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True v. United States

ELR Citation: 16 ELR 20344
Nos. Nos. C82-052 et al., 603 F. Supp. 1370/23 ERC 1753/(D. Wyo., 03/20/1985)

The court holds that civil penalties assessed under §311(b)(6) of the Federal Water Pollution Control Act (FWPCA) for leakage of oil or hazardous substances are deductible for income tax purposes. The court first rules that civil penalties imposed under FWPCA §311(b)(6) are tax-deductible. The test of whether or not a civil penalty is deductible turns on whether the penalty serves purposes similar to a criminal fine or penalty. The Supreme Court has held that taxpayers may not take deductions for fines when the fines were assessed for punitive purposes, and Congress expressed its agreement with this conclusion in the 1969 Tax Reform Act when it specifically disallowed deductions for fines. Subsequent legislative history and case law have distinguished between penalties imposed under civil statutes, but which serve the same purposes as fines imposed under a criminal statute, and penalties imposed to encourage prompt compliance with statutory requirements. The court concludes that the purpose behind §311(b)(6) is remedial and compensatory in nature, rather than punitive, since the penalty is imposed regardless of fault and proceeds are used for cleanup and administrative costs. The court then rules that surface damage payments made by a company engaged in pipeline transportation of crude oil are tangible property under Department of the Treasury regulations and are eligible for investment tax credit treatment as part of the cost of constructing the pipeline.

Counsel for Plaintiffs
Stanley R. Lowe
True Oil Company
P.O. Drawer 2360, Casper WY 82602
(307) 237-9301

William H. Brown
Brown, Drew, Apostolos, Massey & Sullivan
Suite 500, 111 W. Second St., Casper WY 82601-2495
(307) 265-9210

Counsel for Defendant
Dennis Donohue, Michael Lichtenberg
Tax Division, Department of Justice
10th & Constitution Ave. NW, Washington DC 20530
(202) 724-6525