Deductibility of antidumping duties.

• Author: Eike, Betsy

As more foreign companies expand their distribution networks into the U.S., the fight for market share becomes increasingly important. To win this battle, companies frequently resort to competitive pricing, often below the products' cost of production in their country of origin. This practice, known as "dumping," puts U.S. companies unable to match these rock-bottom prices at a competitive disadvantage. To discourage this practice, the U.S. has adopted antidumping statutes authorizing it to impose duties on imports whose sales price in the U.S. is below the price charged in the foreign producer's home market and which merchandise results in (or threatens) material injury to a competing U.S industry (19 U.S.C. Section 1673). Several IRS rulings have addressed the liability for antidumping duties, and when such payments are accrued and deductible for tax purposes.

In IRS Letter Ruling (TAM) 8704003, the taxpayer, an importer o f commodities, was accused of selling its goods at a price below either the cost of production or the price charged in the producer's home market. The U.S. assessed an antidumping duty, which the taxpayer paid and deducted as an ordinary and necessary business expense. The Service ruled that the antidumping duty was remedial in nature (rather than punitive), reasoning that its purpose was to neutralize the effect of dumping, thereby equalizing competitive conditions between foreign exporters and U.S. industries. Thus, the antidumping duty was not a fine or penalty, and was therefore deductible as a business expense.

Having established that payments of antidumping duties are deductible by importers, the next question is to determine when such amounts are deductible. This issue is addressed in IRS Letter Ruling (TAM) 9538001.

Satisfying the All Events Test of Sec. 461

In order for a taxpayer to deduct the amount of antidumping duties as a "contested liability" (within the meaning of Sec. 461(f)), the required deposits for estimated antidumping duties must be considered an assertion of liability, and must then satisfy the criteria for deduction (i.e., the all events test, in the absence of a contest). Thus, if all events that either establish the fact of the liability or determine with reasonable accuracy the amount, if any, of the liability for antidumping duties had not occurred during the tax year for which a deduction is claimed, no deduction is allowable, regardless of the existence of any contest.

An "asserted...