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Colt Indus. v. United States

Citation: 19 ELR 21450
No. No. 89-1165, 880 F.2d 1311/30 ERC 1179/(Fed. Cir., 07/24/1989) Aff'd

The court rules that civil penalties assessed under the Federal Water Pollution Control Act (FWPCA) and Clean Air Act are not deductible as ordinary business expenses under the Internal Revenue Code. Internal Revenue Code § 162(f) precludes the deduction of "any fine or similar penalty paid to a government for the violation of any law," and implementing regulations define these to include amounts paid as civil penalties. The legislative history of Internal Revenue Code § 162(f), indicating that civil sanctions are to be treated in the same way as criminal sanctions, was an effort to emphasize that civil sanctions are included. Moreover, Congress has delegated to the Internal Revenue Service, not to the courts, the task of deciding what penalties are deductible. Finally, though compensatory payments are deductible, civil penalties under the FWPCA and Clean Air Act are not compensatory payments.

[The decision in the Court of Claims appears at 17 ELR 20962.]

Counsel for Plaintiff-Cross-Appellant
Frank M. Northam
Webster, Chamberlain & Bean
Ste. 1000, 1747 Pennsylvania Ave. NW, Washington DC 20036
(202) 785-9500

Counsel for Defendant-Appellee
Teresa E. McLaughlin
Tax Division
U.S. Department of Justice, Washington DC 20530
(202) 633-2957

Before NIES, MAYER and MICHEL, Circuit Judges.