II 

114TH CONGRESS 

1ST SESSION S. 413 

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

corporate regulatory violations. 

IN THE SENATE OF THE UNITED STATES 

FEBRUARY 9, 2015 

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 Sep 11 2014 21:37 Feb 17, 2015 Jkt 049200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\S413.IS S413

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1 tion or inquiry described in paragraph 

2 (1), 

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, and 

7 ‘‘(iii) in the case of any amount of 

8 restitution for failure to pay any tax im9 posed under this title in the same manner 

10 as if such amount were such tax, would 

11 have been allowed as a deduction under 

12 this chapter if it had been timely paid. 

13 The identification under clause (ii) alone shall 

14 not be sufficient to make the establishment re15 quired under clause (i). 

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

17 shall not apply to any amount paid or incurred 

18 as reimbursement to the government or entity 

19 for the costs of any investigation or litigation. 

20 ‘‘(3) EXCEPTION FOR AMOUNTS PAID OR IN21 CURRED AS THE RESULT OF CERTAIN COURT OR22 DERS.—Paragraph (1) shall not apply to any 

23 amount paid or incurred by reason of any order of 

24 a court in a suit in which no government or govern25 mental entity is a party. 


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

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

3 as taxes due. 

4 ‘‘(5) TREATMENT OF CERTAIN NONGOVERN5 MENTAL REGULATORY ENTITIES.—For purposes of 

6 this subsection, the following nongovernmental enti7 ties shall be treated as governmental entities: 

8 ‘‘(A) Any nongovernmental entity which 

9 exercises self-regulatory powers (including im10 posing sanctions) in connection with a qualified 

11 board or exchange (as defined in section 

12 1256(g)(7)). 

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

14 any nongovernmental entity which exercises 

15 self-regulatory powers (including imposing sanc16 tions) as part of performing an essential gov17 ernmental function.’’. 

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

19 this section shall apply to amounts paid or incurred on 

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

21 such amendments shall not apply to amounts paid or in22 curred under any binding order or agreement entered into 

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

24 order or agreement requiring court approval unless the ap25 proval was obtained before such date. 


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1 SEC. 3. REPORTING OF DEDUCTIBLE AMOUNTS. 

2 (a) IN GENERAL.—Subpart B of part III of sub3 chapter A of chapter 61 of the Internal Revenue Code of 

4 1986 is amended by inserting after section 6050W the fol5 lowing new section: 

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

7 FINES, PENALTIES, AND OTHER AMOUNTS. 

8 ‘‘(a) REQUIREMENT OF REPORTING.— 

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

10 any government or any entity described in section 

11 162(f)(5) which is involved in a suit or agreement 

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

13 such form as determined by the Secretary setting 

14 forth— 

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

16 result of the suit or agreement to which para17 graph (1) of section 162(f) applies, 

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

19 result of the suit or agreement which con20 stitutes restitution or remediation of property, 

21 and 

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

23 result of the suit or agreement for the purpose 

24 of coming into compliance with any law which 

25 was violated or involved in the investigation or 

26 inquiry. 


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

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

3 described in this paragraph if— 

4 ‘‘(i) it is— 

5 ‘‘(I) a suit with respect to a vio6 lation of any law over which the gov7 ernment or entity has authority and 

8 with respect to which there has been 

9 a court order, or 

10 ‘‘(II) an agreement which is en11 tered into with respect to a violation 

12 of any law over which the government 

13 or entity has authority, or with re14 spect to an investigation or inquiry by 

15 the government or entity into the po16 tential violation of any law over which 

17 such government or entity has author18 ity, and 

19 ‘‘(ii) the aggregate amount involved in 

20 all court orders and agreements with re21 spect to the violation, investigation, or in22 quiry is $600 or more. 

23 ‘‘(B) ADJUSTMENT OF REPORTING

24 THRESHOLD.—The Secretary may adjust the 

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1 essary in order to ensure the efficient adminis2 tration of the internal revenue laws. 

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

4 under this subsection shall be filed at the time the 

5 agreement is entered into, as determined by the Sec6 retary. 

7 ‘‘(b) STATEMENTS TO BE FURNISHED TO INDIVID8 UALS INVOLVED IN THE SETTLEMENT.—Every person re9 quired to make a return under subsection (a) shall furnish 

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

11 a written statement showing— 

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

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

14 under subsection (a)(1). 

15 The written statement required under the preceding sen16 tence shall be furnished to the person at the same time 

17 the government or entity provides the Secretary with the 

18 information required under subsection (a). 

19 ‘‘(c) APPROPRIATE OFFICIAL DEFINED.—For pur20 poses of this section, the term ‘appropriate official’ means 

21 the officer or employee having control of the suit, inves22 tigation, or inquiry or the person appropriately designated 

23 for purposes of this section.’’. 

24 (b) CONFORMING AMENDMENT.—The table of sec25 tions for subpart B of part III of subchapter A of chapter 


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1 61 of the Internal Revenue Code of 1986 is amended by 

2 inserting after the item relating to section 6050W the fol3 lowing new item: 

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

amounts.’’. 

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

5 this section shall apply to amounts paid or incurred on 

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

7 such amendments shall not apply to amounts paid or in8 curred under any binding order or agreement entered into 

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

10 order or agreement requiring court approval unless the ap11 proval was obtained before such date. 

Æ 


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