II 

108TH CONGRESS 

1ST SESSION S. 1975

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

securities-related fines, penalties, and other amounts, and to provide 

that revenues resulting from such denial be transferred to Fair Funds 

for the relief of victims. 

IN THE SENATE OF THE UNITED STATES 

NOVEMBER 25, 2003

Mr. DODD (for himself 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 securities-related fines, penalties, and other 

amounts, and to provide that revenues resulting from 

such denial be transferred to Fair Funds for the relief 

of victims.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,
2

•S 1975 IS 

1 SECTION 1. DENIAL OF DEDUCTION FOR SECURITIES-RE2 LATED FINES, PENALTIES, AND OTHER 

3 AMOUNTS. 

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

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

6 business expenses) is amended to read as follows: 

7 ‘‘(f) FINES AND PENALTIES.—

8 ‘‘(1) IN GENERAL.—No deduction shall be al9 lowed under subsection (a) for any fine or similar 

10 penalty paid to a government for the violation of any 

11 law. 

12 ‘‘(2) SPECIAL RULES FOR SECURITIES-RELATED

13 FINES, PENALTIES, AND OTHER AMOUNTS.—

14 ‘‘(A) IN GENERAL.—No deduction other15 wise allowable (after the application of para16 graph (1)) shall be allowed under this chapter 

17 for any amount paid or incurred (whether by 

18 suit, agreement, or otherwise) to, or at the di19 rection of, a government or self-regulatory orga20 nization in relation to—

21 ‘‘(i) the violation of the securities laws 

22 or the rules of a self-regulatory organiza23 tion, 

24 ‘‘(ii) the failure to supervise any per25 son who violates such laws or rules, or 
3

•S 1975 IS 

1 ‘‘(iii) the investigation or inquiry into 

2 the potential violation of such laws or 

3 rules. 

4 ‘‘(B) DEFINITIONS.—For purposes of this 

5 paragraph, the terms ‘securities laws’, ‘self-reg6 ulatory organization’, and ‘rules of a self-regu7 latory organization’ have the meanings given 

8 such terms by section 3(a) of the Securities and 

9 Exchange Act of 1934 (15 U.S.C. 78c(a)). 

10 ‘‘(C) TRANSFER OF CERTAIN REVENUES

11 TO FAIR FUNDS FOR THE RELIEF OF VIC12 TIMS.—

13 ‘‘(i) IN GENERAL.—There are hereby 

14 appropriated to the Securities and Ex15 change Commission amounts which the 

16 Secretary determines are equivalent to the 

17 increases in Federal revenues by reason of 

18 the application of this subsection to 

19 amounts described in subparagraph (A). 

20 ‘‘(ii) ALLOCATION TO FAIR FUNDS.—

21 The Securities and Exchange Commission 

22 shall transfer to any disgorgement fund es23 tablished by the Commission with respect 

24 to any taxpayer pursuant to section 308 of 

25 the Sarbanes-Oxley Act of 2002 (15 
4

•S 1975 IS 

1 U.S.C. 7246) the portion of the amounts 

2 appropriated under clause (i) attributable 

3 to the payment of any amount described in 

4 subparagraph (A) by the taxpayer.’’. 

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

6 this section shall apply to amounts paid or incurred after 

7 April 28, 2003, except that such amendment shall not 

8 apply to amounts paid or incurred under any binding 

9 order or agreement entered into on or before April 28, 

10 2003. Such exception shall not apply to an order or agree11 ment requiring court approval unless the approval was ob12 tained on or before April 28, 2003.

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