The IRS issued a chief counsel advice memorandum (CCA 201748008
) prohibiting a deduction under Section 162(a) for amounts paid as disgorgement for violating a federal securities law under Section 162(f).
The CCA was issued to clarify and update prior guidance, CCA 201619008
, which was issued last year on the same topic, to reflect the holding in Kokesh v. SEC
, 137 S. Ct. 1635 (2017). In Kokesh
, the Supreme Court held that the disgorgement imposed as a sanction for violating federal securities law is a penalty and not compensatory for purposes of a non-tax statute.
Section 162(f) provides that no deduction shall be allowed for any fine or similar penalty paid to a government for the violation of the law. Whether an amount is a fine or penalty under Section 162(f) depends on the origin of the claim, not on the ultimate use of the funds. CCA 201748008 states that because of the Supreme Court holding in Kokesh
, Section 162(f) prohibits a deduction under Section 162(a) for an amount paid as disgorgement for violating a federal securities law.
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