Enforcing Proper Tax Treatment of Civil Settlements
When federal agencies enter into large civil settlement agreements with firms that have violated federal laws or regulations, the firms may or may not be able to take a tax deduction for some or all of the settlement amount. The largest settlements may total hundreds of millions or more than a billion dollars each, with significant tax liabilities if they are incorrectly deducted by the settling firms.
To better ensure that the Internal Revenue Service (IRS) enforces proper tax treatment of large civil settlements by the firms, GAO recommended that the IRS Commissioner direct the appropriate officials to work with federal agencies that reach large civil settlements to develop a cost-effective permanent mechanism to notify IRS when such settlements have been completed.
Such a mechanism would also provide IRS with other settlement information that it deems useful in ensuring the proper tax treatment of settlement payments. IRS agreed with GAO's recommendation and is working to develop a mechanism for such notifications.
^ Back to topKey Reports
- Tax Administration: Systematic Information Sharing Would Help IRS Determine the Deductibility of Civil Settlement Payments
- GAO-05-747, September 15, 2005
- Summary (HTML) Highlights Page (PDF) Full Report (PDF, 46 pages) Accessible Text Recommendations (HTML)
