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The Champion

September-October 2018 , Page 51 

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Informal Opinion: More Than Just Taxes: Considering the Effects of the New Government Reporting Requirements

By Douglas E. Roberts

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The sprawling new federal tax law, enacted early this year, has engendered great controversy about systemic issues like wealth distribution, deficit expansion, and job creation. Hidden in the maelstrom is a rather uncontroversial provision that attempts to bring predictability and efficiency to the process of seeking tax deductions for payments made to the government in satisfaction of a settlement agreement or judgment. The U.S. Department of Justice (DOJ) and other agencies already have begun to apply this provision to civil defendants. As this article explains, practitioners must not only understand the tax consequences of the new law, but also its potential effect on the availability of insurance coverage for their clients.

Breaking Down the Text

Payments to a private party in settlement of a claim or to satisfy a judgment are typically deductible as business expenses under Section 162 of the Internal Revenue Code. When the payment is made to a government entity, however, the picture

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