The IRS Pre-Filing Agreement Program and Deducting Government Settlements

Government settlements, including those under the False Claims Act (“FCA”) and Environmental Protection Agency (“EPA”) Supplemental or Beneficial Environmental Projects (“SEP”), may or may not be deductible for Federal income tax purposes, depending on whether the amounts paid are attributable to compensatory damages, fees, interest, etc., or represent fines or similar penalties.  Section 162(a) of the Internal Revenue Code allows business deductions for compensatory damages, fees, interest and other amounts in defending lawsuits and claims. 

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