Tax Consequences and Planning Opportunities: Crime Doesn't Pay but It May Be Tax-Deductible

• Author: Miriam Weismann
• Pages: 93-101

93

Chapter 7

TAX CONSEQUENC E S

AND PLANNING

OPPORTUNITIES

CRIME DOESN’T PAY BUT IT

MAY BE TAXDEDUCTIBLE

The typica l answer to the question about whether someth ing is tax-deductible is

“maybe, sometimes and it depends.” The key concept is t hat there are general rules

governing deductibilit y and then there are the exceptions and grey a reas. Deductions

for legal fees, costs, and ex penses of settlement are on a surer footing tha n are deduc-

tions for fines, penalt ies, or restitution. However, structuring a plea or set tlement

agreement to include restitution may provide signi ficant tax benefits to the corpora-

tion and ameliorate some of the consequences of economic sa nctions.

Where ambiguity ex ists under the Internal Revenue Code, adva nce tax plan-

ning may resolve the question. It should be emphasized t hat tax planning should be

done while negotiat ing any plea or settlement agreement because in most i nstances,

deductibility tu rns on the characterization of the pay ment in the agreement. The

characterizat ion of the payment in the court order, settlement, and/or plea agreement

. Unless contrai ndicated, all f uture references to t he Internal Revenue Co de are to Title , U.S. Cod e.

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