http://www.msnbc.com/news/802671.asp
>>
Companies that cooked books may be able write off fines
By John D. McKinnon
THE WALL STREET JOURNAL
WASHINGTON, Sept. 3 — The slew of companies caught red-handed in this year of corporate sleaze face potentially colossal legal claims, but they may enjoy pleasant reprieves next year — huge tax breaks from Uncle Sam.
CORPORATIONS THAT PAY large sums to atone for their sins usually can write off the money on their tax returns, substantially softening the financial blow. This year’s crop of alleged financial fabricators — including Enron Corp. and WorldCom Inc. — likely will try to structure any settlements so that they are tax deductible under Internal Revenue Service rulings, including one issued four months ago.
Tax experts say the IRS allows such deductions because companies can write off any “ordinary and necessary” expense. Settling lawsuits long has been viewed as a cost of doing business — whether they involve truck accidents or highflying accounting schemes.
....
A recent IRS ruling expanded the range of wrongdoing that could result in a deductible settlement. The April ruling came in response to an inquiry from a company the IRS didn’t identify. The company was sued by shareholders who bought into the firm’s initial public offering of stock and later discovered what they alleged was a pattern of prematurely booked sales and publicly disseminated misinformation. The IRS assured the company that it would be able to deduct the cost of settling the lawsuits.
“From the facts before us, it appears that the proximate cause of the litigation was the dissemination of false and misleading statements and press releases,” the IRS ruled. “Such dissemination of financial information is a routine business activity ... and therefore the expense of settling allegations regarding disseminating inaccurate information may be considered ordinary.”
The IRS’s conclusion: “The amounts paid by Taxpayer pursuant to the settlement are currently deductible.”
....
<<