AICPA comments on IRS guidance regarding deductions of fines and penalties and reporting under TCJA

The American Institute of CPAs (AICPA) has submitted comments to the Internal Revenue Service (IRS) on Notice 2018-23, which provides interim guidance regarding changes enacted under the Tax Cuts and Jobs Act to disallow tax deductions for fines and penalties under Internal Revenue Code (IRC) section 162(f) and on the new reporting requirement in section 6050X.

The AICPA recommended that the Department of the Treasury and the IRS issue proposed regulations that would provide safe harbors to reduce the burden on taxpayers, governments and nongovernmental entities subject to the reporting requirements in section 6050X and reduce the burden on the IRS during examinations.

Specifically, the AICPA recommended that the guidance provide:

• A safe harbor or bright-line rule limiting the application of an “inquiry” into a “potential” violation of the law, to not include amounts paid in the ordinary course of business to comply with the law;
• An exception, under section 162(f)(2), for amounts constituting restitution or paid to come into compliance with the law; and
• A rebuttable presumption for certain specific circumstances, in favor of a taxpayer for purposes of section 162(f)(1), that the requirements of section 162(f)(2) are satisfied.