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.
Partner, Washington National Tax Office
+1 202 861 4140
National Managing Principal,
Washington National Tax Office
+1 202 521 1515
Tax professional standards statement
This content supports Grant Thornton LLP’s marketing of professional services and is not written tax advice directed at the particular facts and circumstances of any person. If you are interested in the topics presented herein, we encourage you to contact us or an independent tax professional to discuss their potential application to your particular situation. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed herein. To the extent this content may be considered to contain written tax advice, any written advice contained in, forwarded with or attached to this content is not intended by Grant Thornton LLP to be used, and cannot be used, by any person for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.
The information contained herein is general in nature and is based on authorities that are subject to change. It is not, and should not be construed as, accounting, legal or tax advice provided by Grant Thornton LLP to the reader. This material may not be applicable to, or suitable for, the reader’s specific circumstances or needs and may require consideration of tax and nontax factors not described herein. Contact Grant Thornton LLP or other tax professionals prior to taking any action based upon this information. Changes in tax laws or other factors could affect, on a prospective or retroactive basis, the information contained herein; Grant Thornton LLP assumes no obligation to inform the reader of any such changes. All references to “Section,” “Sec.,” or “§” refer to the Internal Revenue Code of 1986, as amended.