (as defined in section 

7 1256(g)(7)). 

8 ‘‘(B) To the extent provided in regulations, 

9 any nongovernmental entity which exercises 

10 self-regulatory powers (including imposing sanc11 tions) as part of performing an essential gov12 ernmental function.’’. 

13 (b) EFFECTIVE DATE.—The amendment made by 

14 this section shall apply to amounts paid or incurred on 

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

16 such amendments shall not apply to amounts paid or in17 curred under any binding order or agreement entered into 

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

19 order or agreement requiring court approval unless the ap20 proval was obtained before such date. 

21 SEC. 3. REPORTING OF DEDUCTIBLE AMOUNTS. 

22 (a) IN GENERAL.—Subpart B of part III of sub23 chapter A of chapter 61 of the Internal Revenue Code of 

24 1986 is amended by inserting after section 6050W the fol25 lowing new section: 


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1 ‘‘SEC. 6050X. INFORMATION WITH RESPECT TO CERTAIN 

2 FINES, PENALTIES, AND OTHER AMOUNTS. 

3 ‘‘(a) REQUIREMENT OF REPORTING.— 

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

5 any government or any entity described in section 

6 162(f)(5) which is involved in a suit or agreement 

7 described in paragraph (2) shall make a return in 

8 such form as determined by the Secretary setting 

9 forth— 

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

11 result of the suit or agreement to which para12 graph (1) of section 162(f) applies, 

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

14 result of the suit or agreement which con15 stitutes restitution or remediation of property, 

16 and 

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

18 result of the suit or agreement for the purpose 

19 of coming into compliance with any law which 

20 was violated or involved in the investigation or 

21 inquiry. 

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

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

24 described in this paragraph if— 

25 ‘‘(i) it is— 


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1 ‘‘(I) a suit with respect to a vio2 lation of any law over which the gov3 ernment or entity has authority and 

4 with respect to which there has been 

5 a court order, or 

6 ‘‘(II) an agreement which is en7 tered into with respect to a violation 

8 of any law over which the government 

9 or entity has authority, or with re10 spect to an investigation or inquiry by 

11 the government or entity into the po12 tential violation of any law over which 

13 such government or entity has author14 ity, and 

15 ‘‘(ii) the aggregate amount involved in 

16 all court orders and agreements with re17 spect to the violation, investigation, or in18 quiry is $600 or more. 

19 ‘‘(B) ADJUSTMENT OF REPORTING

20 THRESHOLD.—The Secretary may adjust the 

21 $600 amount in subparagraph (A)(ii) as nec22 essary in order to ensure the efficient adminis23 tration of the internal revenue laws. 

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

25 under this subsection shall be filed at the time the 


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1 agreement is entered into, as determined by the Sec2 retary. 

3 ‘‘(b) STATEMENTS TO BE FURNISHED TO INDIVID4 UALS INVOLVED IN THE SETTLEMENT.—Every person re5 quired to make a return under subsection (a) shall furnish 

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

7 a written statement showing— 

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

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

10 under subsection (a)(1). 

11 The written statement required under the preceding sen12 tence shall be furnished to the person at the same time 

13 the government or entity provides the Secretary with the 

14 information required under subsection (a). 

15 ‘‘(c) APPROPRIATE OFFICIAL DEFINED.—For pur16 poses of this section, the term ‘appropriate official’ means 

17 the officer or employee having control of the suit, inves18 tigation, or inquiry or the person appropriately designated 

19 for purposes of this section.’’. 

20 (b) CONFORMING AMENDMENT.—The table of sec21 tions for subpart B of part III of subchapter A of chapter 

22 61 of the Internal Revenue Code of 1986 is amended by 

23 inserting after the item relating to section 6050W the fol24 lowing new item: 

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

amounts.’’. 


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

2 this section shall apply to amounts paid or incurred on 

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

4 such amendments shall not apply to amounts paid or in5 curred under any binding order or agreement entered into 

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

7 order or agreement requiring court approval unless the ap8 proval was obtained before such date. 

Æ 


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