Settlement Deduction Rule Authors Facing Authority Hurdles

IRS officials are bumping into limits on their authority as they try to tweak rules for the 2017 tax code overhaul’s changes to legal settlement deductibility.

The 2017 law carved out three categories of settlement payment amounts that individuals and companies can count as tax breaks: restitution, remediation, and payments to come into compliance. To get deductions, the defendant needs to ensure those three terms, or variations of them, are identified in the settlement agreement, “because the statute doesn’t provide a lot of flexibility to use synonyms,” Sharon Horn, the main author of recent IRS proposed rules (REG-104591-18) ...